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22.11.2022

COP 27: not a lost COP after all

Published 

22 November, 2022

> 10 minutes
22.11.2022
COP 27: not a lost COP after all
Published 

22 November, 2022

> 10 minutes

Key Takeaways


1.

Loss and damage : compension and adaptation agenda

  • Countries have finally decided on a conclusion for responding to loss and damage funding for climate vulnerable countries
  • The sum pledged up to this point is well short of the hundreds of billions of dollars that experts estimate will be required annually by 2030 to assist communities in repairing and rebuilding after disasters

 

2.

Rethinking the global financial system

  • Barbadian Prime Minister’s Bridgetown Initiative to mobilize international financial institutions, with contributions from the IMF, is getting traction.
  • Just Energy Transition Partnership (JETP) is meant to become the reference framework for ambitious developing countries climate action financing.
  • Debt for Nature Swaps were highlighted as one of the main tools to facilitate debt relief for emerging countries.

3.

Breakthrough Agenda

  • Countries with more than 50% of the world’s GDP have set sector-specific «Priority Actions» to decarbonize steel, power, and transportation by COP28. They have also vowed to increase the production of low-emission hydrogen and hasten the transition to sustainable agriculture.

 

4.

Reaffirming the Net Zero Objective

  • At COP27, no new agreement between countries was reached regarding the reduction of greenhouse gas emissions, despite the additional pledges and countries' commitment to achieving the 1.5°C goal.

 

Introduction


Only 0.1°C, but a symbolic victory on compensation and momentum in financial system overhaul.

On 6-20 November 2022, Heads of State, Ministers, and negotiators with representatives from business, civil society, mayors, and environmental organizations met in Sharm el-Sheikh in Egypt for the largest annual gathering on climate change. At the 27th Conference of the Parties1 (COP27) of the United Nations Framework Convention on Climate Change (UNFCCC), countries came together to take action towards achieving the world’s collective climate goals as agreed under the Paris Agreement.

This is the fifth time a COP is hosted in Africa, a continent responsible for only 3% of global emissions, yet disproportionately exposed to the negative impacts of climate change. In a pre-COP27 letter to parties and observers, the Egyptian COP27 President-designate stressed the need “to restore the ‘grand bargain’ at the centre of the Paris Agreement and our collective multilateral climate process – whereby developing countries agreed to increase their efforts to tackle a crisis for which they are far less responsible, in return for appropriate financial support and other means of implementation.”

This letter came a few months after Barbados’ Prime Minister Mia Mottley launched the Bridgetown Initiative, a call to overhaul global financial system, with a focus on reforming the World Bank and the International Monetary Fund (IMF).

Following a year of increasing extreme weather events, broken temperature records, and a growing energy crisis worldwide, COP27 was meant to be both the COP of implementation, and the COP of emerging markets: held in Egypt, it offered a chance to bring in more typically marginalized viewpoints during discussions and to forge close ties of collaboration between developed and developing nations.

Nations were also required to show how they are putting their COP26 promises into practice, including urgently cutting greenhouse gas emissions, boosting resilience, preparing for unavoidable climate change impacts, and funding climate action in developing nations. Pledges by governments ahead and through the COP27 improved the announced stated scenarios from 1.8°C to 1.7°C (compared to 2.1°C ahead of COP26). However, implementing the necessary measures remains the most daunting task in a challenging macroeconomic environment.

The key outcomes of COP27 in putting the world on a Paris-aligned trajectory and assisting developing nations in combating climate change are presented in the following sections. The loss and damage fund, as well as the momentum gathered by the Bridgetown Initiative appear already as the most significant results from this COP.

During the COP, G20 leaders agreed to pursue efforts to limit the global temperature increase to 1.5°C, and confirmed they stood by the most ambitious temperature goal of the 2015 Paris Agreement on climate change. Important announcements such as the Indonesian Just Energy Transition Partnerships (JETP= also emerged from the Bali Sumit. Taking stock of both the G20 and COP27 announcements, we are still a long way of placing the world on a well below 2°C trajectory. But the JETP focus on coal phase out represents hope as starting by seriously addressing the issue of 9,000 or more coal power plants is the most sensible thing to do.

“Parties” referring to the 197 nations that agreed to the United Nations Framework Convention on Climate Change (UNFCCC) in 1992.

