The world is currently not on track to reach net-zero carbon emissions by 2050. COP29 is an opportunity for the global community to double down and collaborate on new solutions and bold actions to address climate and nature crises.
During a McKinsey Live session, senior partner Vishal Agarwal and partner Anna Granskog previewed the upcoming Conference of the Parties of the UN Framework Convention on Climate Change (UNFCCC), more commonly known as COP29. Thousands of public- and private-sector leaders, nongovernmental organizations, activists, and others from 200 countries will meet in Baku, Azerbaijan, from November 11 to 23, 2024, with the goals of delivering rapid and sustained emissions reductions to keep global temperatures below 1.5°C and zero emissions by 2050.
The world is only 10 percent of the way to deploying by 2050 what will be needed to address the climate and nature crises. COP29’s framework comprises two mutually reinforcing pillars: enhancing ambition—that is, commitments to ambitious national plans and transparency—and enabling action, a reflection of the role finance must play.
Physical realities
An energy transformation can’t be conceived without an understanding of exactly what would be involved in transforming the physical elements of the world’s current energy system. That system is a massive and complex entity that has developed over centuries. There are numerous barriers to replacing high-emissions assets with low-emissions and renewable energy sources—and building the associated supply chains and infrastructure. Businesses have a role to play in tackling the physical challenges, which include integrating renewables into the power system and markets, decarbonizing industrial materials and rebuilding assets, and making the carbon-capture process more efficient and more energy efficient.
The role of finance
Financing underpins many aspects of the energy transition, and COP29 has been dubbed by some as “the finance COP” because members will set a new global climate finance goal to support developing countries’ climate actions after 2025. Some developing countries are seeking at least $1 trillion a year from developed countries, to replace a past pledge of $100 billion a year. An agreement on how much should be paid and by whom is to be reached during COP29.
Financial institutions have an essential role to play in channeling financing to the right place at the right time and thereby accelerate innovation, support scaling, and smooth the transition to a greener global economy. Capital deployment will require the collaboration of all stakeholders as well as fiscal and regulatory tools and risk-sharing financial mechanisms. To capture the net-zero opportunity, the financial industry can define net-zero targets and timelines and format a strategy for implementation, develop an engagement strategy, define metrics and targets for monitoring their own progress, and set the right governance structure.
Q&A from the session
1. What conversations are happening this year around loss and damage, a major topic of COP28? Negotiations during COP28 have resulted in an agreement to implement a Loss and Damage Fund, which will direct funding toward countries most vulnerable to the effects of extreme weather events, including droughts, flooding, and rising seas. Eighteen countries have committed to the fund, with $792 million pledged. According to The Board of the Fund for responding to Loss and Damage, the COP29 Presidency will leverage the Baku COP29 summit to collaborate with countries that have already pledged hundreds of millions to the fund, and convert those pledges into tangible funding ready for disbursement to communities in greatest need. The Presidency will also call for further contributions.
2. What are the most efficient technologies that need to be used to solve our biggest climate crises/problems? Many of the climate technologies needed for deep decarbonization already exist. The challenge now is accelerating innovation and scale-up to achieve technical and commercial breakthroughs. Scaling of these climate technologies is critical as countries seek to limit global warming to well under 2°C above preindustrial levels, a goal set by 196 nations in the legally binding 2015 Paris Agreement on climate change. Our analysis suggests that 12 categories of climate technologies could collectively reduce up to 90 percent of total man-made greenhouse-gas (GHG) emissions if deployed at scale. These 12 categories are:
• Batteries
• Carbon capture, utilization, and storage
• Circular technologies
• Energy Storage
• Engineered carbon removals
• Heat pumps
• Hydrogen
• Nuclear
• Renewables
• Sustainable fuels
• Technologies supporting natural climate solutions
• Technologies to produce alternative proteins
These technologies are highly interdependent and must scale together. While many are technically proven, they also need to become commercially viable (e.g., affordability).
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For more on this topic, see the McKinsey Global Institute’s report The hard stuff: Navigating the physical realities of energy transition, review the COP Insights page, and read articles about green business building, what would it take to scale critical climate technologies and how leaders can decarbonize and create value.