1.     Introduction

COP27 concluded on Sunday 20 November, with Parties reaching agreement on a global loss and damage fund to provide financial assistance to vulnerable nations suffering from climate change impacts. While this is a significant development, other workstreams on the implementation of the Paris Agreement, including the mitigation work programme and market and non-market approaches under Article 6, saw less progress, with a number of issues deferred for further consideration in 2023.

Outside of negotiations, COP27 represented important developments for Australian public and private stakeholders alike. Firstly, the conference saw a step change in Australia’s engagement on the international climate stage, with the Federal Government committing to a number of initiatives that will likely represent opportunities for private sector engagement. Second, the role of private stakeholders was a focal point of the conference, as was highlighted by the release of the recommendations of the United Nations’ High‑Level Expert Group on the Net Zero Emissions Commitments of Non-State Entities, and the launch of initiatives aimed at facilitating private sector ambition.

In this article, we canvas some of the key outcomes of the conference and their likely implications.   

2.     The Cover Decision

The importance of climate finance was front and centre in the cover decision for the conference – comprising two overarching decisions of the Conference of the Parties to the UNFCCC and the Conference of the Parties to the Paris Agreement each titled the ‘Sharm el-Sheikh Implementation Plan’ – which highlights that approximately USD 4 trillion per year needs to be invested in renewable energy up until 2030 in order to reach net zero emissions by 2050, and that a global transformation to a low-carbon economy is expected to require investment of at least USD 4–6 trillion per year.

The decision also recognises the role of financial institutions, highlighting that delivering the required funding will require a transformation of the financial system and its structures and processes, engaging governments, central banks, commercial banks, institutional investors and other financial actors. This recognition arises from the so-called ‘Bridgetown Agenda’, established earlier this year, which emphasised the need to reform the international financial system in a way that transcends national borders to funnel trillions of dollars into green investments.

With the launch of the ‘Sharm el-Sheikh dialogue’, the cover decision also aims to enhance understanding of the scope of Article 2.1(c) of the Paris Agreement, which states that “financial flows” should align with the Paris Agreement temperature goals.

With respect to mitigation, the decision resolves to ‘pursue further efforts’ to limit global temperature increases to 1.5°C and recognises that limiting global warming to 1.5°C requires rapid reductions in global greenhouse gas emissions of 43% by 2030 relative to 2019 levels. The decision calls upon Parties to accelerate efforts to phase down inefficient fossil fuel subsidies, but does not go so far as to reference a phase out of fossil fuels; an aspect that has been criticised by commentators. It also calls on Parties to communicate new or updated Nationally Determined Contributions (NDCs) in line with the Paris Agreement temperature limits as well as requests the Secretariat to prepare a synthesis report on long-term low greenhouse gas emission development strategies.

Significantly, for the first time, the cover decision encourages Parties to consider nature-based solutions or ecosystems-based approaches to facilitate climate mitigation. This clear recognition of nature-based solutions has been welcomed by commentators, including the IUCN, which notes that recognising the link between biodiversity and climate crises sets an important tone leading into the UN biodiversity conference (CBD COP15) in Montreal in December. Further, the decision also included first-time references to food, tipping points that could push parts of the planet into irreversible decline and an acknowledgement of the right to a healthy environment.

The cover decision also establishes a work programme on just transition, with a draft decision to be prepared for adoption at COP28 and a high-level ministerial roundtable to be convened annually.

Despite this COP being billed as the “African COP”, there is very little mention of Africa in the decision. Although there was a push throughout COP27 for African special needs to be considered and dealt with, ultimately other developing regions also requested consideration of their special needs, thereby watering down any focus on Africa specifically.

3.     Progress on the Global Stocktake

COP27 hosted the second meeting of the Technical Dialogue for the first Global Stocktake. The second meeting focused in particular on identifying the knowledge gaps in implementing the Paris Agreement in order to achieve greater climate ambition as well as enhance international cooperation on climate action. This included consideration of additional information required to inform the Global Stocktake, as well as ‘attention gaps’ for which additional time is needed to consider the issues more fully.

The subsidiary bodies adopted conclusions following the second meeting, with the Technical Dialogue Co-Facilitators to consider the feedback from Parties in preparing the summary report for the meeting as well as in designing the third meeting of the Technical Dialogue. Following publication of the summary report, the Co-Facilitators are to continue engaging with Parties as well as non-Party stakeholders through workshops in 2023.

