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Climate change in 2022

After the pledges, it’s time for everyone – including business – to act

Limiting global temperature increases to 1.5°C and setting net-zero emissions targets became the benchmarks of climate strategies at last year’s COP26 conference. But now business and political leaders have to live up to their rhetoric. In 2022, pressure to revisit and strengthen climate pledges will build ahead of November’s COP27 in Egypt.

COP26 in Glasgow was a modest success, involving compromise, disappointment and progress on many issues. Guidelines for implementing the Paris Agreement were finalised and curbs on coal and fossil fuels, though watered down, were a surprise. But while the emissions trajectory for 2030 was trimmed to a 13.7 per cent increase on 2010 levels, it needs a fall by 45 per cent.

This year’s challenge will be to seek even more ambitious 2030 targets. However, making pledges is easy; delivering and implementing the policies is much harder.

The Egypt summit is important because countries have been asked to strengthen their climate pledges by making further cuts or bringing those cuts forward. There is also potential to extend the pledges to cover more economic activity. For instance, only two-fifths of pledges cover all greenhouse gases and only 3 per cent cover shipping and aviation.

Adaptation will also be a major focus this year because of its importance to many African countries. Other issues include collecting information for a Global Stocktake to assess progress towards the Paris Agreement, and various work programmes to advance the understanding of adaptation goals as well as to begin to quantify long-term finance goals. Climate finance will remain high on the 2022 agenda as developed countries try to meet the USD100 billion target that was missed in 2020.

Most G20 countries now have some form of net-zero target but very few have detailed how it will be achieved. However, companies need to implement targets too and investors must probe their net-zero strategies.

Companies have tended to report on their direct emissions and their energy-related indirect emissions, but often disregard emissions outside their direct control as “someone else’s problem” – even though these can comprise the greatest share of corporate emissions. Oil companies, for instance, may emit little themselves, but consumers of their products are responsible for significant emissions.

There is growing scrutiny over these emissions, however, with central banks including them in climate-risk stress tests. During 2022, investors will increasingly analyse corporate emission-reduction targets and net-zero strategies to learn the full climate exposure of their own portfolios.

Interest in carbon markets will be strong in 2022. There is growing concern over the credibility of carbon offsets as carbon trading increases. Dubious science, monitoring and accounting can allow ‘carbon laundering’ – including schemes that actually increase global emissions. Several countries are introducing carbon pricing during 2022, however.

We also expect much greater awareness of methane emissions in 2022. The Global Methane Pledge, signed by over 100 countries ahead of COP26, aims to reduce these emissions by at least 30 per cent from 2020 levels by 2030. The US has already tabled legislation and the EU has proposed new regulations on reducing methane emissions.

However, elections in many countries may affect the speed of implementing policy in 2022. In particular, climate-change policy could be a key electoral battleground in Australia’s May poll.

First published 4th January 2022.

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Global Research

HSBC Global Research is an independent research house that provides research, advisories, and market analysis tools.

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