COP27: a loss and damage deal, and global momentum beyond

That was the COP that was

COP27 in Egypt has been gavelled to a close, some 36+ hours over time, making it the second-longest COP. Was it a success?

Well, they did a deal! Any negotiated deal is, by definition, a series of compromises and rarely everything that anyone might want it to be. The outcome in Sharm El-Sheikh has landed somewhere better than expected, however.

A COP deal is hard to get. The process is complex, detailed, and subject to agreement between nearly 200 nations. Whilst the process is about the end goal, it is also about building further momentum, avoiding backsliding. The geopolitics of 2022 make it all the more impressive that this, too, has largely been achieved.

A deal is powerful. It sends signals over and above what it commits to on the page. Signals from past COPs – particularly since Paris in 2015 – have built momentum. Momentum in net zero targets, which now cover 90% of the world’s GDP. And in global markets, as industries produce the clean technologies the Paris Agreement needs, the prices continue to fall as more is bought and built.

A deal is not the only thing that happens at COP. Over and above the deal, other things have happened over the two weeks that help drive progress and momentum.

The deal

That loss and damage made it onto the COP agenda as a substantive item for the first time was a big step. In a year of truly terrible climate impacts, it was important that it did, particularly of course for the countries feeling the brunt. And with new evidence showing African nations facing GDP losses of up to a fifth of their value by 2050, it was particularly important that it should be the focus at an African COP.

That a deal has been reached that will establish ‘new funding arrangements’ – a fund, in fact is remarkable, and an outcome many are celebrating. Nations worst affected by climate impacts are mostly those least able to afford the costs. This deal puts us on the road to a situation where nations that can afford to, with multi-lateral development banks and other institutions with deep pockets, will provide financial help to poorer countries. The principle is no different really from existing climate finance arrangements, simply recognising that worsening climate impacts means loss and damage requires its own mechanism.

Aside from this, the COP27 decision text also welcomes the IPCC sixth assessment report, and reiterates the Glasgow Climate Pact’s commitment to 1.5°C and language on coal phasedown. Some of where it falls short can be summed up by former COP26 President, Alok Sharma in the closing plenary:

“We joined with many parties to propose a number of measures that would have contributed to [raising ambition]. Emissions peaking before 2025 as the science tells us is necessary. Not in this text. Clear follow through on the phase down of coal. Not in this text. Clear commitments to phase out all fossil fuels. Not in this text. And the energy text weakened in the final minutes,” adding “all of us need to look ourselves in the mirror and consider if we have fully risen to the challenge. I promise you if we do not step up soon and rise above the minute to midnight battles to hold the line we will all be found wanting.”

Beyond the deal…

During COP, the UN established new rules for companies’ emissions targets on which they can be challenged when they set net zero commitments. The high-level group that constructed the guidelines was set up by UN Secretary General, Antonio Guterres at COP26 last year and, he said, indicates “zero tolerance for net zero greenwashing”.

With finance central to many parts of the negotiations, the Prime Minister of Barbados, Mia Mottley, led the charge on proposed reform of the international financial system in her Bridgetown Agenda. At COP, Canada and France indicated support for her package of reform of multi-lateral development banks (MDBs), alongside use of IMF special drawing rights, and a levy on oil and gas companies to raise funds for climate loss and damage.

Despite the presence of over 600 fossil fuel lobbyists at COP27, governments and investors were seemingly beating a path to renewables’ door rather than to the oil and gas companies and their supporters, a tracker of side deals indicates. But some observers have suggested that the presence of fossil fuel CEOs in Sharm El-Sheikh, keen to lay claim to green credentials, suggests they understand the clear and present danger facing their businesses in the form of falling clean technology costs and the acceleration of decarbonisation this heralds.

Glasgow delivered lots of side-deals and pledges amongst groups of nations. Whilst we saw far less of this in Sharm than in Glasgow last year, we did hear from the Global Methane Pledge, the Beyond Oil and Gas Alliance, and the deforestation pledge signatories. All extended their deals, and were signing up new members. In particular, more than 150 countries are now signed up to the Global Methane Pledge to cut emissions of the fast-acting greenhouse gas this decade. In a similar vein, the $8.5 billion deal done at COP26 for the EU, US, UK and others to support South Africa’s just transition away from coal (JET-P, as it is known) was repeated during COP27. The deal this time was for $20 billion with Indonesia and was announced during the G20 leaders’ summit in Bali which fell in the middle of COP27.

