This year’s UN Climate Change Conference, the 27th Conference of the Parties (COP27), will be held from 7-18 November 2022, and will see governments, industry, non-government organisations and other climate stakeholders from across the globe travel to Sharm El-Sheikh in Egypt. Following some of the ground-breaking progress at COP26, including the adoption of the Glasgow Climate Pact and an agreement on the rules for market mechanisms under the Paris Agreement, the Egyptian Presidency of COP27 (Presidency) has made it clear that COP27 is intended to be an ‘implementation COP’. Egypt’s President, Abdel Fattah El-Sisi, has stated that COP27 will become the moment where “the world moved from negotiation to implementation and where words were translated to actions”. Given the conference will be held in Africa, it is expected that there will be a particular focus on action that is critical to developing countries and in particular Africa, including climate finance, adaptation and loss and damage.
In this article, we explore the key themes and priorities that will shape COP27. In particular, we look at the Egyptian Presidency’s priorities and the agenda for COP27, and opportunities for engagement for the business community.
- Climate ambition: COP27 will see the first annual high-level ministerial roundtable targeting pre-2030 ambition, and a decision on the work programme on urgently scaling up mitigation ambition and implementation (Mitigation Work Programme), which was established at COP26. Parties to the Paris Agreement (Parties) may face pressure to update their Nationally Determined Contributions (NDCs) with more ambitious 2030 targets, in accordance with their commitments in Glasgow.
- First Global Stocktake: The Global Stocktake assesses global progress on mitigation, adaptation, and implementation and support. The first Global Stocktake is currently underway, with the information underpinning the stocktake process being gathered and prepared. Technical assessment of this information commenced in June 2022, with key gaps identified around adaptation. Further assessment will be high on the agenda at COP27.
- Carbon market development: Whilst the Article 6 Rulebook was agreed at COP26, operationalising Articles 6.2, 6.4 and 6.8 of the Paris Agreement will be a key part of the COP27 negotiations, as Parties consider the infrastructure, registries, databases and reporting platforms necessary to operationalise these market and non-market mechanisms. Recommendations from the United Nations Framework Convention on Climate Change (UNFCCC) subsidiary bodies on guidance and rules for these mechanisms will be considered for adoption by the Parties.
- Climate finance: At COP27 the Parties will be considering the process to set the new collective quantified goal on climate finance (NCQG), in which developed countries must commit to mobilise more than USD100 billion per year for climate finance after 2025. They will also be considering the mobilisation of increased adaptation finance.
- Loss and damage: Whether an international loss and damage finance facility should be created is set to dominate negotiations. Such a facility would essentially be a funding mechanism for the loss and damage suffered by developing countries due to the adverse impacts of climate change. The operationalisation, funding and governance of the Santiago Network on Loss and Damage will also be a priority for Parties.
- Forestry: Deforestation is still occurring at an alarming rate, however COP27 intends to build on the consensus established at COP26 with a new Forest and Climate Leaders’ Partnership to be launched, which seeks to support forests and sustainable land use.
- Business: Business leaders will be looking to build key stakeholder relationships to drive climate change action, in particular seeking clear investment incentives. There is also a desire for marginalised voices to be heard at the ‘African’ COP, and the UN Climate Change High-Level Champions have focused on mobilising the business community in discussions on achieving a just transition in the lead up. In Australia, business stakeholders will be looking for opportunities to engage in Australia’s regional efforts to support climate adaptation in the Pacific, while carbon market participants will be following Article 6 developments closely.
The Presidency has identified the following key goals for COP27 that focus on enhancing implementation and raising ambition on a broad range of climate change issues.
The following agenda items will be key issues to look out for at COP27:
1. General climate ambition
While this year’s COP will focus more on implementation than ambition compared with COP26, that is not to say that ambition will not remain an integral item on the COP27 agenda. This is particularly the case, given that Parties agreed at Glasgow to revisit and strengthen the 2030 targets in their NDCs to align with the Paris Agreement temperature goal by the end of 2022 (taking into account national circumstances). To date, very few countries have done so, prompting calls by a number of commentators for more ambitious 2030 targets to be submitted before the conference begins.
