Cop26 delegates are upbeat while they pass from one event to another. Never in the history of climate conferences has there been so much energy. In Glasgow, tech billionaires – the likes of Gates, Musk, Bezos – take the stage alongside the stars of world politics. But behind the scenes of this show, is anything good happening for the planet?

The answer is probably yes. One of the reasons to trust that something of substance is happening in Glasgow is that all the stakeholders are taking a step towards reforming the economic system, seeking to be rule-makers rather than rule-takers.

Yet, markets alone won’t save us from the twin crises of nature and climate. Regulation and good policies will. In September, EU Commission Vice-President Frans Timmermans said as much, noting that it “may come as a really big surprise to many who were very much committed to the neoliberal economic model.” Today, many economists have described climate change as the greatest market failure in history. Is this the dawn of a new economic model?

As we write, China is moving towards an ecological civilisation. Europe aims to become the first climate neutral continent in the world.

A failure of governance

The focus in Glasgow is on how to mainstream innovation in order to accelerate the transition to a post-fossil economy. The first step, however, is to build the new system of rules for the ecological industrial system. That’s a whole new game. New policies are to be designed to ensure the scalability of solutions and the transformation of markets. A whole-economy carbon (and resource) price is what we need. This, will transform our societies and the way we all live.

A key dimension of this failure is political. Today we know that climate is “the” issue at the heart of industrial and social systems.

Still, negotiations under the UN Convention on Climate Change have been managed since the early 90s by the Ministries for the Environment of the Parties to the Convention. And while Ministers for the Environment made commitments to reduce carbon emissions, their colleagues in Energy, Agriculture and Finance promoted policies to support the production and consumption of fossil fuels. This contradiction has marked the entire long journey of the COPs, albeit in different ways, over the years. The other elephant in the room is energy security.

The global environmental challenge of climate change requires policies both to reduce the carbon intensity of the economy as well as to enhance the natural carbon sinks: energy, industry, transport, agriculture, taxation/incentives, are the main sectoral policies to be involved in addressing climate change. In short, the challenge of climate change marginally involves the “classic” environmental policies.

For anything that makes a difference, look to Ministers for Energy, Agriculture, Industry, and Finance. To address environmental challenges, environmental management needs to shift towards social and industrial systems. Our society needs to use carbon less intensely, while we bolster the resilience of the environment by enhancing carbon sinks.

Some do see the opportunity along with the challenge. US Special Climate Envoy, John Kerry, views the building of this bright new world as the biggest economic opportunity in the history of humankind.

Reforming the Economy, on the double

In Glasgow, it is clear what the challenge is perceived as global. That is why 100 countries have committed to halting deforestation by 2030, a goal in line with the objective of another major UN conference (Cop15 on biodiversity) that was recently and successfully concluded in China.

The tone has changed, says Youssef Nassef, director of the UN Adaptation Division of the UNFCC in Bonn. In the history of the COPs “there has never been such a large number of voluntary initiatives.”

But the question is whether this consensus is also reflected in global determination to substantially reform the economic system. That is a different order of challenge — nothing less than “civilisational,” as the Italian Prime Minister noted during the G20 Summit in Rome, right before Glasgow.

“We are changing the economic system”, Mario Draghi said.

The rules of the new economy are simple: to mainstream climate regulation, you need to internalise the external environmental damage. “Cheap” or “expensive” should be a calculation that involves extraction, production, and consumption.

Once these externalities are integrated in the market system, energy producers and national economies will have a “level playing field.” Without such a system, the world risks plunging into permanent conflict. And this industrial, economic, and social revolution needs to happen quickly and globally.

There is a sense of urgency. Germany’s Environment Secretary Jochen Flasbarth notes that “the new normal” in Glasgow is speeding things up. China’s top climate negotiator, Xie Zhenhua, believes that a broad deal on carbon markets is becoming possible.

Biden’s infrastructure package and China’s Belt and Road projects can set a different regulatory benchmark, affecting the global market.

Eventually, how we build forward – not back – better, will make or break the success of the ecological transition. What will be the environmental cost of Biden’s infrastructure package or that of the China-funded projects along the Belt and Road? Even more than before, truly ecological standards are needed.

There is a sense of urgency.

In Glasgow, 20 states are committing to end public subsidies for fossil fuel investments abroad by 2022. That is now. And that is complicated because many oil and gas companies – such as Italy’s ENI – are state-owned.

The question is whether governments can convince stakeholders to assume the cost. The growing concern over stranded assets looms large in the minds of politicians worldwide.

And rightly so. What we need is an orderly transition. If rich states are unwilling to assume a fair share of the cost, in their own interest, we will all fail. In Glasgow, some steps have been taken to show support. To date, Glasgow has dealt with everything from green infrastructure for poor countries to the end of coal in South Africa to the water crisis.

According to Prime Minister Draghi, money is not the issue here. True, to finance the transition, multi-trillion-dollar investment is needed over the next few years. The biggest industrial and social transformation in history will cost loads. And international institutions such as the World Bank will have to loosen the purse strings. But the main task lies with private and green finance. New mechanisms are needed to address this demand. Today, even the US Congress is talking about a carbon price.

Even technical negotiations, which revolve around clauses of the Paris Agreement, are moving on in Glasgow, says German State Secretary for the Environment Flasbarth. “The new normal of COP26 is speeding things up”.

China’s negotiator Xie Zhenhua believes a broad deal on carbon markets is possible.

And despite President Xi Jinping’s absence, China plays an active role is in Glasgow.

This is the opinion of European Commissioner Timmermans, who declared “I had a long meeting with the Chinese negotiator, Minister Xie in London, which gave me reason to be optimistic about the results we can achieve”. The Chinese “are ambitious on the transition to renewables”.

Beijing has put a concrete programme on the table, and it has already been converted into law. If internal and geopolitical conditions allow, it will be improved.

The EU is banking on collaboration. For years, the Eu and China have been converging towards common industrial and regulatory standards. At COP26, the Chinese central bank and the Commission launched a common taxonomy for green finance in China and Europe, which can become the basis for a new global standard for financial products.

But geopolitical tensions can undermine collaboration and the common fight to save the planet’s climate.
Relations among powers are not at their best and this affects complex negotiations about how to ensure that emissions are reported transparently and correctly. This is one of the toughest nuts to crack for negotiators willing to finalise the so called “Paris Rulebook”.

But even on this, things may be moving on.

During the G20 meeting in Rome and on the eve of COP26, the EU and the United States announced that they had reached a deal over their dispute on steel and aluminium. The agreement presents some interesting and innovative features linking climate policy, capacity and dispute settlement under WTO rules.

Under the agreement, transparency will be ensured by forming a technical working group to confer on methodologies for calculating steel and aluminium carbon-intensity, among other issues, and on sharing relevant data.

Could this small but significant breakthrough be a blueprint for a broader operational model?

After the injection of optimism in Glasgow, it’s time to move from words to deeds. It is not yet clear how much of the commitments made by the countries will be realised.

The clock is ticking. The US plan is still in Congress; Europe Fit for 55 plan is still a policy agenda rather than binding law. China, for its part, often under-promises and over-delivers.

This article is also published on BrusselsMorning. Energy Voices is a democratic space presenting the thoughts and opinions of leading Energy & Sustainability writers, their opinions do not necessarily represent those of illuminem.