Loss and damage : compensation and adaptation agenda


2022.11-ESG-Thema-Cop27-fig1

 

COP27 came to a historic conclusion with a decision to compensate «loss and damage» for vulnerable nations who have  been severely affected by climate disasters. To help developing nations respond to loss and damage, governments decided to create new financial arrangements and set up a dedicated fund. Additionally, governments concurred to form a «transitional committee» to advise on how to operationalize the new financial arrangements and the fund at COP28 the following year. The transitional committee’s inaugural meeting should take place before the end of March 2023. 

In the past year, many countries have seen unprecedented droughts, extreme flooding occurred in several parts of Asia (such as India and Pakistan), and record temperatures were witnessed over the globe, notably in the UK and Europe. Therefore, it does not come as a surprise that one of the first things on the agenda at this year’s COP was adjusting to the effects of climate change. Developing countries have long demanded that adaptation and mitigation be given the same weight in COP debates and the topic of compensation has emerged more than 30 years ago when small island states asked to countries that were responsible for climate change to pay for the consequences for rising sea levels.

The term «mitigation» refers to actions taken to lessen or stop the emission of greenhouse gases. Making existing equipment more energyefficient, employing new technologies and renewable energy sources, altering management
procedures, and changing customer behavior are all examples of mitigation actions.

Adjustments to ecological, social, or economic systems in response to real or anticipated climatic stimuli and their effects or impacts are referred to as “adaptation”. In order to mitigate possible harm or take advantage of possible opportunities brought on by climate change, systems, methods, and structures must be changed.

Creation of a Loss and Damage Fund for vulnerable countries

At COP27, loss and damage was highlighted by developing countries as one of the main issues that needed to be addressed. Until now, loss and damage measures have not gathered consensus among key stakeholders. Loss and damage money is intended to cover the impacts of climate change that cannot be adapted to, nor mitigated, due to their devastating and disruptive nature, such as droughts that affect once-productive farms and rising sea levels that permanently flood island communities.

The compensation agenda has since its creation stumbled upon the opposition from ‘rich countries’ group, first against the concept of climate-related liabilities, then to narrow down the scope of countries eligible to compensation to the most vulnerable economies (and not to all emerging markets and developing economies), and include the participation from other large emitters. In that respect, and bearing in mind the details of the fund, and committed amounts will need to be ironed out between now and the next COP, the creation of a Loss and Damage Fund for Vulnerable Countries, for the first time ever at a COP, can be seen as a major success.

Nevertheless, outstanding issues remain: first, the absence of consensus on what counts as loss and damage (such as the destruction of property, infrastructure, or natural ecosystems) and on how to connect specific natural disasters to the consequences of global warming.

Second, the specifics of how industrialized countries should make payments as well as which countries should be eligible to receive the funding have yet to be detailed. As many of the worst affected nations are experiencing financial issues, developing nations are requesting more public funding and grants rather than loans.

Last, according to a research by 55 vulnerable nations, the overall cost of climate-related losses over the past two decades was $525 billion, or 20% of their combined GDP (GDP). Additionally, these losses might total $580 billion annually by 2030. These sums are far less than the $1.3 trillion benchmark for loss and damage funding that was declared at COP26.

Adaptation Agenda

The COP27 Presidency presented its Adaptation Agenda, a program set to help populations adapt to the devastating impacts of climate change. The Sharm-el-Sheik adaptation agenda is the first plan gathering state and non-state actors on adaptation issues. The agenda received support from the UNFCCC and more than 2000 organizations. The Sharm-El-Sheikh Adaptation Agenda lists 30 adaptation outcomes in order to improve resilience for 4 billion people who live in the harshest climatic conditions. Each category contains global suggestions that can be implemented locally to assist communities in preparing for the effects of climate change and directing their transition to climate resilient systems. For instance, mobilizing the $140 to $300 billion in public and private funding necessary for adaptation and resilience might encourage 2,000 of the biggest corporations in the world to incorporate physical climate risk and create workable adaptation strategies.

