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COP 27: A Reflection

The 2022 United Nations Framework Convention on Climate Change (UNFCC) Conference of the Parties (COP) was held between November 6th and 18th at Sharm El Sheikh, Egypt against a highly volatile and uncertain geopolitical and macroeconomic backdrop. We look at some of the key outcomes of this COP and reflect on why the outcomes turned out the way they did.

Role of COP in driving national ambitions

Before delving into the outcomes of COP 27, it may be worth reflecting upon the key role that COP plays in driving climate ambitions and actions for the member nations. Ultimately, the main function of the COP is to facilitate a negotiation between the signatory states of the Paris Agreement (196 countries as well as the European Union) on the topic of actions on climate change. As such, a desired outcome of these negotiations would be to see Paris signatories ratchet their national climate targets and policies as well as unlock finance on addressing climate change.

What was achieved at this COP

So how did the latest COP progress the national ambitions on climate change actions? Given that the scope of the COP negotiations covers goal setting and actions on climate change mitigation, climate change adaptation, and addressing the loss and damage caused by climate change, let’s look at the achievements under each umbrella topic separately.

Climate change mitigation

Climate change mitigation refers to the efforts of avoiding the emissions of greenhouse gases into the atmosphere to limit global warming. As such mitigation is the most proactive action the member states can take to avoid the adverse effects of climate change.

In essence, climate change mitigation is largely an energy-transition problem to be solved within a limited time horizon. To stimulate mitigation efforts, countries must set policies and/or incentives that encourage commercial sectors to accelerate energy transition. However, to make energy transition work for all citizens, countries must also strike a delicate balance between three diverging energy goals.

1. affordability: energy must be affordable to the end-users both during and after the transition,

2. security: the source of energy must have security of supply, and

3. sustainability: the process of generating energy post- transition must be sustainable.

Transitioning the energy systems to become sustainable is a long process in any modern economy. Moreover, to facilitate an orderly transition, governments must deal with any short-term disruption as they come up during the transition. Unfortunately, the current global economic volatility, inflationary environment, supply chain shocks, and the energy crisis triggered by the conflict in Ukraine have created an energy crisis with severe negative impact on affordability and security. Perhaps it is no surprise: the short-term stakes concerning affordability and security are simply too high to allow any meaningful and constructive focus on sustainability. As disappointing as it may be, perhaps it would in fact be unrealistic to expect significant action on climate change mitigation, given this macroeconomic backdrop.

In COP-27 we saw significant backsliding in the countries’ ambitions on climate mitigation, when compared against the ambitions agreed only a year ago in COP-26. For example:

● an annual ratcheting of national mitigation targets (Nationally Determined Contribution Targets, or NDC targets) will no longer be attempted

● the ambition to achieve peak emissions by 2025 has been cancelled

● partial mitigation (that allows the use of lower emissions fossil fuels such as natural gas) will now be considered ok

● phasing out government subsidies on fossil-fuels will no longer be required

● phasing out unabated coal from the energy mix will no longer be required

Anyone who was expecting to see proactive actions from the governments in preventing climate change would have found this outcome highly disappointing.

Climate change adaptation

Climate change adaptation efforts are about managing the risks of the effects of global warming. In case our mitigation actions fail to limit the global temperature rise to adverse conditions (which it already has to a considerable extent - given that the average temperature rise has already reached 1.1 C by 2021), adaptation efforts are intended to build the resilience needed to avoid the worst effects of climate change. Adaptation actions are also somewhat proactive, given this is focused toward minimising the adverse effects of climate change.

In essence, climate change adaptation is a “cost” to the world’s economies to avoid the risks of incurring even bigger costs due to the catastrophic effects of global warming. As is now well understood, climate change disproportionately affects the lives of poor and vulnerable citizens in the global south, particularly in developing economies that are not well equipped to finance the cost of climate change adaptation. In that sense, mobilising adaptation efforts is highly important from the perspective of social justice. At the same time, because adaptation is a “cost” and not a profit-generating investment, it is not particularly easy to stimulate the financial sector in developed economies to finance adaptation efforts.