The Glasgow Climate Pact also established the Mitigation Work Programme, which is focused on urgently scaling up mitigation ambition and implementation in this ‘critical decade’. The elements of the programme, including its scope, objectives and modalities, were discussed at the Bonn Climate Change Conference in June, and will be further considered at COP27. Australia has advocated for the programme to provide an opportunity to build understanding,
collaboration and investment interest between countries in key technologies and initiatives, and for the design of the programme to facilitate participation by non-party stakeholders, including the private sector. We expect there to be interest from State and non-State actors alike in the opportunities that may arise from the Mitigation Work Programme as it continues to take shape.
Another further feature of the ambition agenda at COP27 will be the inaugural annual high-level ministerial roundtable on pre-2030 ambition which the Parties agreed to in Glasgow, scheduled for 14 November. Some groups have called for the roundtable to link to the Mitigation Work Programme, and for summary reports from the programme once operational to feed into these roundtables.
Outside of the formal agenda for COP27, the United States and the European Union have requested that all Global Methane Pledge (Pledge) participants update (or develop) a national methane reduction plan by the time of COP27, though there are no additional actions or steps that participants are required to take. However, the European Union, the United States and eleven other countries launched the ‘Energy Pathway’, an implementation step for the Pledge that seeks to accelerate viable methane mitigation solutions. Significantly, the Federal Government confirmed this month that Australia will join the Pledge, which will entail a commitment to supporting the collective effort to reduce global methane emissions at least 30% from 2020 levels by 2030.
2. First Global Stocktake
The Global Stocktake, coordinated by the UN Climate Change Conference and established by Article 14 of the Paris Agreement, is an assessment of global progress in three areas: collective efforts towards mitigation (i.e. limiting global warming to 1.5°C); adaptation progress; and means of implementation and support. The information gleaned from the Global Stocktake is intended to help Parties increase their NDCs and enhance their ambition. The Global Stocktake consists of three components: information collection and preparation; technical assessment and consideration of outputs. In first Global Stocktake is currently underway, with the first two components in train and the final component to occur late in 2023.
As part of the information collection and preparation component, sources of information have been identified and synthesis reports are being prepared based on those sources. These reports will then form the basis of the technical assessment. The UN Secretariat is also preparing synthesis reports covering:
- the state of greenhouse gas emissions;
- the state of adaptation efforts;
- the overall effect of NDCs; and
- on finance flows, means of implementation and support, as well as mobilisation and provision of support.
The technical assessment kicked off with the first Technical Dialogue (Dialogue), launched at the Bonn Climate Change Conference. The Dialogue brings together Party representatives, experts and civil society to workshop best practice and assess progress on long-term Paris Agreement goals, as well seeking opportunities for greater action. The Dialogue will convene once again at COP27 to continue its assessment.
The first Technical Dialogue identified key gaps, in particular in relation to adaptation, noting that adaptation needs to occur more quickly, including the need for better inter-agency coordination at the State level. There are also significant barriers for accurately tracking data and metrics, and wider stakeholder engagement needs to occur. It is interesting to note the difference in approach under this dialogue as compared to the Talanoa Dialogue, a discussion undertaken in 2018 to help Parties prepare updated NDCs for 2020. This dialogue, at its core, was informed by the Fijian concept of ‘talanoa’, meaning to hold a conversation in an inclusive, receptive space and to build trust and mutual understanding; the Talanoa Dialogue sought to bring Parties closer together through sharing of climate change stories. At the other end of the spectrum, the Technical Dialogue, as the name suggests, adopts a more prescriptive data driven technical approach.
Overall, the Global Stocktake will be high on the agenda at COP27 according to H.E. Sameh Shoukry, the Egyptian Minister of Foreign Affairs and the President-Designate of COP27. This is no surprise given that African countries are particularly vulnerable to climate change impacts and therefore tangible progress is fundamental. More broadly, the Global Stocktake is an important process for taking stock of meaningful and impactful collective action to address climate change, as well as assessing the success of that action in order to meet the global community’s climate goals and limit the worst effects of global warming. The process is aimed at helping Parties identify what remains to be done to meet their NDCs as well as emphasise opportunities to increase their ambition.
3. Carbon market development
COP26 saw the Parties agree the 'Article 6 Rulebook', which provides guidance on how the international market mechanisms under Articles 6.2 and 6.4 of the Paris Agreement, and the non-market mechanism contained in Article 6.8, will function.
