Agreement on a new loss and damage fund is one of the bright spots of the summit, but more needs to be done to raise the trillions of dollars needed to finance the low-carbon transition.
The 27th United Nations Conference on Climate Change, held in the sunny tourist destination of Sharm El-Sheikh (Egypt), was dubbed the “COP of implementation”. This was the climate summit that would finally deliver on earlier financial promises to invest in renewable energy, build infrastructure to withstand extreme weather events, respond to climate disasters, and finance other aspects of climate action. The Egyptian summit presidency also framed the meeting as an “Africa COP”, to emphasize that implementation is most relevant to Africa (and other parts of the Global South, such as Pakistan) which are extremely vulnerable to global warming, despite contribute little to the greenhouse gases that drive climate change. Although at final Some positive points emerged from the meeting, it is not enough to meet the implementation objectives.
Less public funding than expected
In the weeks leading up to the summit, the gap between the financial resources needed to address the climate crisis in low- and middle-income countries and actual implementation was widening. To limit global warming to 1.5 degrees Celsius, it is estimated that annual investment in clean energy needs to triple by 2030, exceeding $4 trillion, while adaptation in developing countries will cost up to 340,000 million dollars year. However, the countries of the Annex II, legally required to provide climate finance under the terms of the UN climate convention, have made contributions less than the internationally agreed target of $100 billion a year. In 2020, the United States, Canada, Australia, and the United Kingdom paid well below their internationally agreed targets based on their historical emissions quotaswhile Germany, France, Japan and the Netherlands each gave billions of dollars more than agreed.
Pledged public funding is coming to COP27, but it remains well below expectations. President Joe Biden advertisement that the US will try to contribute 11,000 million dollars annually until 2024 and 150 million dollars to support adaptation initiatives, including Africa. The latter will likely include the President’s Emergency Plan for Adaptation and Resilience in Africa, which includes early warning systems and includes $24 million to help farmers access insurance, $10 million to support the implementation in progress from the Cairo Center for Learning and Excellence in Adaptation and Resilience and $25 million for the African Adaptation Initiative of the African Union, among others. On the other side of the Atlantic, Germany leads a G7 initiative which will support disaster risk management in vulnerable countries. Contributions to this fund so far include €170 million from Germany, €20 million from France, €10 million from Ireland and €7 million from Canada.
This lack of future funding planning by Annex II countries (either due to apathy or conflict of interest) does not bode well for other climate funds. Financing for loss and damage, which finally made it onto the agenda for this year’s COP after years of lobbying by low- and middle-income countries, is intended to offset climate disasters caused by rich countries’ greenhouse gas emissions. But it is an addition, not a replacement, to the $100 billion agreed at COP15 in Copenhagen in 2009. How to quantify loss and damage, where to house the funds, how to disburse them, and who pays this compensation (do they have to pay China and India, although they are large emitters, but not Annex II countries?) are key issues that have not been resolved.
How to unlock trillions of private capital?
As for the private sector, the outlook is somewhat more promising, with trillions of dollars in the capital markets waiting for the right mechanisms to be unlocked. But even the most promising advances have run into roadblocks. For example, the Glasgow Financial Alliance for Net Zero Emissions promised at COP26 to mobilize more than $130 trillion of assets from investment banks, hedge funds, private equity firms and others towards climate action. But now he faces an uncertain future after the alliance has abandoned its link with the race to zero, backed by the UN, which it had previously exhibited as a mark of its rigorous standards. In addition, the global energy crisis exacerbated by the war in Ukraine has reinforced the unwillingness of several potential funders to immediately stop investments in fossil fuels in order to meet the coalition’s net zero emissions requirement.
More promising are developments around carbon trading, such as the launch of the African Carbon Markets Initiative. Created to increase the continent’s participation in voluntary carbon markets, the initiative aims to produce 300 million carbon credits annually on the continent by 2030, unlock $6 billion in revenue and support the creation of 30 million jobs. Under the leadership of its new president, Brazil joined the Democratic Republic of the Congo and Indonesia—which together hold more than half of the world’s remaining primary tropical forests—to form an alliance of rainforest protection in order to monetize and protect these carbon sinks. US climate envoy John Kerry also announced several initiatives to support carbon trading, with members of Congress pledging more action on this front. Global carbon markets, with a value of 850,000 million dollarsthey could expand even faster.
Are side deals the new norm?
The most notable financial packages were prepared outside of COP27 and earmarked for specific countries, a trend that is gaining momentum around the world. On Tuesday, Indonesia announced a Just Energy Transition Plan (JETP) of 20,000 million dollars to finance the phase out of coal in its economy by 2030 and reach net zero emissions by 2050. But the plan was unveiled thousands of kilometers from Sharm el- Sheikh, in Bali (Indonesia), at the G20 summit. Like South Africa’s groundbreaking $8.5 billion JETP, announced in Glasgow in 2021, Indonesia’s plan was negotiated with a number of Annex II countries co-led by the US and Japan, including Canada, Denmark, the European Union, France, Germany, Italy, Norway and the United Kingdom. In this line, it is expected that a JETP of 11,000 million dollars will be announced for Vietnam at the ASEAN-EU summit in December. Egypt is also working to secure $500 million from the US, Germany and the EU to finance its transition to clean energy, and Biden announced a plan to mobilize $2 billion in private investment for solar power development in Angola.
“If side deals were to replace multilateral frameworks in climate finance, it could spell a devastating setback for global climate action”
These side deals they promise, in some way, encourage greater participation by the country in question: they are based on clear objectives, they are designed jointly with it, they follow their own plans and the allocation of resources of the country, they are limited in time, they offer an easier follow-up of the aid money and could give the country more power than it has in the donor-recipient dynamic. However, if these agreements were to replace multilateral frameworks in climate finance, it could spell a devastating setback for global climate action, not least because smaller, poorer and more vulnerable countries will not have the geopolitical clout to negotiate their own JETPs.
Many of the low- and middle-income countries left out of these side deals could find themselves drawn further into China’s orbit. After all, China – which tends to avoid big declarations at COP summits – remains the largest financier of energy projects in Africa. Chinese banks contributed almost 50,000 million dollars in energy investments in the continent between 2000 and 2020. Many of these projects are negotiated and agreed upon bilaterally, with each of the countries or through the triennial China-Africa Cooperation Forum. With China already doing more on energy finance outside of the UN COP, and a similar strategy being used by Western countries to negotiate side deals with middle-income countries, this development could be a serious setback for multilateralism.
By putting the implementation goal on the table for COP27, the Egyptian presidency succeeded in facilitating a more focused debate on climate finance. But the actual fulfillment of the promises has left much to be desired. In many cases, public funding was in the lows of millions of dollars, rather than the expected billions and trillions needed to finance a transition to a low carbon economy. Although policy and regulatory innovations could unlock trillions of dollars of private capital, the triumphs of COP27 have not been ambitious enough to meet the scale of the challenge. Slow progress on meeting funding targets is likely to spark frustration around the world, prompting stronger calls for climate reparations and could cast doubt on the COP’s ability to deliver as countries powerful are negotiating more and more side deals. As the amounts and mechanisms for mobilizing climate finance continue to be debated at UN summits, those most vulnerable to warming will continue to struggle against the backlog to combat the effects of a warming planet.
Originally published in English on the Web of Carnegie.
