After having achieved significant outcomes at COP26, and with a backdrop of global energy, food and economic crises, expectations for COP27 in Sharm el-Sheikh were more measured. The second longest UNFCCC COP came to a close on Sunday, 20 November after negotiations blew past the Friday deadlines in an effort to reach compromise on decisions related to mitigation, carbon markets, climate finance, and loss and damage finance. The Egyptian presidency sought to use this conference to “move from an era of negotiations and pledges to an era of implementation” – a directive that many country Parties and private sector players took on, evidenced by the plethora of collaborative initiatives announced, particularly regarding carbon markets. However, the scale of these announcements is no match for the huge financing gap that must be filled to hold warming to 1.5ºC. As we move next into the First Global Stocktake in 2023, many will look for increased ambition and forward momentum across all three levers: mitigation, adaptation, and loss and damage.
Pollination’s key takeaways from COP27
- Agreement in principle on a loss and damage fund is momentous considering the stark divergence in stances of developed and developing Parties on this topic ahead of the meeting and over many years. Although the implementation details are still to be determined, the establishment of a framework to take this forward is cautiously welcomed, with many understandably eager for this new fund to avoid the shortfalls in the governance and impact of existing multi-lateral climate finance facilities. The World Bank’s announcement of the Global Shield Financing Facility at least indicates it is aware of the need to increase finance to countries that suffer heavy economic loss due to climate change-driven disasters.
- Although an agreement was reached on loss and damage, there was little movement in the formal decisions to keep global temperature change below 1.5ºC. This is despite UNEP’s latest Emissions Gap Report showing in “cold scientific terms” that there is no “credible pathway to 1.5°C” and that current government policies with no additional action are projected to result in global warming of 2.8°C by the end of this century – a devastating outcome. The negotiations did see some Parties pushing for a weakening of commitments to 1.5ºC, so the continued commitment to “pursue further efforts to limit the temperature increase to 1.5ºC” and avoid backsliding promising, and an important reminder to investors of the commitment to the rapid transition.
- Phasing down fossil fuels was a significant and contentious topic at this COP again. The final agreement did not provide any major breakthroughs compared to that of COP26 with the final decision text failing to progress the phasing out the use of fossil fuels. The inclusion of text noting the importance of ‘low-emission’ energy has had some concerned that this could provide a loophole for financing of new ‘cleaner’ fossil fuel projects. Outside of official negotiations, the transition away from fossil fuels was the topic of numerous high-level discussions involving senior government officials, industry leaders, and leading subject matter experts. One such initiative that garnered significant attention was US Special Envoy John Kerry’s Energy Transition Accelerator that seeks to utilise private capital via carbon markets to accelerate the deployment of renewable power and the retirement of fossil fuel assets in developing countries.
- Countries made modest but positive progress on adopting some of the outstanding operational details of Article 6 – the provision of the Paris Agreement that establishes cooperative approaches to financing mitigation. The mood within the negotiations on Article 6 in Sharm el-Sheikh was much less combative, which demonstrated a marked shift in the tone and pace of Article 6 negotiations. Countries were unable to address their full mandate, so negotiations on Article 6 will continue in 2023 and 2024; however, this should not affect continued progress on Article 6.2 piloting efforts, which are accelerating. The rules under Article 6 affect government-to-government transactions, as well as other international compliance scenarios, such as the international aviation carbon market. However, Article 6 rules may also impact the voluntary carbon markets—whether directly, should a government choose to require national authorisation under Article 6 for the voluntary use of carbon credits generated within its borders, or indirectly, where decisions under Article 6 influence the buying preferences of voluntary actors. This article by Pollination has more technical detail on the outcomes and expected impacts of the Article 6 negotiations at COP27.
- Shortfalls in the COP27 decision texts are somewhat allayed by the progress made outside the negotiations through new partnerships and announcements by both governments and non-state actors. The spirit of “together for implementation” was alive in many of these announcements, demonstrating continuing private sector commitment to the Paris Agreement goals. Notably, 26 countries and the EU launched the Forest and Climate Leaders’ Partnership (FCLP), chaired by the U.S. and Ghana, to help deliver on the commitment made at COP26 by over 140 world leaders to halt and reverse forest loss and land degradation by 2030. Japan launched an Article 6 Implementation Partnership to support capacity building and knowledge sharing to accelerate the operationalisation of international cooperation under Article 6, with more than 40 countries pledging to participate to date.
- Carbon market integrity was a key topic at COP27, hot off the heels of the release of the Report of the High-Level Expert Group on Net-Zero Commitments of Non-State Actors and the Energy Transition Accelerator. The volume of new carbon market initiatives announced and the discussions in the room make it clear that demand from the private sector for carbon credits remains high. However, systemic issues in voluntary market infrastructure are limiting supply, and increasing market sophistication is needed to ensure integrity safeguards are embedded in the scaling market. Amidst the many carbon market side events, experts and investors emphasised the key role of communities and Indigenous knowledge in delivering enduring nature-based solutions in a way that also addresses sustainable development and the empowerment of Indigenous communities.