The first Global Stocktake culminates with COP28 and it is expected that next year’s conference in the United Arab Emirates will galvanise implementation and ambition as a result.

4.     Loss and Damage

Loss and damage was a major focus of COP27, despite funding arrangements being a late addition to the COP27 agenda – and the global community delivered. A global loss and damage fund was agreed by Parties to provide financial assistance to developing nations suffering from climate change impacts. Previously, the EU and US had argued that funds already in existence should be re-directed for loss and damage purposes. However, agreement for the establishment of a specific fund was reached on the basis that the fund will prioritise the most vulnerable developing countries, while big economies and big emitters that are classed as developing countries may be considered potential donors to the fund.

Despite an agreement being reached on the fund, it still needs to be operationalised. A transitional committee has been established to make recommendations on how to operationalise new funding arrangements, including identifying and expanding funding sources as well as ensuring coordination and complementarity with existing funding arrangements, and operationalising the loss and damage fund at COP28 in 2023. In order to aid the work of the transitional committee, the UN Secretariat will run two workshops in 2023 to address loss and damage issues, with relevant institutions participating. The UN Secretariat will also prepare a synthesis report on existing funding arrangements and potential further sources of funding.

Significantly, at COP27 the Parties agreed on the institutional arrangements to operationalise the Santiago Network on Loss and Damage (Network). The Network is a body that was established under the Warsaw International Mechanism on Loss and Damage in 2019, and will offer technical assistance to communities and countries that are impacted significantly by climate fuelled natural disasters. At COP27, the terms of reference for the Network were adopted, which set out the functions and structure of the Network. The Network will have a hosted secretariat, called the Santiago Network Secretariat, that will facilitate the work of the Network. The Network will also have an advisory board, and a network made up of member organisations, bodies, networks and experts covering many topics relevant to addressing loss and damage. The Santiago Network Secretariat will prepare annual reports on the work of the Network. Additionally, it was agreed by the Parties that in providing technical assistance, the Network should take into consideration human rights, the rights of Indigenous Peoples, intergenerational equity, gender equality and vulnerable communities.

5.     Long-term and new global goal outcomes for finance

As was noted in the cover decision, the mobilisation of USD100 billion per year for climate finance for developed country Parties remains elusive, not least due to challenges in mobilising private finance: developed country Parties are being urged to meet the goal through to 2025, along with pressure on multilateral development banks and international financial institutions to mobilise climate finance. The Conference of the Parties also noted the need for ‘grant-based’ funding in developing countries, particularly for least developed countries and small island developing States, while acknowledging that access to climate finance needs to be simplified and stream-lined. Parties are being called on to create policy frameworks and environments that are conducive to the effective deployment of climate finance. Additionally, the UN Secretariat has been tasked with assisting developing country Parties to translate climate finance into action based on their specific needs, especially in respect of technology and capacity-building. The Standing Committee on Finance will prepare a biennial report summarising key findings on progress towards achieving the climate finance goal.

Parties will continue to deliberate on a New Collective Quantified Goal on Climate Finance. The new goal, to be decided by 2024, is recognised as being integral to urgently scaling up climate action and must continue to support the Paris Agreement temperature goals. In quantifying the new goal, Parties are to take into account the particular needs and priorities of developing countries, as well as sources of funding and the ability to track progress towards achieving the goal. Lessons should be taken from the current goal of USD100 billion per year and incorporated into the deliberations on the new goal. The co-chairs of the ad hoc work programme on the new collective quantified goal on climate finance must publish a work plan for 2023 by March of next year, with Parties and financial institutions to be consulted on the focus of the technical expert dialogues to be held. Significantly, the broader community will also participate in the technical expert dialogues, including multilateral development banks, the private sector, youth, civil society and academia.

Ultimately, much work still remains to be done in mobilising adequate climate finance and it is clear that it is not only developed country Parties who must pull their weight: the focus is also squarely on multilateral development banks and private finance.

6.     Work programme for urgently scaling up mitigation ambition and implementation

Following the decision at COP26 to establish a work programme for urgently scaling up mitigation, ambition and implementation, COP27 saw parties unable to agree  the structure of the work programme: several developing countries held the view that the principle of “common but differentiated responsibilities” continues to apply, and therefore developed countries should shoulder more of the burden in addressing climate change mitigation ambition. This view is evident in the resulting CMA decision, which specifies that outcomes of the work programme will be ‘non-prescriptive, non-punitive, facilitative, respectful of national sovereignty and national circumstances’, and ‘will not result in new targets or goals’.

