COP27: Commitments and Policy by region

This second article in our COP27 series looks at the Nationally Determined Contributions (NDCs) major emitters in each geographic region will be taking to COP27, as well as the policies these countries has announced to reduce emissions.  Our first article, which looks at the high-level events since COP26 and expectations for COP27 can be found here.

Our Insights

What our scan reveals is that while NDCs vary considerably between countries, the legislating of NDC commitments through law is a key indicator of the strength of emissions reduction policy. For developed economies in Oceania, North America, Europe and Asia that have passed emissions commitments into law, it is now a case seeing if policy ambition can be met, and political resolve can be maintained.

Of the nations considered which are still developing and have not introduced a binding legislative basis for government action, particularly in Africa and South America, policies are focused on reducing emissions against business as usual (BAU) scenarios, or are based on emissions caps or sector specific targets for emissions and/or renewable energy.

Consistent across most countries considered is the continued focus on reducing emissions through decoupling energy use from fossil fuel based energy sources, particularly in electricity production and transport. This approach is usually facilitated via some form of utility scale renewable capacity auction or incentive framework, even in less ambitious developing and semi-developing economies such as Brazil and Egypt, and fossil fuel dependent economies in the Middle East.

Countries with less fossil fuel based power generation like New Zealand, or countries with an inability to quickly switch from traditional biomass energy sources such as Nigeria, are looking to other means such as forestry, carbon abatement, or variation to agricultural practices to reduce emissions.

Asia (China, Japan, North Korea and India)

Production of emissions from Asia are dominated by China, India, Japan and South Korea which collectively produced around 35% of the world’s total emissions in 2019.

Net zero target dates vary across the region, with the developed economies of Japan and South Korea proposing to reach the target by 2050, while China and India are currently proposing net zero dates of 2060 and 2070 respectively. Only Japan and South Korea have enshrined a net zero commitment in law, whereas in China and India the commitment exists at policy/pledge level.

Shorter-term targets are difficult to compare based on differing reference years used: Japan plans to reduce emissions by 46% on 2013 levels by 2030; South Korea 40% on 2018 levels by 2030. China and India are targeting a 60% and 45% reduction on 2005 levels by 2030 respectively.

The way commitments will be met is mixed – and ranges from high-level policy announcements to firm commitments. All countries focus on leveraging energy sector transition to drive emissions reductions. Often policy announcements relate to prohibiting the development or financing of fossil fuel power sources or setting ambitions relating to the utilisation of renewable resources or electric vehicles. For example, South Korea has focused significant attention on transitioning to vehicles powered on alternate energy sources. The South Korean Government has created policy focusing on both electric vehicles (EVs) and fuel cell electric vehicles (FCEVs) powered by hydrogen and is aiming to have 2.83 million EVs and 100,000 FCEVs on the road by 2025.

There are signs that China may be flexible in its approach to policy objectives. Despite announcements in April 2021 to phase down coal consumption, in September 2021 China announced the reopening of 15 coal mines across the Shanxi and Xinjiang regions in the north of the country. This is additional to the 38 reopening in Inner Mongolia in July, totalling production of around 110 metric tons of carbon dioxide equivalent (MTCO2e) per year. The reopening of these mines was conducted to address record high coal prices that were reached in May 2021, and power outages that occurred in December of 2020.

Oceania

Major economies within Oceania, Australia and New Zealand, as of 8 September 2022 had commitments to net-zero by 2050 enshrined in law. Shorter term targets under NDCs provide for a 43% and 41% reduction on 2005 levels by 2030 in Australian and New Zealand respectively.

Australian emissions policy is currently driven by incentives and the regulation of emissions – primarily via an Emissions Reduction Fund that purchases carbon abatements, and the Safeguard Mechanism that caps the emissions of large businesses. Amongst other measures, the Australian Government has also identified carbon reduction opportunities through investment in hydrogen and carbon abatement via its Technology Investment Roadmap & Low Emissions Technology Statement.

New Zealand recently released its first Emissions Reduction Plan containing actions to meet emissions targets by economic sector.  Given New Zealand’s electricity is largely generated via renewable geothermal and hydro, emissions reduction actions are focused on the agricultural sector (around 50% of total emissions), with actions in this area being focussed on accelerating carbon mitigation technologies and offsetting emissions through forestry.

South America

 The two largest economies in South America, Brazil and Argentina accounted for just under 4% of the world’s emissions in 2019. Both countries have pledged net-zero by 2050, but have not enshrined the target in law. Shorter term targets are mixed: with Brazil pledging a 50% reduction in emissions on 2005 levels by 2030, and Argentina planning to reduce emissions to 349 MtCO2e in 2030.

Brazil has recently revised commitments to increase its 2025 target and 2030 targets which provides scope for an increase to emissions relative to previous commitments. In addition, it has not enshrined in law its previous COP commitment to end deforestation. Other carbon reduction policies are limited and focused primarily on renewable capacity auctions in the power sector and ethanol and biodiesel mandates.

