COP26: What the swings of the climate pendulum mean for the Group

Jorge Dimópulos, Strategic Planning Director in the Energy Transition Unit for Tecpetrol, offers insights on the outcome of the highly anticipated gathering of global leaders in Glasgow, Scotland, to address the world’s climate concerns, and hones in on developments important to the Techint Group’s decarbonization agenda.

Nearly 200 countries gathered for two weeks during the United Nations Climate Change Conference, or COP26, for deep discussions on a range of climate-centered initiatives, policies, mitigations, and goals to establish actionable agreements.  The COP summit, in its 26th edition since 1995, has been widely regarded as the most important meeting on climate issues on a global scale since the adoption of the Paris Agreement in 2015 (or COP21).  The Paris Accord set the framework among its members to limit the rise of global warming at least below 2ºC, targeting a global average temperature of 1.5ºC.

The scrutiny of COP26 extended well beyond headlines and airwaves, with protesters pushing for more drastic and revolutionary changes to combat climate change.

We spoke with Jorge Dimópulos to assess the summit's outcome from an internal view and understand how it fits into the Group's agenda and scope for the transition.

"At first, I had higher expectations, and I thought it was going to overshadow COP21 by making progress in global carbon taxation and adaptation investments. But the world is still not there yet. Of course, things are far more complex when considering the pragmatics over ethos and theories, particularly when discussing agreements among so many countries and varying political systems and resources. Nevertheless, I think there was some good progress and concrete, significant actions. Representatives began to discuss things that had not been deepened before," said Dimópulos.

He highlighted the concrete resulting from COP26:

-Deforestation: 141 countries committed to reversing forest loss by 2030 (an investment of $19 bn).

-Methane: 110 governments pledged to facilitate quick wins on abatement where tech solutions already exist to reduce emissions by at least 30% by 2030 collectively. Fulfilling the promise could deliver approximately 1.5Gt GHG reduction by 2050. The European Union established an enforcement framework to measure and report. The US will continue efforts to introduce methane fees in the spending bill. Canada has promised a 75% oil and gas methane reduction by 2030. Yet, some of the largest methane emitters, China (15% of emissions), Russia (10%), India (8%), did not sign the pledge.

-Coal: For the first time, a COP text takes on coal, the most polluting fossil fuel, and goes further than the G-20 had done before. The agreement asks countries to “accelerate efforts towards the phase-down of unabated coal power and phase-out of inefficient fossil fuel subsidies”. Additionally, thirty-four governments committed to ending international public financing (around $24 bn per year) for unabated fossil fuels by 2022 (following the G20 and Organization for Economic Co-operation and Development pledges).

-Auto: Industry commitments in 2021 have accelerated the shift to electric vehicles (EVs), with many sizeable OEMs signing the ZEV (Zero Emissions Electric Vehicles) pledge, despite governments in central countries missing. EV sales are expected to overtake combustion vehicle sales by 2030. This incipient deal taken by 11 OEMs and ~30 governments will put pressure on the value chain of the battery industry.

Dimópulos states that this new energy transition is an undertaking that will not occur naturally. To speed up this transition, consumers will have to accept higher prices in goods and services. COP26 showed signs that this discussion is picking up pace.  

"The world is still more concerned with mitigation than on investing in adaptation and in internalizing the externalities via a carbon tax. There was progress in the commitment to establish a global emissions trading mechanism for offsets. But the great agent of the internalization of the worldwide warming externality is the international tax on emissions.  Not an easy task when you have to make explicit that consumers need to pay more for products. You also want to avoid carbon leakage (where production moves to a country with lower or laxer regulation on emissions).  

Regarding the impact of COP26 on the Techint Group, Dimópulos points to "a memorandum of understanding between the US and Europe to discuss steel trade. That will take two years to materialize, but it will impact the carbon footprint in those two markets, and steel production is at the heart of the Group. On the other hand, there are important agreements concerning methane emissions, a critical point for the oil and gas business, as is the case of Tecpetrol, although to a lesser extent." 

In conclusion, Dimópulos stated: "COP26 ended, and Paris COP21 will remain the benchmark COP for now. However, there was some concrete progress. The joint declaration marks the first commitment to reduce coal consumption, the fossil with the highest emissions. This has enormous relevance for Argentina and Vaca Muerta. The world warns us that, to accelerate decarbonization, we must consume more gas. Why? Because to reduce coal in the short term, there is no better alternative than natural gas. On the other hand, the Lithium Triangle (Argentina, Bolivia, Chile), where most parts of the global lithium reserves are located, could see a great opportunity in developing its resources to support the production of electric vehicles. We must move fast. Because we can help decarbonize the world by accelerating our development. They are knocking on our door."

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