Learn more

Snapshot of other Adaptation news

- Within the next five years, the totality of the world’s population should be protected by early warning systems. To this end, the UN Climate Early Warning Systems Proposal was announced earlier this year by UN Secretary-General António Guterres. The scheme, which is estimated to cost $ 3.1 billion by 2027, will focus on funding early warning systems in the most vulnerable nations. This plan was discussed more extensively at COP27, in light of the intensity and frequency of catastrophic weather occurrences. In this context, the United States have committed to doubling their financial contribution to the Adaptation Fund, bringing it to $ $100 million by FY 2022.

- The announcement at COP27 of the launch of the Global Shield Financing Facility was meant to go in that same direction. An initiative of the G7, this facility was introduced with the aim of raising money for nations experiencing climate calamities.
Moreover, Denmark, Finland, Germany, Ireland, Slovenia, Sweden, Switzerland, and the Walloon Region of Belgium announced a total of $105.6 million in new funding and emphasized the demand for even more support for the Global Environment Facility funds aimed at the immediate needs of low-lying and low-income states for climate adaptation.

- In addition, the European Bank for Reconstruction and Development launched its Climate Adaptation Action Plan (CAAP). This new strategy aims at integrating adaptation in the core activities of the bank, such as project and policy design, business development, funds allocation and partnerships.

The entire adaptation agenda is a reply to the Glasgow Climate Pact at COP26 to increase adaptation finance to developing countries.

Learn more

Rethinking International Financial Architecture and Mobilizing Finance


2022.11-ESG-Thema-Cop27-fig2

 

In a world awash with liquidity from various quantitative easing in developed countries, some observers have forgotten that finance remains a critical issue for climate adaptation and climate mitigation funding in most parts of the world, and this harsh reality has been exacerbated by the latest energy shocks and anti-inflation monetary measures that followed through.

Against this backdrop, Barbados’ Prime Minister Mia Mottley has built a global coalition to “overhaul the financial system”, with concrete propositions to reform the World Bank and the IMF as the world is still failing to provide developing countries with the funds they need to invest in resilience, address climate change and meet development goals.

The Bridgetown Initiative

The Bridgetown Initiative aims at transforming the financial system in order to help vulnerable countries access the funds they need to address climate hazards. The Initiative’s ask can shift the focus at COP27 and is divided into three phases to mobilise and coordinate a new financial system that drives financial capital towards climate action and addressing the SDGs. The three phases are highlighted below:

  1. Provide Emergency Liquidity
  2. Expand Multilateral Lending to Governments by $1 trillion
  3. Activate Private Sector Savings for Climate Mitigation and Fund Reconstruction after a Climate Disaster through new Multilateral Mechanisms.

Read the article “Breaking the Deadlock on Climate: The Bridgetown Initiative” by Avinash Persaud to learn more

Learn more

Just Energy Transition Partnerships

Among the initiatives to reshape the financial system in order to give vulnerable countries the funds necessary to finance the climate transition, the Just Energy Transition Partnership (JETP) was launched as an initiative between emerging nations and developed countries to accompany them in their transition to a low carbon economy. Initiated during COP26 with South Africa, the goal of such partnership is to encourage countries to shift to more sustainable business models while guaranteeing that their economy will benefit from this transition, including with a solid investment plan and financing package.

South-Africa

Introduced at COP26, this partnership between South Africa, France, Germany, the UK, the US, and the European Union was designed to encourage and finance up to $8.5 billion the decarbonisation of the South African Economy. At COP27, South Africa’s President revealed the new Just Transition Energy Investment Plan. This announcement details the concrete application of the Just Energy Transition Partnership agreed in COP26. It focuses on:

  • Allocating the funds received to develop the energy sector, electric vehicles and green hydrogen.
  • Making the transition fair for the entire society and more specifically for those directly affected by the energy transition.

Learn more

Indonesia

The Indonesia Just Energy Transition Partnership (JETP) was launched at the G20 Summit this year to accompany Indonesia in its energy transition from fossil fuels to clean energy. The plan sets ambitious emissions reduction targets that will be reached thanks to the substitution of fossil fuels with renewable energy. The transition plan also aims at building a transition that is fair to all and includes all economic sectors, affected directly or indirectly by the shift to a sustainable business model. The plan will mobilize $20 billion over the next three to five years to be invested in the transformation of the Indonesian economy.

Learn more

The JETP has received great support among the nations of the G20, thus encouraging the future development of similar partnerships.