Argentina’s most recent 2020 NDC update provides for some improvement on its previous commitments in 2016. Argentina introduced a carbon tax scheme in 2017, and is continuing to carry out auctions for renewable energy projects in an effort to meet 20% of electricity demand from renewable sources.

Africa

The three largest economies in Africa: Nigeria, South Africa and Egypt produced just over 2% of total world emissions in 2019.

The NDCs for Nigeria and Egypt do not contain targets for 2050, only for 2030. These targets are based upon counterfactual BAU scenarios which rely on estimated emissions had the country taken no action to reduce emissions. Nigeria’s 2030 reduction is a 20% economy wide reduction against BAU, while Egypt has identified specific reductions against BAU in the energy and transport sectors.

South Africa’s second NDC, updated in September 2021, committed to ratcheting down net carbon emissions produced each year to 2030, with a recent pledge to reach net-zero by 2050. South African carbon policy is centred around a legislative response – the Climate Change Bill – that provides for future review and determination of the national greenhouse gas emissions trajectory; determination of sectoral emissions targets for emitting sectors and subsectors; and the allocation of carbon budgets. The Climate Change Bill is yet to make its way through the South African Parliament.

Nigerian carbon policy is focused on an elimination of kerosene lighting by 2030, greater uptake of bus transportation, and a 50% reduction of crop residues burnt by 2030.

Policy initiatives in Egypt are largely focused on energy policy reform designed to reduce emissions through a bolstering of renewable capacity. Renewable installed capacity in 2019/20 has increased 340% from 2015/16 to 3016MW. Other carbon reduction initiatives include energy efficiency, public transport, and waste management.

North America

Of the countries considered, the United States and Mexico have accounted for approximately 12% and 1.35% of the world’s emissions respectively in 2019.

The United States’ NDC targets an economy-wide target reduction of net greenhouse gas emissions by 50-52 percent below 2005 levels in 2030, and net-zero by 2050. The largest policy initiates driving the emissions ambitions for the US is a target of 100% Carbon pollution-free electricity by 2035, efficiency programs for building and transport, and innovation through hydrogen and carbon capture and storage.  The Inflation Reduction Act, passed by congress in August 2022, commits $391 billion toward several sectors of the economy and includes incentivising energy efficiency, electric vehicles, and renewable energy development.

Mexico has made a NDC to reduce its GHG emissions by 22% and 51% of its Black Carbon emissions (transport, power generation, residential and commercial, and oil and gas) by 2030, compared to BAU scenario. It has also raised a conditional commitment being a reduction of GHG emissions of up to 36% and 70% of its Black Carbon emissions, if there are more resources available (funding) for greater policy ambition.

Europe

We focus on three countries in Europe: Russia, Germany, and the UK which are the largest emitters in Europe, accounting for approximately 6% of global emissions in 2019.

Russia has pledged a net zero target by no later than 2060, and has made a 2030 commitment to reduce emissions by 30% on 1990 levels by 2030. Germany has legislated a net zero target by 2045, and an interim 2030 target of a 65% reduction on 1990 levels. The UK has also legislated a net zero target by 2050, with a reduction of 68% on 1990 levels by 2030.

In terms of policy, the Russian Government released a new policy in October 2021, the “Strategy of socio-economic development of the Russian Federation with low greenhouse gas emissions by 2050” but there appears to have been little action on this to date.

Policy included in the plan includes creating financial incentive to reduce emissions, the systematic replacement of inefficient technologies, and creating conditions which ensure Russian companies are competitive.

Germany’s Climate Action Plan is in force, and involves a suite of initiatives including CO2 pricing, funding for energy sector reform, and initiatives for energy efficiency and transitioning farming and forestry practices. The German Government recently convened an emergency meeting regarding the plan’s implementation due to two sectors not meeting their targets, with funding provided to attempt to rectify emission reduction shortfalls.

The key policy instrument in the United Kingdom is a “Ten Point Plan” for green industrial revolution – which focuses on incentivising emissions reduction in energy, buildings, transport, nature, and innovative technologies, at a cost of around 12 billion pounds. Sector specific plans are expected to be developed in the near future to achieve the 2030 target.

Middle East

Lastly, we examine the positions and policy of Saudi Arabia and United Arab Emirates (UAE), which collectively contributed around 2% of global emissions in 2019.

Both Saudi Arabia and the UAE have pledged net-zero emissions by 2060 and 2050, respectively. The UAE has adopted a counterfactual 2030 target of a 31% reduction in emissions compared to a BAU scenario. Saudi Arabia has pledged to reduce, avoid, and remove 278 million tons of CO2 annually by 2030.

Saudi Arabia has outlined a policy focused on energy efficiency, a reduction in methane emissions, and hydrogen and carbon capture and storage to meet its targets. It has also announced it will seek to achieve an “around” 50% renewables energy mix by 2030.

The UAE is focused on clean energy investment, predicting 14GW of clean energy by 2030. It has also flagged investment in agriculture technology development, aiming to increase water and energy efficiency and reduce environmental impacts.

For more information, please contact Arvind Sharma at asharma@rennieadvisory.com.au