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Will the Glasgow Summit (COP26) Affect Energy Prices?

Politics / Climate Change Dec 03, 2021 - 12:57 PM GMT

By: S_N_Chatterjee


The 2021 United Nations Climate Change Conference, which was held at the SEC Centre in Glasgow, Scotland, has just ended. After two weeks of intense debates among world leaders, there are a few encouraging signs and mainly disappointments standing out.

Topics related to climate change and global warming have been in the spotlight over the past couple of years and as temperatures continue to rise, the COP26 showed a renewed pledge to continue working on limiting global warming to no more than 1.5 degrees Celsius above pre-industrial levels. This was a target set at the Paris climate summit held in 2015 and the latest deal reinforces its importance.

Glasgow Science Center

New climate deal signed by close to 200 countries

Headlines emerged on the latest Glasgow Climate Pact, which include several interesting commitments. During the Paris Agreement, countries agreed to review their climate plans every five years, but now they are committed to “revisit and strengthen” their 2030 plans by the end of 2022 to align with the Paris temperature goals.

On the negative side, wealthy nations have failed to deliver on their pledge to mobilize $100 billion a year between 2020 and 2025, in order to help developing countries cut emissions and cope with the climate impact. Under the new deal, developed countries are “urged” to deliver on their goals without delay and through to 2022. However, the agreement does not explicitly refer to meeting the shortfall of the goal, as deemed by vulnerable nations.

A pushback on fossil fuels usage

According to experts at SquaredFinaicial, one of the leading global online trading brands today, one of the biggest disappointments came in terms of fossil fuels. Instead of “phasing out” the use of coal, China and India pushed for a last-minute change, and agreed only to “phase-down unabated coal”. This means that prices of traditional commodities will stay elevated, as opposed to renewable energy sources. Representatives who attended the summit defended the change of tone, but in the end, all of this means countries will continue to rely on coal in the long run, even though the usage will gradually drop.

climate change a global issue

Energy prices in the short-term

A major energy crisis is now putting the reduction of fossil fuels usage on hold, as countries need to make every effort possible to cope with energy demands. Prices for oil, electricity, natural gas, and other commodities reached levels not seen in a long time, putting upward pressure on inflation, reducing the purchasing power of the consumer, and now putting a dent in the post-pandemic economic recovery.

Commodities trading via SquaredFinancial and other providers has spiked since 2020 and some experts believe prices have been exacerbated by a surge in speculative activities. However, as energy demand dropped during the year of COVID-19 and now that demand is rising faster than supply, prices are expected to remain elevated heading into 2022.

For the time being, the Glasgow Climate Pact is not expected to have any meaningful impact on energy prices, mainly because countries only made new pledges and will need to take action in the near term. At the same time, delivering on energy demands seems to be more important, which is why CO2 emissions might remain elevated until things normalize.

By S N Chatterjee

Copyright 2021 © S N Chatterjee - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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