Clean transition momentum

Many leave Egypt angry that COP27 passed up the chance to make a bold commitment in its decision text on ridding ourselves rapidly of gas and oil, alongside the existing language on coal phase-down. But global markets, responding to green tech cost reductions, as well as to crises, are moving faster on clean transition than many country targets now suggest. This is particularly true of the biggest emitters, whose targets lag behind the trajectories they are setting on their delivery.

For instance, by cutting off Europe’s gas, Vladimir Putin – a man who once said climate change could save Russians money on fur coats – is turbo-charging the European Union’s decarbonisation. Frans Timmermans said in Egypt he expected they would raise their ambition from 55% cuts to 57%, probably early next year.

And the other three big emitters are also racing ahead. China is deploying renewables at a rate that leaves the rest of the world standing. India’s net zero pledge is backed by fast-moving, growing markets and some big finance. And the US has committed $500bn to climate action, which Credit Suisse expects will leverage some $1.2 trillion in additional investment.

Why does this matter for the UK?

If the UK is not rolling with this momentum, then British businesses will miss economic opportunities and lose out on market share. These opportunities lie both at home in domestic industries but also overseas through investment and exports.

Global investment in clean energy is rising, accounting for almost all additional investment in electricity generation. Renewables accounted for all the growth in electricity demand in the first half of this year, with wind turbines and solar panels now generating 10% of the world’s electricity. The current growth rate would raise that to 40% by 2030. Electric vehicle growth is already displacing more than a million barrels of oil per day, with EVs at 13% of car sales globally, and in the UK up ten-fold from 2019 to 24% of sales in the first half of this year.

Policy decisions in the UK Treasury, Department for Transport, Foreign Office, business department and Number 10 can hasten or slow this. In the recent autumn statement, Ministers again chose not to speed up and scale up investment in energy efficiency, heat decarbonisation and infrastructure to hasten electrification of transport, while business rate hikes on renewables projects are set to significantly increase costs. Not only is this risking missed opportunities in investment and UK jobs, it keeps energy bills high, fails to cut our demand for gas, and delays cuts in emissions.

What the UK risks

Despite being billed as an implementation COP, a prime focus of the summit in Sharm El-Sheikh was on wealthy nations’ support to those countries hit hardest by climate change.

It is in every country’s interest to ensure that other nations can thrive, without leaders having to choose between covering the cost of climate damage or providing public services. Prime Minister, Rishi Sunak, said in Sharm El-Sheikh that it was “morally right” that the UK honour its climate commitments, acknowledging that developing countries had been “unfairly burdened with the carbon debt of richer nations”. The effect of that carbon debt has been to grow financial debt, and developing nations find they are borrowing at interest rates many times higher than those enjoyed by wealthy nations.

The UK can choose to translate Sunak’s pledge to honour the UK’s climate commitment into greater investment in, and support for, poorer, climate vulnerable nations. Doing so is investing in national security – ensuring stable governments and economies, securing supply chains for food and goods we import, and minimising the risk of extremism, conflict and mass migration. Indeed, a fifth of the economic value of overseas supply chains serving UK consumption are in areas of ‘medium’ to ‘very high’ risk of climate hazards.

China understands the geopolitical advantages of investing in infrastructure in poor countries; Russia gets the value of offering military assistance to some of the poorest and most unstable nations in the world. Surely far better for the UK – and for the recipient nations – for Global Britain to be the one making such offers.

What next

COP27 gives us the prospect of real support for nations on the frontline of climate disasters, delivered by a key part of the global rules-based system, that brings nations together to build stability, security and co-operation for the future.

It contains a set of commitments that holds firm on the need to keep warming to 1.5°C, even if the words and targets on the page are outpaced by the real-world momentum of the clean transition.

And it leaves a clear choice facing the UK – embrace the economic opportunities and continued leadership role on the world stage, or face the threats to national security, the economy and the loss of influence that come from stepping back on leadership and climate ambition. Your call, Mr Sunak.