Although the 'Article 6 Rulebook' provides the fundamental rules for how Articles 6.2 and 6.4 are to operate (and a number of Parties are putting Article 6.2 framework arrangements in place), the Parties at COP26 left a number of matters for further development by the UNFCCC subsidiary bodies. Accordingly, developing implementation guidance for Article 6 market mechanisms was a central focus of the subsidiary body meetings at the Bonn conference earlier this year. The subsidiary bodies have since initiated a number of technical workshops on operational aspects of Articles 6.2 and 6.4, and are expected to present recommendations on implementation guidance for consideration by the Parties at COP27. Critical elements of Article 6 implementation which will likely feature in COP27 negotiations include:
- how the infrastructure, registries and databases and centralised reporting platform for Article 6.2 activities, and the registry for the Article 6.4 mechanism, should operate;
- reporting requirements under Article 6.2; and
- guidelines for the technical reviews that will take place under Article 6.2.
Further key aspects which will likely feature in discussions include processes for transitioning activities from the Clean Development Mechanism under the Kyoto Protocol to the Article 6.4 mechanism and how the ‘Certified Emission Reductions’ generated by CDM activities should be used toward NDCs; processes for implementing share of proceeds to cover administrative expenses and to assist developing country Parties who are particularly vulnerable to climate impacts to meet the costs of adaptation; and processes for delivering ‘overall mitigation in global emissions’.
The Supervisory Body for the Article 6.4 mechanism became operational this year, and will meet for the third time during COP27. The Supervisory Body recently sought stakeholder feedback on draft recommendations on requirements for developing and assessing Article 6.4 methodologies for removal activities, including (among other things), appropriate crediting periods, monitoring and reporting requirements for these types of activities, and additional requirements that should apply to land-based activities and removal activities which involve carbon storage in geological formations. Feedback on these recommendations will be considered by the Supervisory Body at its third meeting.
4. Climate finance
Developed countries have committed to mobilising USD100 billion per year by 2020 for climate action in developing countries. This climate finance commitment will continue through to 2025, and prior to 2025 a new collective quantified goal on climate finance (NCQG) will be set for years following 2025. The NCQG will be set from a floor of USD100 billion per year, taking into account the needs and priorities of developing countries.
At COP26 an ad hoc work programme on the NCQG was established. It was decided that from 2022 to 2024 four technical expert dialogues would be undertaken per year. The fourth technical expert dialogue will be held at COP27 and the focus will be on access to climate finance. The Parties will then be invited to consider the deliberations that occur as part of the ad hoc work programme and to take any action deemed appropriate.
Given the USD100 billion was not mobilised by 2020, nor 2021, the setting of a NCQG remains contentious. It is worth noting that developing countries receiving USD100 billion per year is only a fraction of what is actually needed to meet the Paris Agreement goal of restricting global warming to well below 2°C, and preferably to 1.5°C, compared to pre-industrial levels. It is estimated that developing countries will actually need trillions of dollars every year. H.E. Sameh Shoukry has stated that “We have not yet delivered on the 100 billion dollars’ pledge, which in itself is more a symbol of trust and reassurance than a remedy to actual climate needs”.
Adaptation finance, alongside mitigation finance, falls with the term ‘climate finance’. The USD100 billion pledge is supposed to go towards both mitigation and adaptation. There is a political aspiration of having a 50:50 balance between the two, with a greater share of the adaptation funding going to the most vulnerable countries. At COP26, developed countries were urged to at least double their collective mobilisation of adaptation finance from 2019 levels by 2025, which would raise the amount to USD40 billion annually from 2025. According to the International Institute for Environment and Development, pledges made so far will take the projected total to just $21.8 billion annually by 2025, which is only just over half of the USD40 billion target. A key issue that will be focused on at COP27 is going to be bridging the adaptation finance gap.
The annual reports of the Global Environment Facility, Green Climate Fund and Adaptation Fund will also be considered by the Parties. The reports will detail their financial and operational performance for the year 2021-2022. The Parties will have the opportunity to provide guidance on the policies and programme priorities of the GEF and the GCF, and take any action they deem appropriate in relation to the Adaptation Fund. The annual report of the Standing Committee on Finance will also be considered by the Parties. Of note, the Standing Committee on Finance held its Forum on ‘Finance for Nature-based Solutions” (Forum) in Australia in September 2022. The objectives of Forum included discussing financing climate adaptation and mitigation with nature-based solutions.
