ROAD TO COP28: Key Takeaways from COP27

World leaders convened in Sharm El-Sheikh, Egypt, from 6 November to 18 November 2022, for COP27, the United Nations climate summit, amidst a context shaped by severe economic and geopolitical crises worldwide. Due to escalating tangible consequences of climate change such as unparalleled floods in Pakistan, deteriorating famines in Africa, global heatwaves, and wildfires, COP27 was expected to prioritise enhancing efforts against climate change, emphasising energy security, climate financing for developing nations, and ensuring a “just transition”.

The prominence of these issues was inevitable, with developing nations and vulnerable communities fervently advocating for “climate justice”. With all such issues at hand and following hours of endless negotiations in a span of two weeks, COP27 was concluded with the adoption of Sharm el-Sheikh Implementation Plan (“Sharm el-Sheikh Plan”).

We summarised the crucial outcomes and practical implications of the key takeaways from COP27 ahead of the approaching COP28.

What were the key outcomes of COP27?

Loss and Damage Fund

Arguably, the most remarkable milestone from COP27 was the agreement reached to establish the “Loss and Damage Fund”. The parties reached a breakthrough agreement to establish new funding arrangements and a dedicated fund for the effects of climate change. In simplest terms, Loss and Damage Fund is a fund aims to provide compensation to developing countries that are mostly affected by the crippling effects of climate change despite having contributed the least to its onset. It covers the irreversible impacts of climate change despite mitigation and adaptation measures and is a symbolic recognition of not leaving anyone behind when it comes to climate change.

The agreement also included the creation of a transitional committee which will make recommendations on the funding arrangements. The fund will work together with other finance mechanisms, specifically, the Global Shield Financing Facility.

Climate finance

The existing goal of USD 100 billion funding that was initially promised by developed countries, has not yet been met. Several EU counties have repeated their vow to meet such target and increase their commitments and the Sharm El-Sheikh Plan reemphasised the need to continue working to meet such existing commitment. However, some found that the reference in the Plan merely “urging” developed countries to meet such goals inexplicit and expect more tangible steps with respect to climate finance goals from COP28.

Push to keep 1.5°C alive

The parties repeated the need to pursue the 1.5°C limit in the Paris Agreement and reaffirmed their commitment to limit global temperature rise. World leaders indicated that they remain determined to keep such target noting that it is now proving to be implausible. However, the efforts to retain such limit were somewhat frustrated by the unsatisfactory agreement on fossil fuels.

Fossil fuels – Phasing down or phasing out

The use of fossil fuels has been controversial going into COP27 considering the rising energy prices following the Ukraine War. The Glasgow Climate pack in COP26 had included an agreement by the parties to “phasedown of unabated coal power and phase-out of inefficient fossil fuel subsidies”. While some countries wanted to add a commitment to phase down all fossil fuels, in the end the Plan merely repeated the goal in COP26 with respect to the phasing out of fossil fuels and contained a provision to boost “low-emissions energy”. The references to low emission energy were found somewhat ambiguous since they can mean various things, wind and solar farms or coal fired stations fuels with carbon capture and storage systems.

Carbon trading

COP27 saw the launch of the African Carbon Markets Initiative which aims “to drive a dramatic increase in the production of African carbon credits while ensuring that carbon credit revenues are transparent, equitable, and create good jobs”.

Further discussions with regards to a carbon trading scheme continued during COP27. The parties focused on Article 6 of the Paris Agreement which details voluntary carbon markets. The draft that was published at the end of the COP27 sets out how carbon trading would function and outlines a two-tiered system. Such system would apply separate rules depending on who buys the carbon credits and for what purpose. It foresees a new market where private companies would buy carbon credits counting towards their emissions goals. This could result in double-counting since a company can buy a credit for emission reduction that is already being used by a country for its own climate goals. However, the draft was not adopted, and the outcomes of these discussions and the detailed rules and guidance were deferred to COP28.

Revamping Development Banks

The Sharm el-Sheikh Plan recognised that delivering funding would require a transformation of the financial system. A suggested area of transformation was the reform on the multilateral development banks practice including the urgent changes to World Bank which were said to have failed to provide funding to poor countries. No action plan was included in the final version of the Sharm El-Sheik Plan with respect to revamping development banks.

What did COP27 fail to deliver and expectations from COP28

A very different world awaits COP28 with more geographical crises such as famine, wildfires, and flooding against its backdrop. The world is paying more and more attention to climate change and the parties feel the need to adopt robust plans and take more ambitious actions to tackle it.

With COP27 failing to demonstrate greater ambition towards ending the use of fossil fuels, the attention is now on COP28. Critics are noting the parties are not going far enough to achieve the 1.5°C target.

We have summarised here what to expect from COP28 in light of what happened at COP27 and the current tense geopolitical backdrop.