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Taking Stock of COP26 – What Mattered Most

Agreement on Article 6 of the Paris Agreement is the most consequential as it builds a global carbon trading market which should support strong growth in the coverage of existing emissions trading schemes as well as the voluntary carbon offset market.

The latter has the potential to stimulate up to US$1 trillion per year of transition capital towards developing countries by 2050 (IETA). More stringent definition for qualifying credits along with growing government/corporate demand should result in higher carbon prices, which in turn accelerates the transition.

Private sector commitments biggest upside surprise: from financial market participants to individual companies, COP26 saw unprecedented support from the private sector which is the biggest difference from any other COP meeting in years past. Financial institutions made it abundantly clear that the climate considerations will be embedded in every capital allocation decision across the financial value chain.

Corporates are also stepping up net-zero commitments in and around COP26, most notably automakers (led by the US OEMs), shipping and airline industry groups. Sectoral pledges are encouraging but (unsurprisingly) missing key countries: The political compromises made during COP26 was to be expected to reach a unanimous decision from nearly 200 countries.

While the Glasgow Climate Pact aims to keep the 1.5°C goal alive (vs. current pledges & targets tracking 2.1°C and current policies tracking 2.7°C, according to Climate Action Tracker), the most tangible developments during COP26 came from various sectoral commitments on key issues such as ending coal power, global methane pledge, road transport and deforestation. However, their impact is diluted by the fact that China, India and Russia are notably missing from most of the new initiatives.

@BettyJiang