Egypt’s vision for successful negotiated outcomes at COP27 includes effectively addressing the climate finance challenge in a manner which creates trust and alleviates concerns that developing countries will need to contribute to climate mitigation, and adapt to the adverse effects of climate change, without adequate support. It also involves making finance flows a reality, by delivering climate finance to developing countries based on needs identified through NDCs with a focus on concessional finance instruments.
5. Loss and damage
The Parties have recognised the need for “enhanced funding arrangements for loss and damage” to address the loss and damage finance gap. So far, there is limited research regarding the amount of loss and damage finance that is required by developing countries. It has been estimated that loss and damage costs, which are costs that go beyond the costs of adaptation, could reach USD580 billion per year by 2030, and over USD1 trillion per year by 2050.
The issue of loss and damage finance has been contentious for many years, as developed countries are generally reluctant to accept financial responsibility for the adverse impacts of climate change caused predominately by industrial activity in their territories. Recently, the UN secretary-general has stated that “wealthier countries bear a moral responsibility to help poorer nations recover, adapt and build resilience to disasters… let’s not forget that 80 per cent of emissions driving this type of climate destruction are from the G20.” There are calls for loss and damage finance to be additional to the USD100 billion climate finance commitment of developing countries, and the NCQG.
At COP26, many Parties, including the negotiating group the Alliance of Small Island Developing States, held the position that a new loss and damage finance facility should be created, which would essentially be a fund dedicated to loss and damage. It was decided by the Parties that such a facility would not be created at COP26, but that the two-year Glasgow Dialogue would occur instead, where the Parties could discuss possible arrangements for loss and damage funding. The possibility of a loss and damage finance facility is predicted to dominate the agenda at COP27.
Parties will also consider the operationalisation, funding and governance of the Santiago Network on Loss and Damage, which is a part of the Warsaw International Mechanism for Loss and Damage and aims to provide technical assistance to developing countries to address loss and damage.
COP26 saw a landmark agreement to halt and reverse deforestation in the Glasgow Leaders’ Declaration on Forest and Land Use (Forest Declaration), under which over 100 countries committed to collectively ending deforestation by 2030. Since then, some progress has occurred: in the Democratic Republic of Congo, which encompasses part of the Congo Basin, the world’s second largest rainforest, the Government and the Central African Forest Initiative have signed a second letter of intent, thereby extending a partnership to preserve the value of forests; the Congo Government also submitted an updated NDC and commenced a review of concessions provided for forestry by the General Inspection of Finances.
Meanwhile, Indonesia has reduced its primary forest loss for the fifth year in a row, which appears to reflect the impact of business and government commitment to reduce deforestation, particularly in relation to palm oil production. However, it is expected that the primary boost provided by the Forest Declaration will be to those already working in forest conservation, with most of the tangible progress to be made in the private sector. On a global scale, much still remains to be achieved: at the Bonn Climate Change Conference in June 2022, government and indigenous representatives, as well as researchers, identified the need to involve local communities, increase political goodwill and provide adequate financing in order to reach the Forest Declaration goals.
COP27 will build on the Forest Declaration: Alok Sharma, the COP26 President, announced that a new Forest and Climate Leaders’ Partnership will be launched at COP27, which establishes a group that will meet annually to support forests and sustainable land use in order to contribute to global climate goals. At COP27, Parties will present successful examples of halting deforestation and encouraging the expansion of forest estate. As part of the Partnership, countries will be expected to drive action in key areas, including scaling up sustainable land use as well as economies and supply chains that are beneficial to forests, supporting Indigenous peoples and local communities and their land tenure rights, and mobilising public and private finance to protect forests.
Opportunities for the business community to engage at COP27
For the global business community, the focus at and around COP27 will be on cooperation through building relationships with a broad range of stakeholders to drive climate change action and achieve transformational change. In general, there is a perception amongst business that clear, consistent policies and economic incentives are required to enable business investment in a low-carbon future.
