Examining the business environment impact of climate pledges

Ahead of COP26, the EIU will be hosting two free virtual event sessions on Thursday, October 21st. Join our expert analysts as they explore the business environment impact of climate pledges. Register here.

Climate policy is becoming an increasingly important determinant of the business environment. The enhancement of climate pledges that will come out of COP26 (the UN conference on climate change) will lead to greater regulation, innovation and financing, causing significant global industrial transformation in the coming decades.

EIU’s latest report explores where and how climate pledges have the potential to change the business environment. The report examines the state of play for climate pledges and policy in markets that are key players in the battle to limit carbon emissions and takes an in-depth look into the EU’s “Fit for 55” proposals.

Key findings from the report:

• Advanced economies have mainly peaked in their emissions and are increasingly using regulation, industrial policy and trade policy to reduce emissions further.

• Pledges made by developing economies are largely conditional on global climate financing from developed economies; this is increasing, but it remains below the target of US$100bn per year that previous COP summits had promised to deliver by 2020.

• Even if the financing issue is not resolved, increased regulation by advanced economies and the overall growth of climate mitigation financing are changing the global business environment.

• The EU’s “Fit for 55” proposals to reduce emissions by at least 55% by 2030 represent a clear effort to codify its pledges via amendments to the Emissions Trading System (ETS), changes to fuel taxation, national targets for individual member states and a new Carbon Border Adjustment Mechanism (CBAM). 

• However, the most significant impact of Fit for 55 on global climate policy is likely to be that it encourages investment in alternative energy technologies and results in a scaling-up of demand-side energy efficiency, rather than leading to a direct reduction in EU emissions.

Conflicts over emissions goals have had only a minor impact on the global business environment in the past, but the increasing ambition of these pledges will foster significant changes in the global business environment in the coming years. Even if the pool of climate financing grows more slowly than had been promised in the 2010s, the increase in the size of climate financing, along with the promise of new government incentives and regulation, will change the business landscape profoundly

MATTHEW OXENFORD, EUROPE ANALYST AT THE ECONOMIST INTELLIGENCE UNIT

Download the free report “COP26: Examining the business environment impact of climate pledges”