The CMA decision also sets out a number of aspects of the work programme, including that its scope should (among other things) span all sectors (including energy, industrial processes, agriculture, forestry and waste) and that implementation of the programme is to start immediately and continue until 2030. At least two global dialogues are to be held on the program each year, with participation of Parties and non-Party stakeholders.

7.     Global goal on adaptation

In Paris in 2015, the CMA established a ‘global goal on adaptation’ for enhancing adaptive capacity, strengthening resilience and reducing vulnerability to climate change; subsequently, COP26 saw the launch of a two-year Glasgow–Sharm el-Sheikh work programme to advance this goal.

By the conclusion of COP27, the CMA agreed to develop a framework to guide achievement of the global goal and review of overall progress, with the aim of adopting the framework at COP28. Adaptation is necessarily context-specific, as countries are affected by different climate impacts; as such, the framework is intended to enable the accurate capture of diverse information on progress. This framework will take into account a number of considerations, including the themes of water; food and agriculture; cities, settlements and key infrastructure; health; poverty and livelihoods; terrestrial and freshwater ecosystems; and oceans and coastal ecosystems. The framework will also consider an array of dimensions, including impact, vulnerability and risk assessment; planning; implementation; finance; capacity-building; technology transfer; and monitoring and evaluation. The CMA also invited the subsidiary bodies to consider outputs from the adaptation work programme as part of the first Global Stocktake, which will conclude next year.

The first workshop for the framework will be held by March 2023, with four workshops to be held in total, the last just before COP28. A single annual report on the workshops is to be published three weeks prior to COP28, with subsequent individual summaries of the workshops to guide future workshops. Parties and observers will be invited to share their views on the outcomes of the global goal on adaptation and the work undertaken prior to COP28. The IPCC is expected to update its technical guidelines for assessing climate change impacts and adaptation, while the Adaptation Committee is to continue its information-sharing practices with the global goal on adaptation work progamme.

Outside of developments on the framework, commentators have criticised the lack of progress made on adaptation. The cover decision notes ‘with serious concern’ the existing gap between current levels of adaptation and levels needed to respond to the adverse effects of climate change and, among other things, urges developed country Parties to ‘urgently and significantly’ scale up climate finance, technology transfer and capacity-building for adaptation, to respond to the needs of developing country Parties. Indeed, the Glasgow Climate Pact, arising from COP26, had included a call for developed country Parties to double adaptation finance on 2019 levels by 2025. 

8.     Article 6 market and non-market approaches

With respect to market and non-market mechanisms, progress was made on a number of technical aspects of the guidance and rules, modalities and procedures for Articles 6.2, 6.4 and 6.8 of the Paris Agreement. However, many aspects have been put off for further discussion into 2023.

On Article 6.2, the CMA agreed on various elements of the Article 6.2 registry, characteristics of internationally transferred mitigation outcomes (ITMOs), requirements of the web-based platform, reporting formats and elements of the technical expert review process, including (see draft decision FCCC/PA/CMA/2022/L.15):

• elements of the registry that each participating country will be required to have (or have access to) for tracking ITMOs;
• requirements for ITMOs to be tagged with unique identifiers that enable them to be traceable to the mitigation outcomes they represent;
• guidance in relation to the web-based centralised platform that will contain the international registry and ‘Article 6 database’, including requirements for the platform to store templates for Parties to report on their Article 6.2 activities, as required under the Article 6.2 Rules. The Parties agreed that the Article 6 database must include an automatic process for identifying inconsistences in information submitted by Parties and notify the relevant Parties where such inconsistencies arise;
• outlines for participating Parties to use to prepare their initial and biennial transparency reports (which parties are encouraged, but not mandated, to use); and
• aspects of the Article 6 technical expert review process, including guiding principles for reviews, the types of information which the experts will review, outlines for expert review reports and requirements for the review teams to provide recommended actions for participating Parties to improve consistency in their Article 6 reporting. Participating Parties will be able to designate information as ‘confidential’, in which case the review team must be careful not to compromise the confidentiality of that information. Commentators have raised concerns regarding the impacts of these confidentiality concessions on the transparency of Article 6.2 approaches. In particular, the confidentiality provision is considered too broad, creating a significant loophole that will obscure participating Parties’ compliance and therefore their accountability. The Subsidiary Body for Scientific and Technological Advice has been tasked with developing modalities for reviewing confidential information ahead for consideration by the CMA next year.