We would argue that it is particularly because of this lack of adequate financial incentive structure that climate adaptation efforts have largely failed to mobilize to date. The UN has estimated that the actual need for adaptation finance is currently $70 billion per year and will increase to $140-300 billion by 2030. Yet the achieved level of adaptation finance is only about $20 billion as of 2021.

In last year’s COP-26, the parties had agreed to double the level of adaptation finance to $40 billion. Yet in COP-27, the parties largely avoided raising the ambition or commitment to adaptation finance. That said, some progress has been made in mobilising the available level of adaptation finance. For example:

● the African Cities Water Adaptation Fund (ACWA Fund), a $5 billion Africa-focused blended finance instrument to fund and scale high-impact water resilience solutions across Africa

● a $3.1 billion plan to achieve early warning systems for all by 2027

● a $4 billion plan to secure the future of 15 million hectares of mangroves through collective action

● the launch of the Food and Agriculture for Sustainable Transformation initiative or FAST, to mobilise climate finance contributions to agriculture and food systems by 2030

● the launch of Africa Carbon Markets Initiative to expand Africa’s participation in voluntary carbon market to generate climate finance

● the launch of an Insurance Adaptation Acceleration campaign to facilitate a dialogue among insurance sector leaders on how the insurance industry can scale its impact on climate risk reduction and adaptation

In summary, while some progress has been made in advancing climate change adaptation efforts, the efforts were simply too little and too slow.

Loss and damage caused by climate change

Over the years, loss and damage has evolved as one of the most contentious topics in COP meetings. Loss and damage financing refers to the financial assistance provided to the poorer countries when the countries suffer from damage to the physical and social infrastructure due to the severe weather triggered by global warming. While loss and damage actions are reactive in nature rather than proactive, they are badly needed given the damages already being caused by severe weather due to global warming.

The loss and damage caused this year alone by the severe floods in Pakistan, the hurricane in Puerto Rico, wildfires in California and Spain, point to the severe damage already being caused by global warming. By some estimates, the losses in Pakistan alone were estimated at $40 billion. The availability of a loss and damage fund can very much be seen as a social justice issue. The issue came across as particularly flagrant this year, as the world saw the oil producers’ profits approach $200 billion in a quarter while people in Pakistan suffered from the severe losses of the floods.

The biggest achievement in this year’s COP was to finally reach an agreement to set up a global fund for loss and damage, providing financial assistance to poor nations stricken by climate disasters. The agreement was finally possible under the condition that big economies and big emitters still classed as developing countries under the UNFCCC rules would be included as potential donors and excluded as recipients.

So far, only about €340 million in new pledges for loss and damage has been made, including contributions from the EU, New Zealand and Canada. While this is little money compared to the loss and damage that are already occurring, this is a start and certainly a very important milestone.

Looking ahead

Overall, apart from the setup of the loss and damage fund, the COP meeting achieved very little progress this year. Looking ahead, there is an urgent need to mobilize and grow the loss and damage funds and achieve the first milestone of $100 billion per year in adaptation finance. At the same time, the actions on mitigation cannot slow down. The COP 27 meeting started with the stark warning from the UN secretary-general António Guterres that the world was “on a highway to climate hell with our foot on the accelerator”, yet very little was achieved in the meeting in terms of taking the foot off the accelerator, i.e., in setting and achieving more ambitious targets for climate mitigation.

However, even though the governments failed to set ambitious mitigation targets at the COP, a relevant question to ask is:

Are collective actions by governments on climate mitigation still required to maintain momentum, or can the individual governments and markets transition on their own?

With renewable energy already cheaper than fossil fuels in several industries, the momentum on energy transition will continue to remain high in the market. The deployment of solar and wind power, and the purchase of electric vehicles continue to increase every year. More and more financial institutions and companies are setting up net-zero targets. The high cost of fossil energy, and the loss of energy security in Europe have further emphasised the need to increase renewable fuel usage. The US IRA (Inflation Reduction Act) will cause significant impetus in the financial markets to further move the effort forward.

Given this positive momentum in the market, perhaps the COP is losing its relevance as the driver of mitigation actions. We would argue that this COP might have marked the beginning of the next phase of climate action. One in which mitigation will largely be market-led, and where collective government actions will largely be focused on adaptation and response to loss and damage.

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