In the lead up to COP27, the UN Climate Change High-Level Champions for COP27, Nigel Topping and Mahmoud Mohieldin, are focusing on encouraging mainstream climate action as well as finding innovative solutions to access technology and finance, whilst also supporting the focus of COP27 on implementation. A key priority for the Champions is to mobilise the business community and other non-State actors via the Marrakech Partnership for Global Climate Action (a body tasked with enabling collaboration between State and non-State actors in order to implement the Paris Agreement) to engage in discussions around how to achieve a just transition, while advancing adaptation and resilience, and achieving decarbonisation by 2030.
From the perspective of the broader business community, COP27 brings hope that traditionally excluded voices will be heard, paving the way for emerging markets to push for the action that they need. This is expected to focus on climate finance to fill the funding gap for mitigation and adaptation projects.
In that regard, the business community in emerging markets has been busy:
- the World Economic Forum has launched the ‘Alliance of CEO Climate Leaders India’, aimed at realising climate change ambition through multi-stakeholder collaboration and private sector leadership;
- Leaders for a Sustainable MENA (Middle East and North Africa), a group of public and private sector leaders established to scale up low-carbon technologies and infrastructure in that region, has identified three priority action areas for climate adaptation: a just energy transition; ensuring resilient water and food systems; and encouraging greener cities through innovation; and
- the Glasgow Financial Alliance for Net Zero (GFANZ), set up at COP26, has published resources to support the efforts of financial institutions to finance and transition economies to net zero. The recommendations published by GFANZ are voluntary and intended to support financial institutions to develop and implement strategies to become net zero. However, GFANZ has begun to encounter barriers, for instance in ensuring that its members adhere to the Race to Zero criteria, with which GFANZ is aligned, being criteria aimed at mobilising non-State and sub-State actors to reach net zero by 2050. There is increasing recognition that divestment of fossil fuel heavy assets, while perhaps a green opportunity for the divesting entity, may not amount to a greener world in real terms, with fossil fuel assets more likely to end up in the hands of opaque private companies or under-funded, inexperienced players.
The Australian delegation will be attending COP27 with a new Federal Government and an updated NDC sporting a more ambitious emissions reduction target of 43% below 2005 levels by 2030 (rather than the previous government’s 26-28% reduction target), and commitment net zero by 2050. These targets are now enshrined in legislation through the Climate Change Act 2022 (Cth). Australia will likely take opportunities at COP27 to engage with other Parties on its new commitments and the suite of decarbonisation policies which it is looking to implement, for example, the National Electric Vehicle Strategy, upgrading the national electricity grid, and reforming the Safeguard Mechanism.
Australia will also be hosting a Pavilion, which we expect will be used to provide a platform for First Nations communities, to showcase Australia’s climate partnerships with Pacific Island nations and South East Asia, and to provide a space for strengthening these regional relationships. Australia’s recent efforts to actively engage with the Pacific include the former Federal Government’s decision to double Australia’s climate finance for developing countries to $2 billion from 2021 to 2025 at COP26, with a significant portion of this finance directed to supporting Australia’s Pacific neighbours to strengthen climate resilience and deploy renewable energy infrastructure. More recently, the current Prime Minister joined other foreign ministers in declaring a climate emergency in the Pacific at the Pacific Islands Forum in July. Further, the ongoing development of the Indo-Pacific Carbon Offsets Scheme (IPCOS) is likely to provide a particular focus for engagement among Australia and Indo-Pacific Parties.
COP27 may provide opportunities for Australian business stakeholders to engage in discussions around the Federal Government’s ambition and climate initiatives, and capacity-building opportunities in the region, including with respect to IPCOS. Carbon market participants will also want to keep a close eye on Article 6 negotiations, and any developments with respect to the types of activities that will be able to generate credits under the Article 6.4 mechanism.
Businesses will also be interested in following progress on the Business Manifesto for Climate Recovery which was launched by the World Business Council for Sustainable Development at COP26 in the Business Pavilion, and calls for a new ‘Corporate Determined Contributions’ mechanism to measure the private sectors’ contributions to global decarbonisation.
We will be tracking the progress of the climate change negotiations at COP27 closely and reporting on key takeaways and themes daily. Sign up to our newsletter here to stay up-to-date. Our daily reports will include updates specific to industry as well as the public sector and the broader community.