Arguably, more significant Article 6.2 developments at COP27 took place outside of negotiations, with Switzerland and Ghana authorising the first ever bilateral ITMO project under Article 6.2. This project will encourage low-methane rice production techniques in Ghana, with the resulting ITMOs flowing to Switzerland. Vanuatu also unilaterally authorised an ITMO project. Meanwhile, Singapore formalised three bilateral Article 6 agreements, with PNG, Ghana and Peru. Japan was also active on Article 6 operationalisation, launching the Paris Agreement Article 6 Implementation Partnership, which will facilitate knowledge-sharing to help countries participate in Article 6 carbon market activities.

On Article 6.4, some progress was made on elaborating processes for transitioning CDM projects to the Article 6.4 mechanism and the rules of procedure of the Article 6.4 Supervisory Body were adopted. Aside from these developments, however, many aspects were deferred to 2023, including (among other things) appropriate processes for monitoring and reporting on removal activities under the Article 6.4 mechanism, and whether the mechanism should allow emission avoidance and conservation enhancement activities (see draft decision FCCC/PA/CMA/2022/L.14).

One significant development was the separation of Article 6.4 emissions reduction units (A6.4ERs) into two different streams: ‘authorised’ A6.4ERs and ‘mitigation contribution’ A6.4ERs. ‘Authorised’ A6.4ERs are those authorised for use towards achievement of NDCs or other international mitigation purposes (for example, CORSIA). Conversely, ‘mitigation contribution’ A6.4ERs are not specified as authorized for use towards achievement of NDCs or other international mitigation purposes. Instead, these A6.4ERs may be used (among other things) for results-based climate finance, domestic mitigation pricing schemes or domestic price-based measures for the purpose of contributing to the reduction of emission levels in the host Party. Commentators have raised concerns about the potential for mitigation contribution A6.4ERs to be used by parties to offset their own emissions, which may create risks of double claiming and corporate greenwashing of net zero pledges. In negotiations, parties disagreed as to whether the Article 6.4 mechanism registry should specify what non-authorised (i.e. contribution mitigation) A6.4ERs are, their uses and the process for issuing them.

As to the impact of these carbon market developments, some commentators believe that ‘good, if not ideal’ progress has been made in providing the rules for operationalising Article 6 markets, which will allow some ongoing investment in projects while further rules are developed.

On Article 6.8, the CMA agreed to various specifications for the UNFCCC web-based platform for non-market approaches. The platform is one aspect of the work programme for the ‘Glasgow Committee on Non-market Approaches’ decided upon at COP26. Its purpose is to provide a place for Parties to exchange information on non-market approaches and to support opportunities for participating Parties to identify, develop and implement these approaches. At COP27, the Parties agreed on various types of information that Parties can submit to the platform, among other things (see draft decision FCCC/PA/CMA/2022/L.13). The CMA also agreed to a phased schedule for the Glasgow Committee on Non-market Approaches to continue implementing the work programme activities agreed last year. Phase 1 (from 2023 to 2024) will focus on identifying and framing all relevant elements of the work programme activities and operationalising the web-based platform. Subsequently, Phase 2 (from 2025 to 2026) will focus on full implementation of the Committee’s work program.

9.     Australia’s participation

As we noted in our pre-COP primer, this was the first COP since the Federal Government legislated Australia’s updated 2030 and 2050 decarbonisation targets and, as was expected, there was a very positive step change in Australia’s level of engagement at the conference, both inside and outside of the negotiation rooms.

Significantly, at the start of the COP, the Federal Government announced that Australia will bid to host COP31 in 2026, in partnership with Pacific nations, as part of efforts to enhance international engagement on climate change and energy, and to collaborate on climate action with our Pacific neighbours. Commentators have welcomed the announcement, however they have emphasised the need for the bid to be accompanied by real action in Australia to increase its support for Pacific climate action, including in respect of climate finance.

Once the conference was underway, the Australian Pavilion was used as a space to strengthen international partnerships, including in the Pacific, and to demonstrate Australia’s plans to become a leader in renewable energy. The Pavilion hosted a range of events in collaboration with the public and private sectors, First Nations Australians and civil society. Events centred around Pacific climate priorities, the importance of First Nations Peoples’ perspectives on climate change, the role of nature-based climate solutions and how to unlock finance for these solutions. The Pavilion also saw a number of discussions on renewable energy and finance, including the Clean Energy Council with respect to opportunities for Australia’s offshore wind sector, and the Australian Renewable Energy Agency addressing Australia’s potential to become a global leader in green hydrogen.

