For two weeks in November, world leaders will gather in the Egyptian town of Sharm El-Sheikh for the 2022 UN Climate Change Conference, also known as COP27.
In the run-up to the conference, we will be publishing a series of blogs bringing together insights from experts and leading thinkers from commerce and academia, and reporting on the interplay between climate goals and the implications for international business. In this first blog, we will set out the key challenges that were left unanswered from last year’s COP and the geopolitical dynamics that have transpired over the last 12 months that will influence the negotiations for progress in Sharm El-Sheikh.
At last year’s conference in Glasgow, 196 countries signed the Glasgow Climate Pact, which delivered broad agreements on four key areas: coal, carbon markets, cash for developing nations and national climate targets. There were also separate commitments in a range of other areas, such as forests, methane, car emissions and private finance.
But COP26 was a political compromise and its outcomes received mixed reactions. COP26 president Alok Sharma said that while COP26 kept the Paris Agreement target of limiting global warming to 1.5°C within reach, “its pulse is weak”. UN Secretary-General António Guterres described the outcome as “an important step, but not enough”. And climate activist Greta Thunberg summarised COP26 more bluntly as “Blah, blah, blah”.
Irrespective of whether observers saw the glass as “half full” or “half empty” following COP26, there was broad agreement that important work remains to be done in the run-up to COP27. In particular, governments and businesses were urged to turn their COP26 “commitments into actions”.
Where we are now
The initial hope that COP26 would mark the starting point for concrete action on climate change was quickly dampened. In the year since the conference, the world has changed.
The Russian invasion of Ukraine has sparked an energy and food crisis, and there is concern that countries may go back on their climate pledges just to keep the lights on this winter. For example, several countries have permitted the restart of operations at coal power stations that had either gone into disuse or were due to close.
Heightened geopolitical tensions have made international collaboration on climate change more difficult. At the G20 climate summit in Bali at the end of August, participants failed to agree a joint statement, which caused incoming COP27 president Sameh Shoukry to warn that the current geopolitical challenges “should not serve as a pretext or justification” for countries backtracking on climate pledges.
In response to rising energy bills, higher food prices and spiralling inflation, governments have announced relief packages for consumers, which, on the back of large COVID-19 stimulus packages and increased sovereign debt levels, leave less room for investments in clean energy or other climate change initiatives.
The year 2022 so far has also been marked by extreme weather events, such as the devastating floods in Pakistan and the intense heatwaves in Europe and the Western parts of the U.S. While extreme weather events can be attributed to a range of different factors, there is growing evidence that global warming is contributing to more frequent and deadly such events across the planet.
Meanwhile, the scientific community has issued stark warnings that current efforts are insufficient to reach the goals of the Paris Agreement. In its report in April, the UN’s Intergovernmental Panel on Climate Change (IPCC) stated that “without immediate and deep emissions reductions”, limiting global warming to 1.5°C is “beyond reach”. And according to Climate Action Tracker, which tracks government climate action, the world is heading to a warming of 2.4°C when taking into account countries’ 2030 targets and even higher, 2.7°C, when only taking into account countries’ current policies.
But it’s not all bad news.
Russia’s invasion of Ukraine has propelled energy supply into a national security issue, which some believe could help accelerate the energy transition. In August, U.S. president Joe Biden signed the landmark Inflation Reduction Act into law, which directs $369 billion toward investing in renewable energy and climate reform. Experts have estimated the bill could reduce U.S. emissions by about 40% by 2030, compared with 2005 levels. Elsewhere, China – currently the world’s largest emitter of CO2 – recorded an 8% fall in its CO2 emissions between the first and the second quarter of 2022, its largest reduction in at least a decade. And in June, the International Energy Agency reported that, while current levels of global energy investments are still insufficient to tackle the climate crisis, spending on solar, batteries and electric vehicles is now growing at rates “consistent with reaching global net zero emissions by 2050”.
