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| 7 minutes read

COP27: Week 1 recap

Before we launch into a summary of some of the key announcements in Week 1 of COP27, it’s important to manage expectations.

First things first, lest we forget, COP27 is a United Nations diplomatic process involving official delegations from over 100 countries across the globe and countless other attendees. “Speed” and “decisiveness” are not words anyone would normally associate with any UN process, much less a global climate summit. So if the results of negotiations so far at COP27 have been less than some had hoped for, that is hardly surprising. Secondly, COP27 was never going to be as high profile or as iconic as COP26 in Glasgow last year. COP26 was all about ambition and raising the bar on everyone’s climate pledges, from governments and the business world alike – which it achieved to some extent (see our previous coverage). COP27, on the other hand, has been dubbed an “implementation COP” – although even that might be a bit optimistic.

Needless to say, the world is a very different place for this year’s COP27 in Egypt – with the world in the midst of serious and overlapping economic and geo-political crises. We also saw this year an acceleration of the devasting physical impacts of climate change – with unprecedented flooding in Pakistan, worsening drought and famine in Africa, and heatwaves and wildfires across much of the globe this summer. The result is that energy security and a “just transition” were always going to be top of minds at this year’s COP – with developing countries and those most vulnerable to the effects of climate change arguing loudly for “climate justice”.

So, what are the key announcements so far in Week 1 of COP27? Some of these announcements have been made as part of the official COP27 agenda and others have been made on the sidelines of the summit:

  • “Loss and damage” and financing for adaptation - the key topic at this year's COP. This year discussions about the possible creation of a “loss and damage” facility or fund – to compensate those countries most affected by the devastating effects of climate change but which have contributed the least to its the creation – finally made it on to the official COP agenda. But so far, very little progress has been made on this topic. There have been some symbolic (but woefully small) pledges of willingness to pay into a loss and damage facility from a handful of countries (including some EU member states and China). A number of developing nations have also argued that fossil fuel companies should be required to pay a global carbon tax on their profits as a source of funding for loss and damage: “How do companies make $200bn in profits in the last three months and not expect to contribute at least 10 cents in every dollar of profit to a loss and damage fund?” The stakes are high for Week 2 but many think it’s likely this topic will spill over into the agenda for next year’s COP28 in the UAE. See our blog posts, COP27 - What to expect? and COP27: Finance Day round-up, for more details on what’s at stake on the financing front.
  • Renewal of climate targets in NDCs – At COP26, all countries agreed to revisit and strengthen their 2030 climate targets and Nationally Determined Contributions (NDCs) to restrict global warming to 1.5°C. But sadly not much progress has happened on that either. If anything, the focus is now on not backsliding on existing climate pledges rather than coming up with anything more ambitious. The latest predictions from the climate and energy experts in the lead up to and during COP27 are even more depressing and alarming than last year – with some reports putting us on track for a 2.4 to 2.7 degrees Celsius increase by 2100 – or a 2C increase at best provided no one backslides on their promises (which is unlikely).
  • Phase down of coal/fossil fuels - Tuvalu and Vanuatu are pressing for the creation of a fossil fuel non-proliferation treaty at COP27 but there has not been much support for this so far. However, a proposal spearheaded by India to include wording in the final COP27 cover document on the phasedown of all fossil fuels (not just coal) is gathering traction. The Glasgow Climate Pact last year included an agreement by the parties to “accelerating efforts towards the phasedown of unabated coal power and phase-out of inefficient fossil fuel subsidies”. Is still too early to tell whether there will be enough support for India’s proposal, especially from countries dependent on oil and gas exports and countries hoping to be able to exploit untapped reserves in the near future. The concern by some of the delegations, including the EU, is that any agreement to phasedown all fossil fuels should not result in a slowdown in the phasedown of coal. Others, including Saudi Arabia, argue that tackling climate change is not about fossil fuels production but rather about reducing GHG emissions across sectors. 
  • South Africa JETP – One of the few success stories so far at COP27 is the announcement of further details of the South Africa Just Energy Transition Plan (JETP), the USD8.5 billion plan to shift South Africa from coal toward green energy, backed by the UK, US, France, Germany and EU – which is being touted as a blueprint for other coal-dependent developing nations (such as Indonesia). This envisages 90% of the funds being used to decommission coal-fired power plants in South Africa alongside the development of renewable energy generation and strengthening grid infrastructure (see here).  
  • US Energy Transition Accelerator proposal John Kerry, the US special climate envoy, has put forward a proposal for an “Energy Transition Accelerator” to help fund the phase out of coal/fossil fuels in developing countries whereby private sector companies would buy carbon credits for renewables/climate projects in emerging countries - but the plan has received a mixed (mostly negative) reaction (see here).
  • Climate resilient debt clauses - Countries hit by climate change-driven disasters such as flooding and hurricanes will automatically be able to defer debt payments under new plans laid out by ICMA (see here). UK Export Finance has said it will become the first export credit agency to offer these “climate resilient debt clauses” in its loan agreements (see here).
  • Bridgetown Initiative – The Prime Minister of Barbados Mia Morley has proposed a plan, known as the Bridgetown Initiative, to overhaul the global finance architecture (in particular of the World Bank and IMF) to make it more suited to address the climate crisis. Developing countries are struggling with the combined effects of global food and energy crises, debt distress and the climate emergency. Although this is not formally part of the COP27 agenda and COP does not have the power to dictate any changes to the structure and workings of multilateral development banks (MDBs), Ms Morley is hoping to mobilise additional support for her initiative during COP. The Bridgetown Initiative involves a three-prong approach: (1) prevent a debt crisis with emergency IMF relief and long-term concessional funding for development, lent over at least 30 years, to prepare for the future; (2) expand the lending capacity of MDBs to developing nations by USD1 trillion to be invested in climate resilience, including by allowing banks to hold Special Drawing Rights (SDRs) for lending; and (3) develop long-term instruments that can mobilise USD3-4 trillion in finance for carbon-cutting projects and a mechanism for raising reconstruction grants to help nations rebuild after climate disasters (see here).
  • Global Shield insurance initiative – Germany and the G7 have launched a "Global Shield" plan at COP27 to provide funding to countries suffering climate disasters, by rapidly providing pre-arranged insurance and disaster protection funding after events such as floods, droughts and hurricanes. Backed by EUR170 million in funding from Germany and EUR40 million from other donors, the Global Shield will in the next few months be deployed in countries including Pakistan, Ghana, and Bangladesh when events occur (see here).
  • US updated methane plan - The Biden administration announced the release of an updated U.S. Methane Emissions Reduction Action Plan, outlining a series of actions aimed at reducing methane emissions across the US. The plan includes more than USD20 billion in new investments to tackle methane emissions, including for capping orphan oil and gas wells, improving industrial equipment, and reclaiming abandoned coal mines (see here). The announcement follows the Global Methane Pledge launched by the US and EU at COP26 last year, aimed at reducing global methane emissions by at least 30% by 2030, compared to 2020 levels. Since launching, the pledge has reached more than 130 signatory countries, representing over half of global methane emissions. With methane being several times more potent than CO2, this is widely seen as a quick and effective way to reduce GHG emissions globally.
  • Guidance on credible transition plans – The UN High-Level Expert Group on the Net Zero Emissions Commitments of Non-state Entities have published their report on climate transition plans, slamming the credibility of many climate pledges made so far. The UK Transition Plan Taskforce has also published their recommended gold standard for transition plans for consultation – although this is aimed at UK entities, it is hoped the recommendations will inspire other countries to follow a similar model (see here and here).
  • NZDPU next steps - In the lead up to COP27, the Climate Data Steering Committee (CDSC) – which includes GFANZ, Bloomberg and others - published recommendations for the creation of a Net-Zero Data Public Utility (NZDPU), which would be a new and free open-data utility to address gaps, inconsistencies and inaccessibility of climate data. GFANZ believe this has the potential to make a significant change globally in terms of access to more easily accessible and comparable net-zero climate transition data from investee companies and the finance sector, especially as many of the largest ESG data providers (such as MSCI, Bloomberg, the London Stock Exchange Group (which owns Refinitiv), Morningstar, Moody’s and S&P) are involved in the project (see here). The CDSC announced at COP27 that it is hoping a beta pilot of the NZDPU will be up and running in the second half of 2023 (see here).

All in all, little progress has been made so far on implementation of pledges made at last year’s COP and equally little progress on other items on the official COP27 agenda this year, in particular on loss & damage and financing in general.

A lot is at stake in Week 2 of the COP27 negotiations and although the summit is meant to finish on Friday 18 November, the reality is that negotiations will likely spill over into the week-end so we may not know the final outcome until Sunday 20 November.

See our COP27 page for more coverage of this year's summit and to join us for a post-COP webinar on 22 November.


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