The twenty-seventh UN Conference of the Parties in the sunny resort of Sharm el-Sheikh, Egypt, has been dubbed an “implementation COP”. It was the climate summit that would finally fulfill previous financial pledges to invest in renewable energy, build infrastructure to withstand extreme weather events, respond to climate disasters and fund other aspects of the climate action. The Egyptian presidency of the summit also presented the meeting as an “African COP”, to emphasize that the implementation is more relevant for Africa (and other parts of the South, such as Pakistan) which are extremely vulnerable to global warming. climate, although they contribute little to global warming. greenhouse gases causing climate change. But at the conclusion of the meeting, some positive points emerged, although much remains to be done to achieve the implementation goals.
From billions to millions of public finances?
In the weeks leading up to the summit, the growing gap between the financial resources needed to address the climate crisis in low- and middle-income countries (LMICs) and the actual delivery was evident. To limit global warming to 1.5 degrees Celsius, estimates indicate that annual investments in clean energy must triple by 2030, exceeding $4 trillion, while adaptation in developing countries will cost up to at $340 billion a year. Yet Annex II countries legally bound to provide climate finance under the UN climate convention have made smaller contributions to the internationally agreed goal of $100 billion a year. In 2020, the United States, Canada, Australia and the United Kingdom paid well below their internationally agreed targets than their historical emissions shares, while Germany, France, Japan and the Netherlands each gave billions of dollars more than their obligations.
A larger share of pledged public funding is flowing in at COP27, but it remains well below what is expected. President Joe Biden has announced that the United States will aim to provide $11 billion per year by 2024 and $150 million to support adaptation initiatives, including in Africa. The latter will likely encompass the President’s emergency plan for adaptation and resilience in Africa, consisting of early warning systems and includes $24 million to help farmers access insurance, $10 million to supporting the launch of the Cairo Center for Learning and Excellence in Adaptation and Resilience, and $25 million for the African Union’s African Adaptation Initiative, among others. Across the Atlantic, Germany is leading a G7 initiative that will support disaster risk management in vulnerable countries. Contributions to this fund to date include €170 million from Germany, €20 million from France, €10 million from Ireland and €7 million from Canada.
This lack of forthcoming funding – from Annex II countries, whether due to lethargy or competing national priorities – does not bode well for other climate funds. Loss and damage financing, which finally made it onto the agenda of this year’s COP after years of LMIC advocacy, is intended to provide compensation for climate disasters caused by greenhouse gas emissions. greenhouses in rich countries. It is an addition, not a substitute, 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 (should China and India count, even if they are large emitters but not Annex II countries?) are all serious questions that are the subject of debate.
How to unlock trillions of private capital?
On the private sector front, the story is slightly more optimistic with the promise of trillions of dollars in the capital markets waiting to be unlocked with the right mechanisms. But even promising developments have encountered obstacles. For example, the Glasgow Financial Alliance for Net Zero pledged at COP26 to raise over $130 trillion in assets from investment banks, hedge funds, private equity firms and others in for climate action. But it now faces an uncertain future after the alliance dropped its link to the UN-backed Race to Zero, which it had previously touted as a mark of its rigorous standards. Moreover, the global energy crisis exacerbated by the war in Ukraine has reinforced the reluctance of several financiers to immediately halt investments in fossil fuels, and thus meet the coalition’s net zero 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 generate 300 million carbon credits per year on the continent by 2030, unlock $6 billion in revenue and support the creation of 30 million jobs. Under the leadership of its newly elected president, Brazil has joined the Democratic Republic of Congo and Indonesia – which collectively are home to more than half of the world’s remaining primary rainforests – to form a rainforest protection alliance to monetize and protect these carbon sinks. US climate envoy John Kerry also announced several initiatives supporting carbon trading, with members of Congress promising more action on this front. Global carbon markets, worth $850 billion, could grow even faster.
Are side deals becoming the new norm?
The most notable financial packages have been prepared outside of COP27 and targeted at specific countries, a trend that is gaining traction around the world. On Tuesday, Indonesia announced a $20 billion Just Energy Transition Plan (JETP) to support its coal phase-out by 2030 and achieve net zero emissions by 2050. But the plan was actually unveiled thousands of miles from Sharm in Bali, Indonesia. , at the G20 summit. Like South Africa’s pioneering $8.5 billion JETP announced in Glasgow in 2021, Indonesia’s plan was negotiated with a number of Annex II countries co-led by states States and Japan, including Canada, Denmark, European Union, France, Germany, Italy, Norway and United Kingdom. An $11 billion JETP for Vietnam is expected to be announced at the ASEAN-EU summit in December. Egypt is also pushing for $500m from the US, Germany and the EU to fund its clean energy transition, and Biden has announced a plan to raise $2bn. of private investments for the development of solar energy in Angola.
These side agreements carry a certain promise of country ownership: they are based on clear objectives, co-designed with the country in question, based on the country’s plans and resource allocations, are limited in the time, are potentially easier to track than aid money, and could give the country more agency than the donor-recipient power dynamics of aid money. Yet if such agreements were to replace multilateral frameworks in the provision of climate finance, it could be a devastating setback for global climate action, not least because smaller, poorer and more vulnerable countries will not have the muscle geopolitics to negotiate their own JETPs.
Many LMICs excluded from these side deals could be drawn even further into China’s orbit. After all, China – which usually avoids loud announcements at COP summits – is still the biggest funder of energy projects in Africa. Chinese banks have provided nearly $50 billion in energy investment to the continent between 2000 and 2020. Many of these projects are negotiated and agreed to bilaterally, with individual countries or through the triennial Forum on China-Africa Cooperation. . With China already doing more on energy financing beyond the UN COP framework and Western countries inadvertently using a similar playbook of negotiating side deals with middle-income countries, this development could constitute a serious setback for multilateralism.
By advancing an implementation target for COP27, the Egyptian presidency succeeded in facilitating a more focused discussion on climate finance. But the actual delivery of promises leaves much to be desired. In many cases, public funding was in the order of a few million dollars, instead of the expected billions and trillions needed to finance a low-carbon transition. Although policy and regulatory innovations could unlock trillions of dollars of private capital, the victories at COP27 were not ambitious enough to meet the scale of the challenge. Glacial progress in meeting funding targets is likely to cause more frustration around the world, leading to louder calls for climate reparations and potentially raising questions about the COP’s ability to deliver results, as powerful countries negotiate more and more parallel agreements. While the amounts and mechanisms for mobilizing climate finance will continue to be debated at UN summits, those most vulnerable to warming will continue to struggle with the delay to combat the effects of global warming.