What to expect from COP27
The motto for COP27 is “Together for implementation”. Egyptian President Abdel Fattah El-Sisi said in his welcome message that Egypt “will spare no effort” to ensure that COP27 becomes the moment when “words were translated to actions”. COP27 is also considered the “Africa COP”, as it is taking place in one of the continents most affected by climate change. The agenda of COP27 includes the same four main categories as COP26: Mitigation, adaptation, finance and collaboration.
The Glasgow Climate Pact requests that countries revisit and strengthen their 2030 emission reduction plans (called “Nationally Determined Contributions” or “NDCs”) by the end of this year to align with the Paris Agreement goals. With only weeks to go to COP27, only 19 have submitted revised or new NDCs so far. While there are reports that the European Union is planning to adopt a more ambitious NDC, the upgrade is unlikely to happen in time for COP27.
So rather than committing to steeper reduction targets just yet, countries at COP27 could agree on concrete measures to tackle emissions. One focus will be on sustainable cities, which includes plans for improving energy efficiency, low carbon buildings and urban mobility. Discussions are also likely to centre around things like green hydrogen, carbon capture and storage (CCS), zero-emission fuels and smart electricity grids. And lastly, negotiations on the specific rules for voluntary and regulated carbon markets under Article 6 of the Paris Agreement are expected to continue at COP27.
Adaptation means adjusting to both current and projected impacts of climate change and includes measures such as flood and drought management, water and energy conservation and resilient infrastructure for changing weather conditions. Historically, adaptation made up only a small part of the overall climate finance portfolio (with the vast majority being dedicated to mitigation).
While at COP26, developed nations agreed to double adaptation finance for less developed countries by 2025 to around $40 billion per year, this is still significantly below what experts believe is necessary. Making progress towards closing this “adaptation gap” is expected to be one of the key issues at COP27.
Closely linked to adaptation is the concept of “loss and damage”: This refers to the destruction caused by climate change and how it should be paid for. Lower-income and climate-vulnerable countries have long argued that industrialised nations should pay “compensation” or “reparations” for their “responsibility” for climate change. A report in June 2022 on 55 of the world’s most climate-vulnerable countries found that they would have been 20% wealthier today had it not been for climate change. At COP27, developing nations are expected to repeat their call for the establishment of a dedicated finance facility for loss and damage after their proposal was rejected at COP26.
In 2009, rich nations promised to mobilise $100 billion a year by 2020 to support climate efforts in developing countries. The Glasgow Climate Pact noted “with deep regret” that developed countries had failed to meet that goal in 2020 (and, according to the OECD, the goal might not be met until 2023).
At COP27, discussions are expected to focus on the next finance target (known as the “new collective quantified goal on climate finance” or “NCQG”), which will apply from 2025. This will include discussions around what actually counts as “climate finance” and how the goal is calculated: for example, the OECD estimated that climate finance provided by richer countries reached $78.9 billion in 2018, while Oxfam (using a different accounting approach) estimated that the true value of support during that year may have been as little as $22.5 billion once loan repayments, interest and other forms of over-reporting are stripped out.
Another aspect is the concept of “just investment”, which focuses on the form and terms of the investments. In 2020, more than 70% of climate finance was made in the form of loans, which increases the debt burden of developing countries. The discussions at COP27 could therefore focus on the need for a higher share of climate finance to be provided in the form of non-repayable grants or in the form of other financing structures, such as “debt for climate swaps”, where a country’s debt is reduced in exchange for spending or policy commitments on climate change initiatives.
As the overall aim of COP27 is on implementation, organisers have made collaboration a key point of the conference. This is based on the idea that tackling climate change cannot be limited to government action alone but that governments, businesses and civil society need to work “in tandem to transform the way in which we interact with our planet”.
The focus on collaboration is also reflected in the thematic days that will be held on each day of COP27: this is an opportunity for businesses, NGOs and other stakeholders to engage on topics such as science, biodiversity and the role of young people in dealing with climate change. COP27 will also feature a number of side events, panel discussions and round tables on a wide range of climate-related issues.
In our next blog, we will delve into what will be the likely implications for business, including regulatory implications, at COP27.