Crucially, the Pavilion offered (unofficially) the best coffee at the COP, with over 6,500 coffees delivered to delegates over the course of the conference.

In his statement at the COP27 High Level Segment last week, Minister for Climate Change and Energy Chris Bowen MP reaffirmed Australia’s commitment to ambitious and necessary change, and pledged to be a ‘strong and constructive partner’ in driving what Minister Bowen said must be an inclusive climate agenda. Minister Bowen used the speech to highlight Australia’s support for climate resilience in the Pacific and to call for multilateral development banks to step up their work on supporting developing countries to respond to climate change. Whist very well received internationally, some domestic commentators have highlighted the need for Australia’s actions at home to match this more ambitious rhetoric and we can expect there to be close scrutiny of the Government as it continues to deploy its sector-focused decarbonisation policies over coming months, including the Rewiring the Nation fund, electric vehicle tax cuts and Safeguard Mechanism reforms (among others). 

Having set the tone by signing up to the Global Methane Pledge just days before COP27 commenced, the Government committed to, or co-founded, a number of further decarbonisation and climate resilience-focused initiatives over the course of the conference across multiple sectors, including:

• (Public service) the International Net Zero Government Initiative, which commits governments to achieve net zero emissions across their operations by 2030 and will span all aspects of the Australian Public Service, except for defence and national security;
• (Energy) the Global Offshore Wind Alliance, which aims to establish at least 380GW of offshore wind capacity by 2030;
• (Forests and biodiversity) the Forests and Climate Leaders Partnership (of which Australia is a founding member), which seeks to halt and reverse forest loss and land degradation by 2030 whilst preserving sustainable development, and the International Mangrove Alliance for Climate, which aims to increase the conservation and restoration of mangrove ecosystems to act as carbon sinks;
• (Agriculture) the Glasgow Breakthrough Agenda on Agriculture, which aims to mainstream climate resilient and sustainable agriculture globally by 2030; and
• (Oceans) the Ocean Conservation Pledge, which calls on countries to conserve 30% of their ocean jurisdiction by 2030, and the Green Shipping Challenge, which encourages decarbonisation in the shipping industry.

While it remains to be seen how these initiatives will translate into domestic law and policy over coming months, businesses in these sectors should watch developments closely for opportunities to engage with Government measures operationalising these initiatives.   

10.     Opportunities and responsibilities for businesses emerge

The role of business and other non-state actors proved to be a focal point of the conference. Importantly, the COP27 cover decision explicitly welcomes the recommendations of the United Nations’ High‑Level Expert Group on the Net Zero Emissions Commitments of Non-State Entities (Expert Group), which are designed to enhance transparency and accountability of climate pledges of businesses, investors, cities and regions. The Expert Group’s recommendations have been broadly well-received, particularly given the increasing prevalence of net-zero pledges among non-state actors and rising concerns about greenwashing.

Among other things, the Expert Group has recommended the use of high integrity carbon credits in voluntary markets for beyond value chain mitigation and has warned against non-state actors counting these credits toward their interim emissions reduction targets, a position supported by the Carbon Market Institute (CMI).

COP27 also saw the Australian branch of the Business Council for Sustainable Development (BCSDA) release its ‘Triple A+: The Business Role in Accelerating Australia’s Climate Recovery: Ambition, Action, Accountability’ report. The report maps out a set of interventions aimed at advancing the international climate change agenda over the next five years through combining business leadership with government collaboration, and calls for both business leaders and policymakers to take immediate actions before COP28 next year.

Priority actions set out in the report aimed at enhancing decarbonisation ambition include (among other things) improving the credibility of corporate emissions reductions targets; facilitating widespread carbon pricing through partnering with the private sector; and embracing ‘natural climate solutions’. The report also calls for improved business accountability in the leadup to COP28, through supporting the International Sustainability Standards Board (ISSB) standards, currently under development, as a mandatory global baseline for climate reporting; establishing a strong foundation for a carbon accounting system; and developing a mechanism to link corporate data with national emissions reduction progress reports. The report also identifies specific priorities across the electricity, transport, agriculture, resources, industrial and built environment sectors, aimed at enabling Australia to go to COP28 with greater ambition.

11.     Where to next?

As the global community continues to digest the outcomes of COP27, and what it means for climate action going forward, there is one clear message that has emerged from Sharm-el Sheikh: that immediate and ambitious action by both government and businesses across all sectors is urgently required if the 1.5°C goal is to remain in sight.