Debt for Nature Swaps

Debt for Nature swaps have gained popularity at COP27 as a means of achieving both debt relief and climate action. The instruments for frontier market countries have been supported by the IMF and other development organizations. In the upcoming four years, debt servicing obligations for fifty-eight of the developing nations that are most susceptible to climate change will total about $500 billion.

An example of this is Pakistan, which was forced to the verge this summer due to flooding that affected about a third of its area. The government obtained a $1 billion loan from the IMF to help it get by, but according to Bloomberg Economics, the flood damage is estimated to be worth $32 billion, and the country still has $3 billion in debt that needs to be repaid through June 2023.

Debt-for-nature exchanges have the potential to lower the debt loads of climate-vulnerable countries, releasing capital to enhance climate resilience. As they give developing nations, which are financially limited, the chance to make critically needed climate investments, climate or naturerelated swaps may contribute to breaking that cycle. Using this method, nations such as Ecuador and Cape Verde hope to refinance $800 million and $200 million, respectively.

These tools are still not frequently utilized due to transaction costs, the requirement for monitoring, and a lack of well-defined conservation strategies. The technologies are still not frequently utilized due to transaction costs, the requirement for monitoring, and a lack of well-defined conservation strategies.

Learn more

Other financial mobilization initiatives

COP 27 launches initiatives to allow African countries to invest in building climate resilience.
The initiative “Reducing the Cost of Green and Sustainable Borrowing” in climate-vulnerable countries, launched by Egypt’s COP 27 Presidency and the United Nations Economic Commission for Africa, was designed to facilitate the access of developing countries to the funds they need in order to implement their post COVID-19 green recovery plan and tackle transition risks.

The initiative aims at reducing the cost of green borrowing for African countries, through Green and Social and Sustainability (GSS) Bonds. The cost reduction relies on five means:

  1. Reducing the borrowing cost by increasing sovereign bonds demand
  2. Introduction of standards in terms of ESG reporting
  3. Facilitate climate aligned sovereign debt emission through the creation of a Sustainability Sovereign Debt Hub
  4. Allowing developing countries to have access that is more regular to GSS Bonds market.
  5. Setting guarantees from Multilateral Development Banks

Learn more

Launch of a catalytic initiative for Green Banks in Africa by the African Development Bank.
On top of this, the African Development Bank Group has announced the launch of the African Green Bank Initiative, which will be backed up in 2023 by a $1.5 billion trust fund due to close in 2025 – the African Green Finance Facility (AG3F). Its aim is to structure and develop an ecosystem of local green finance mechanisms, in order to increase the mobilization of climate finance on the African continent. This initiative will provide a framework for the African Development Bank to provide financial institutions and governments with technical assistance grants, fundraising support and co-financing opportunities for green projects, by reducing the risks linked to in investing in sustainable projects.

Learn more

Breakthrough agenda


2022.11-ESG-Thema-Cop27-fig5

 

The growth of cooperation and collaboration will help the world adopt a more resilient, sustainable, and human-centered economic model, as well as the four goals of COP27. To connect our aspirations with the 1.5 degree pathway, this calls for a focus on technology and solutions that accomplish deep decarbonization.

In accordance with the Breakthrough Agenda, nations accounting for more than 50% of the global GDP laid out sector-specific «Priority Actions» to decarbonize steel, power, and transportation, increase the production of lowemission hydrogen, and hasten the transition to sustainable agriculture by COP28. These actions aim to lower energy costs, quickly cut emissions, and improve food security for billions of people around the world.

The Alliance for Industry Decarbonization, which seeks to accelerate net zero goals and reduce industrial emissions, gathered at COP27 to lay out its implementation strategy. This group, which includes the International Renewable Energy Agency, will concentrate on six areas and enablers where to accelerate decarbonization. These include human capital, green hydrogen, heat process optimization, bioenergy with carbon capture, usage, and storage, and renewable energy.

Examples of a few initiatives launched to drive deep decarbonization efforts are mentioned below.

Egypt launches various partnerships to develop its green energy offer

Egypt and Norway to Establish 100MW Green Hydrogen Plant on Red Sea, as Part of Agreements in COP27.

Egypt and Norway launched the first phase to establish a major green hydrogen plant in Egypt’s Ain Sokhna on the Red Sea to produce 100MW. This plan will be coordinated by private and public actors and is part of Egypt’s ambition to become the cheapest producer of green hydrogen worldwide and contribute to 8% of the global hydrogen market.

