As COP27 begins in Egypt this week, EcoAct consultant Chimdi Obienu discusses COP27 key topics, what needs to be picked up from COP26, what will be covered this year and the outcomes he hopes will emerge from this crucial climate change summit.
Potential topics to watch out for at COP27
- New annual target for climate finance for developing countries
- Negotiation over ‘Loss and Damage’ finance facility to compensate for negative climate impacts
- Progress on rules and methodologies for new multilateral carbon credit trading system
- Tension regarding US Inflation Reduction Act (IRA) and EU Carbon Border Adjustment Mechanism (CBAM)
Global context of COP27
COP27 arrives in Sharm el-Sheikh, Egypt, amid a challenging landscape for climate action. The global energy crisis sparked by Russia’s invasion of Ukraine has created conditions that undermine the multilateral cooperation required to tackle the climate crisis. Western governments have lost credibility after scrambling for new sources of fossil energy, while leaders around the world may perceive expensive commitments as politically untenable amidst the economic crises unfolding at home. Moreover, the US, EU, and other allies are in conflict over whether their climate measures comply with World Trade Organization rules. The event itself is also mired in controversy over the conduct of the host country.
The projected lack of ambition at the upcoming conference is distressing, despite a flurry of Nationally Determined Contributions (NDCs) and net-zero pledges. The latest IPCC report says that we must reduce emissions to 43% below 2019 levels by 2030 to stand a chance of limiting warming to 1.5C, but full implementation of all latest NDCs would only lead to a 3.6% reduction. Moreover, there is a significant “credibility gap” between the climate targets set by governments and the actions taken to achieve them. A year before the first Global Stocktake at COP28, at which Parties to the Paris Agreement will assess the overall progress towards its long-term goals, we appear to be falling well short.
There is some hope that the private sector can bridge some of the gap, with a growing number of firms continuing to set Science-based targets (SBTs) and net-zero goals. The Glasgow Financial Alliance for Net Zero (GFANZ) will use the event to promote its new recommendations about net-zero planning for financial institutions, while the International Standards Organization (ISO) will support innovation by releasing its own net-zero guidelines. However, recent reports give good reason to doubt the integrity of corporate climate pledges, and accusations of greenwashing are never far away.
Despite some ground-breaking efforts, there is a lingering sense that more might have been achieved at COP26. The Glasgow Climate Pact (the formal outcome of the meeting) explicitly took aim at fossil fuels for the first time, with all countries promising to “phase down” coal use and “phase out” inefficient subsidies. But the final text was watered down – earlier drafts had called for a “phase out” of coal and end to all fossil fuel subsidies. Over 120 countries announced new NDCs, but these were far from sufficient to put Earth on track to limit warming to 2C, let alone 1.5C. As usual, several voluntary initiatives were announced, such as the Global Methane Pledge and the Declaration on Forest and Land Use. Yet there is a growing sense that such moves distract from the lack of transformative progress on concrete, legally binding action.
COP27 key topics: Climate finance
Ironically then, this year is expected to offer a technical event from which few final outcomes are anticipated. Instead, during what has been branded the “Implementation COP”, parties will focus on communicating how they will execute existing promises, and flesh out details of prior agreements. The central theme will be climate finance, which can be separated into three strands:
- Annual Target: Wealthy countries failed to deliver on their promise to provide $100 billion (USD) in annual climate finance to developing economies by 2020 (they managed $83 billion). The event will see a push to ensure that the current target is met through 2025, as well as negotiations on a post-2025 annual goal, with $100 billion set as the floor amount.
- Loss and Damage: This refers to financial compensation provided to developing economies to account for the negative impacts of climate change, both economic (e.g. destruction of infrastructure) and non-economic (e.g. loss of territory). The US appears willing to engage in discussions about a dedicated Loss and Damage facility, having quickly shut down any such suggestions in previous years. In September, Denmark became the first UN member state to promise Loss and Damage funds (worth $13 million), which may generate some momentum.
- Adaptation: Historically, countries have received far more financing for climate change mitigation than adaptation, even though the Paris Agreement states that both issues should be addressed equally. At COP27, wealthy countries will be pressed to specify how they will ramp up the provision of adaptation funds, with a focus on grant-based finance over concessionary loans.
COP27 key topics: Article 6
There may also be progress on Article 6 of the Paris Agreement, which lays down rules for international carbon markets and has significant implications for offset strategies. In brief, Article 6.2 allows countries to bilaterally trade carbon credits, called Internationally Transferred Mitigation Outcomes (ITMOs), while Article 6.4 provides for the creation of a multilateral system through which countries can trade Article 6 Emission Reductions (6.4ERs). Critically, countries may use Article 6 credits to meet their NDCs, and must modify their calculated emission levels based on the number of credits bought or sold (known as making Corresponding Adjustments).
However, while the key elements above were formally adopted at COP26, parties agreed to set aside many details for future meetings, including:
- Eligibility criteria: The current rules allow for Article 6 credits to be issued only for emissions reductions and removals. Parties will debate whether to expand eligibility to projects securing “emissions avoidance” or “conservation enhancements”. They must also determine the broader social impacts that eligible credit-generating activities must/must not generate.
- Methodology: Opinions diverge on how project additionality should be determined, and how to find a balance between the cost and accuracy of monitoring, reporting, and verification. The process for applying Corresponding Adjustments is also yet to be finalised.
- CDM transition: Millions of carbon credits were generated under the Clean Development Mechanism (CDM), the UN’s previous global trading system. It is agreed that some CDM projects can be transferred to the new global mechanism and that some CDM credits may be used towards NDCs, but specifics about this transition remain murky.
- Market linkages: The new multilateral mechanism is expected to link with existing voluntary and compliance markets, although parties must decide upon the exact form of these interfaces.
- Transparency: Some countries are pushing for greater information disclosure requirements for bilaterally traded credits, while others are pushing for most information surrounding these transactions (e.g. mitigation of negative impacts) to be deemed fully confidential.
Note: ‘Cooperative approaches’ refers to Article 6.2; ‘Mechanism’ refers to Article 6.4.
Expectations for COP27 may not be high, but this convergence of leading voices from government, the private sector, and civil society is a valuable opportunity that cannot be disregarded. People are depending on – and demanding – their leaders to step up, exemplified by UK Prime Minister Rishi Sunak being forced to reverse his decision not to attend. Let’s hope for more such surprises.
 UNFCCC 2022 NDC Synthesis Report: https://unfccc.int/ndc-synthesis-report-2022
 GFANZ Recommendations and Guidance on Financial Institution Net-zero Transition Plans (November 2022): https://www.gfanzero.com/publications/
 Accenture report: https://newsroom.accenture.com/news/nearly-all-companies-will-miss-net-zero-goals-without-at-least-doubling-rate-of-carbon-emissions-reductions-by-2030-accenture-report-finds.htm
 Great Thunberg will not attend COP27, and described it as an opportunity for “greenwashing, lying, and cheating.”