- Gabon’s REDD+ results, which were reported under the Warsaw Framework for REDD+, shone a spotlight on the urgent need to accelerate and scale predictable finance for emission reductions and removals from forests through both market and non-market measures. The globally important role of high forest, low deforestation (HFLD) countries, like Gabon, was also front of mind for many, as HFLDs and intact forest landscapes have been largely left behind by the private sector and the voluntary carbon market. For example, Climate Impact X and partners released recommendations for companies investing in carbon credits from intact forest landscapes, while other stakeholders focused on the need for innovative financing mechanisms to provide near-term incentives to maintain remaining intact forests.
- The Sharm el-Sheikh Implementation Plan reiterates and builds on the Glasgow Climate Pact’s reference to the “importance of protecting, conserving and restoring nature and ecosystems” but for the first time the decision text explicitly encouraged “nature-based solutions” and “ecosystems-based approaches”. An increased focus on nature-based solutions and ecosystems-based approaches by governments is critical for addressing the biodiversity crisis and could also help the private sector value and make decisions regarding protection of natural assets more effectively. While the official COP27 cover text failed to refer to the UN Convention on Biological Diversity’s COP15, nature was a dominant topic at COP27, with many side sessions focusing on biodiversity and nature-based solutions.
- The Sharm el-Sheikh Adaptation Agenda, which was launched at the beginning of COP27 by the Egyptian COP presidency, represents an important set of guiding principles for global adaptation efforts and a timely signal that adaptation is moving up the agenda. The Adaptation Agenda sets out 30 global adaptation outcome targets (such as “smart and early warning systems reach 3 billion people”) by 2030 across food and agriculture, water and nature, coastal and oceans, human settlements, and infrastructure. It also highlights “enabling solutions” for adaptation planning and finance. Many felt that COP27 failed to make meaningful financial commitments towards adaptation for countries on the front lines of climate change impact and nature degradation. However there is support for a new campaign encouraging 3,000 insurance companies to commit to adaptation finance by COP28, and a new “Mangrove Breakthrough” initiative that is pushing for the protection and restoration of millions of hectares of mangroves globally, among other related initiatives. Relatedly, a decision was reached at COP27 to establish a framework for achieving the Global Goal on Adaptation, to be discussed and adopted at COP28, with a deadline to agree the new collective quantified goal on finance in 2024. The decision text called on Parties to scale up their financial contributions.
- COP27 was supposed to be the “implementation COP”. Arguably the most urgent and important aspect of that implementation is the flow of funds to where they are most needed for the global transition to a net zero, nature positive world. Unfortunately, the developed world has yet to reach the $100 bn in funds, first discussed at COP15 in Copenhagen in 2009, that were supposed to finance climate efforts in developing countries annually by 2020. While large question marks remain about how much money developed country governments will channel towards the global South in the future, there have been promising side deals involving private financial institutions, not least of which the $20bn net zero transition commitment to Indonesia described below, that show that the private sector is increasingly stepping up to the plate. Given the lagging flows of funds at scale, innovative partnerships that seek to unblock the barriers to such flows are increasingly important.
Meanwhile at the G20 in Bali, the Just Energy Transition Partnership for Indonesia announced a financing package of $20bn for Indonesia’s net zero transition. The financing would be provided by a mix of governments and financial institutions that are members of the Glasgow Financial Alliance for Net Zero. As part of the deal, Indonesia will speed up its transition to net zero. At a time when transition capital flows to emerging markets are both critically needed but face significant barriers, the announcement is a major milestone and is deemed by some to be the “single largest climate finance transaction or partnership ever”. The announcement was widely hailed as an important breakthrough and provides another essential template for other country-focused transition partnerships.
Overall, COP27 delivered incremental progress in the global effort to address climate change. While there have been some shortfalls in the outcome of COP27, the annual negotiations are not the only way to pursue meaningful action on climate change and we feel heartened by the breadth of momentum from the private sector and collaborations between governments that took place outside of the negotiating rooms.
Some business and NGO groups are critical that the Sharm el-Sheikh Implementation Plan does not explicitly refer to the Convention on Biodiversity or COP15 currently taking place in Montreal. However, the Plan does note “the importance of ensuring the integrity of all ecosystems, including in forests, the ocean and the cryosphere, and the protection of biodiversity, recognised by some cultures as Mother Earth”. At COP27, efforts were made to increase collaboration between the two COPs, including via discussions on resource mobilisation barriers to a nature-positive, net-zero transition, and we are continuing this discussion at COP15 in Montreal.