Learn more

The United States announced the launch of a new initiative to support Egypt in deploying 10GW of new wind and solar energy while decommissioning 5GW of inefficient natural gas generated plants. A new project to assist Egypt in deploying 10 GW of new wind and solar energy while decommissioning five GW of inefficient natural gas power was also launched, according to the president of the United States of America.

Learn more

Reaffirming the Net Zero Objective


2022.11-ESG-Thema-Cop27-fig6

 

Just as every COP, countries came together to take action towards achieving the world’s collective climate goals as agreed under the Paris Agreement. Achieving net zero by 2050 remains the core objective for public as well as private players.

2022.11-ESG-Thema-Cop27-fig7

The UN HLEG Report, a guardian of Net Zero

On the private front, the release of the first conclusions of the High Level Expert Group on the Net Zero Emissions Commitments of Non-State Entities, set by the United Nations, were noticed and commented. The group was launched at COP26, in order to assess the net zero pledges of non-State actors, including businesses, financial institutions, cities and regions. It published a report, that aims at guiding non-State actors in setting credible net zero targets, in order to avoid as much as possible greenwashing. The guidebook is organized around four main areas:

  • Environmental integrity: ensure that objectives are aligned with the IPCC scenario of 1.5°C
  • Credibility: set reachable targets and present decarbonization plans.
  • Accountability: improve the Global Climate Action Portal, a tool registering pledges, transition plans and tracking annual reporting on implementation.
  • Role of governments: in achieving the 1.5°C target, governments have to lead by example and provide to non-states actors a favorable context for them to set Net Zero targets.

Learn more

A positive signal from the G20

The seventieth meeting of the G20, that took place in Bali on November 15th and 16th. During this meeting, the G20 has reaffirmed pledges to limit global warming to 1.5 C, sending a positive signal to the COP 27 negotiators.

What about emissions peaking?

See UNFCCC report on Nationally Determined Contribution to learn more

The Paris Agreement objective of limiting global warming to well below 2°C, preferably to 1.5 C (i.e. Net Zero) implies to reduce the growth rate of greenhouse gas emissions and thus reach a peak of emissions as soon as possible, followed by a continuous decrease of emissions in order to reach a climate neutral world 2050.

According to the latest predictions, taking into account countries’ commitments, this peak should happen around 2025. In order to reach the peak of emissions as soon as possible – or rather, to start the decrease as soon as possible-, the phase out of coal phase needs to be accelerated. In order to reach the peak of emissions as soon as possible, coal phase out needs to accelerate. In its latest report “Coal in Net Zero Transitions”, the International Energy Agency highlighted that  “every pathway that avoids severe impacts from climate change involves early and significant reductions in coal‐related emissions.”

Learn more

Projected trends in emissions and warming

Global greenhouse gas emissions in gigatonnes of carbon dioxide equivalent

2022.11-ESG-Thema-Cop27-fig8

Conclusion


While COP 27 was the occasions for new individual commitment from countries to achieve the 1.5°C warming objective by 2050, no new agreement was concluded between countries at COP27 about greenhouse gas emissions reduction. Many participants expressed their regret about the absence of mention to the 1.5°C objective in the final agreement signed in Sharm-El Sheik.

The current path to decarbonization is not sufficient to meet the Paris Agreement goal to limit global warming to well below 2°C and preferably 1.5°C by 2050. Far from it, as it appears that this path could lead the world to a dramatic 2.8°C warming – which still marks a decrease from the 2015 global warming trajectory of 3.5°C above pre-industrial averages. If previous pledges were to be implemented, a report by the IEA shows that global warming could be limited to 1.7°C by 2100, which represents a drop of 0.4°C compared to pre-COP26 announced policies scenarios.

Still, the 1.5°C target remains a key weapon in the fight against climate change and need more than ever to remain our global shared priority. Decreasing our ambition would already admit losing the battle, whereas what we need now is more commitments, more actions and more alignment between parties.

Another regret of this COP is that the objective of phasing down coal has been maintained, despite numerous voices calling for its phase out. A one-word difference that could well be the game-changing element in reaching – or not, Net Zero.

 

A special thank you to Basundhara Dutta and Apolline Day for their contribution.

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