Moody's says updated climate goals may miss 2°C Paris Agreement aim

Moody's warns updated national emissions targets under NDCs may not limit global warming to under 2°C; credit risks tied to weak execution and external dependencies

Implementing updated national carbon emissions reduction goals is still likely to fall short of the Paris Agreement’s objective of limiting global warming to well below 2°C above pre-industrial levels, Moody’s Ratings has warned.

 

The warning assumes significance as the latest carbon reduction goals submitted by governments ahead of the 2025 UN Climate Change Conference (COP30) in November reflect heightened ambition. Credit implications, however, will depend on the pace and rigour of implementation.

 

Achieving absolute global emissions cuts will remain difficult. Should emissions rise following the exit of the US — the world’s second-largest emitter — from the Paris Agreement, other advanced economies (AEs) would need to increase their mitigation efforts. This has not been reflected in nationally determined contributions (NDCs) to date, Moody’s noted in a report on Tuesday.

 

 

“We expect that forthcoming emerging market (EM) emission reduction goals will remain more modest than AE submissions, reflecting their share of global emissions, financing obstacles, the need to address pressing social issues, support the agricultural sector and sustain industrialisation as economies grow. Even if fully implemented, it is unlikely that the updated NDCs would achieve the Paris Agreement goal of limiting global warming to well below 2.0°C,” the agency said.

 

The updated, voluntary NDCs submitted so far call for faster emissions reductions, though these vary by conditionality, sector coverage and methodology. 

 

Over 20 countries, including major emitters like Brazil, the US, Canada, Japan and the UK — which together account for one-fifth of global emissions — have submitted updated NDCs. India, along with several other member countries, is yet to submit its third-round NDC or climate action plan to the United Nations Framework Convention on Climate Change (UNFCCC). The revised deadline is now September, ahead of COP30 in November.

 

The UK has submitted one of the most ambitious NDCs; if implemented, it would place the country on track to achieve net-zero emissions by 2050. Other submissions have come from nations with minimal emissions but high climate vulnerability, such as Saint Lucia, the Marshall Islands and the Maldives.

 

As national ambitions grow, more sectors will face exposure to policy, technology and demand risks stemming from the carbon transition. Moody’s noted that mitigation activities outside the boundaries of national plans could also increase credit risks in some countries.

 

India, the world’s third-largest emitter, faces significant challenges in meeting its climate commitments while continuing to grow economically. On a per capita basis, India’s greenhouse gas (GHG) emissions intensity is well below that of the US or China, according to European Commission data.

 

India’s overall emissions intensity had fallen by 55 per cent compared to 2005 levels as of 2023 — surpassing its 45 per cent reduction target for 2030. However, emissions could rise again due to growing middle-class demand for electricity and carbon-intensive products and services, alongside further industrialisation. Like many EMs, India’s targets are conditional on receiving technological and capacity-building support from AEs, Moody’s cautioned.

 

The 2023 global stocktake found that fully implemented second-round NDCs project warming between 2.1°C and 2.8°C.

 

The UNEP Emissions Gap Report last year warned that achieving the 1.5°C target would require up to six times the current levels of mitigation investment and a significant redirection of international climate finance to EMs.

 

The Intergovernmental Panel on Climate Change (IPCC) in 2023 stated that, to keep the 1.5°C target within reach, global emissions must fall by 60 per cent by 2035. Few of the world’s highest-emitting countries have raised their 2035 targets to above that threshold.

 

Moody’s also flagged that the conditionality of many EM NDCs on external financial, technological or capacity-building support could hinder their implementation. Additional uncertainty from geopolitical tensions affecting trade and financing may further dampen national ambitions and create new obstacles to delivery.

 

Pointers:

 

Carbon emissions reduction goals in NDCs are highly ambitious

 

Credit implications will depend on the pace of implementation

 

Moody’s expects EM goals will remain more modest than AE targets

 

Updated NDCs unlikely to achieve Paris goal of staying below 2.0°C