After two weeks of negotiations, speeches and protests, COP26 has been and gone. But what are some of the key takeaways from the summit for investors?
The agreement disappoints
The headline news from the summit was the signing of The Glasgow Climate Pact. This agreement included commitments from developed nations to increase climate financing for less developed economies to $500bn over the next five years.
Additionally, the new agreement put in place a framework for nations to increase the regularity with which they update their plans for cutting emissions.
However, perhaps the most relevant item for investors was a commitment to reduce reliance on coal and use of fossil fuel subsidies. This was a watered-down version of a commitment to fully phase them out, which had featured in earlier drafts of the agreement. However, major players like India and China refused to agree to fully dropping their reliance on coal.
Other agreements, which we will examine further, contained stronger language about coal and fossil fuels. Even so, the pact was a disappointment for climate activists and many delegates, who wanted to see more ambitious commitments made at the summit.
Coal takes a hit
Around 40 nations made a joint commitment to halt all of their investment in new coal power generation, both domestically and internationally. Major signatories including Canada, Poland, Ukraine and Vietnam agreed to end any reliance on coal by the 2030s or 2040s.
Additionally, more than 100 financial institutions and other organisations also agreed to stop financing coal development. Notably, the US, Australia, India and China did not sign up to the agreement.
370 more coal plants (290 GW) were effectively given a close-by date by pledges in the run-up to and at the COP26 summit, according to analysis from the Centre for Research on Energy and Clean Air (CREA). A total of 750 coal-fired power plants around the world would have a phase-out date, while another 1600 plants (1420 GW) are covered by carbon neutrality targets but stop short of a phase-out decisions.
While the agreement sounds positive, it attracted criticism from climate campaigners. Speaking to The Guardian, Friends of the Earth director of campaigns, Jamie Peters, said the announcement was “underwhelming” as it meant that coal would “continue as normal for years yet”.
Even so, the move is another knock for coal power plant owners and operators. Cutting investment on coal and other fossil fuel projects has been a major focus of the summit so far, leaving these businesses with limited sources of funding.
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Fossil fuels
More than 20 nations and financial institutions, including the US, UK and The European Investment Bank, agreed to halt new financing for fossil fuel development overseas.
These funds will then be diverted to developing clean energy sources. This is expected to generate around $8bn a year for clean energy investment around the world.
Additionally, the Beyond Oil and Gas Alliance (BOGA) committed to halting oil and gas production and each member will give a date for when they will cease handing out licenses for exploration.
However, the relatively short list of signatories is a little underwhelming. Costa Rica, Denmark, France, Greenland, Ireland, Québec, Sweden and Wales have put their names to the agreement.
New Zealand, Portugal and California signed up as associate members, while Italy is a registered as a 'friend' of BOGA and Scotland is reportedly interested in joining. Affected fossil fuel producers could include Berry Corporation (NASDAQ:BRY) and Chevron Corporation (NYSE:CVX), both of which have oil operations in California.
Electric vehicles shine
Electric vehicles emerged from the summit looking, more than ever, like the future of transport. Over 100 businesses, governments and cities have now signed the Glasgow Declaration on Zero-Emission Cars and Vans.
This is a pledge to phase out the use of new fossil fuel vehicles by 2040. Car manufacturers who have signed the deal include Volvo (OM:VOLVB), GM (NYSE:GM), Ford (NYSE:F) and Daimler (XTRA:DAI). However, notable absentees include Toyota (NYSE:TM) and Volkswagen (XTRA:VOW).
Elsewhere, 35 companies, countries, regions and cities have put their name to an agreement to accelerate the rollout of electric vehicle charging infrastructure.
We Mean Business Coalition CEO, María Mendiluce, commented: “Forward looking businesses know the future is electric. Hundreds of companies are switching to 100% electric vehicles as part of the EV100 initiative, while major automakers are transitioning their production lines to zero emission vehicles.
"Now we can see zero-emission technologies are ready to take hold in heavy transport as well, with a global agreement on zero emission trucks and buses. This kind of progress is essential to our collective effort to keep 1.5ºC within reach.”
Methane missives
More than 90 countries signed a US- and EU-led agreement to cut global methane emissions by 30%. However, major polluters China, India and Russia did not put their names to the agreement.
President Biden said his plans in the US will see efforts to reduce the methane released by the country’s oil and gas industry. Leaks in pipelines are seen as a key issue here and the US Environmental Protection Agency could soon legally require operators to fix these leaks.
As such, pipeline companies like Enbridge (TSE: ENB), TC Pipelines (TSE: TRP) and Kinder Morgan (NYSE: KMI) may face higher costs. These will also likely be passed on to producers.