The difficult backdrop to COP27

Geopolitical relations among the major powers are breaking down, most starkly between Russia and the West. China’s relationship with Russia is fragile, and its relationship with the West frosty. Whilst China has stressed its commitment to engaging in global climate governance, President Xi’s recent statement on the re-unification of Taiwan increased the spectre of further conflict while Russia’s invasion of Ukraine continues to create cascading risks. While the West has rallied strongly to support Ukraine, it is not wholly unified and there are tensions between the US and European Union over economic protectionism. These four blocs accounted for 56% of global CO2 emissions in 2020 and 66% of CO2 emissions produced since the industrial era began. Tensions and conflict among these global powers will have devastating consequences for climate governance and the low-carbon transition, diverting already inadequate resources away from climate finance and disrupting green supply chains.

Indeed, the conflict in Ukraine, the continuing fallout from the Covid-19 pandemic and the increasingly frequent and severe climate change impacts occurring worldwide are having a catastrophic impact on people’s living standards. Food prices have spiked and energy bills have soared. In higher-income countries, it is called it a cost-of-living crisis and governments are throwing billions into protecting the most vulnerable. In lower-income countries, millions of people are falling into deeper poverty and governments lack the resources to provide a safety net.

In response to these external crises, many governments have been borrowing heavily. They had little choice: their people needed income support during protracted lockdowns, vaccinations to protect them from Covid-19, subsidies to help buy food and fuel, and disaster relief during devastating floods, droughts and storms. But now countries at all levels of income – from Zambia to Egypt to Sri Lanka – struggle under unmanageable debt burdens, exacerbated by rising interest rates and a strong US currency (most loans are still denominated in dollars). Some have already missed payments this year. Many lack the fiscal space necessary to deliver on either human development or climate action.

With emissions stagnating for most higher-income countries and poverty rising within most lower-income countries, many negotiators and political leaders will approach COP27 with deep bitterness about the stark climate injustice and fierce concerns about how climate action may further jeopardise the wellbeing of their citizens at home. The conditions for the climate negotiations are therefore inauspicious, even as the urgency of climate action becomes ever more pronounced.

The hot topics at COP27

At COP26, the UK Presidency sought – with some success – to shape the narrative with its mantra of “Cash, coal, cars and trees”. It ‘delivered’ against these issues with big announcements, such as the Global Financial Alliance for Net-Zero and South Africa’s Just Energy Transition Partnership. (Whether these announcements have stood the test of time will be the subject of ODI blogs during COP27. Watch this space!)

A very different narrative has emerged in the lead-up to COP27, one focused much more on the unmet promises and perceived hypocrisy of so-called developed countries.

First, this COP will not be about coal, but about oil and gas. This is arguably overdue. The focus on coal was justified on the basis that coal releases more carbon dioxide than oil or gas for every unit of energy generated, and that coal mines are also potent sources of methane. But there was also a political motive. Most developed countries (with the notable exception of Australia) have begun weaning themselves off coal power and coal exports. Focusing on coal allowed them to point the finger of blame at emerging economies like China, India, Indonesia, Vietnam and South Africa, even though those countries account for a much smaller proportion of historical greenhouse gas emissions relative to their large populations. A focus on oil and gas would have been unpalatable to the US, the world’s largest producer of both, and to the EU, whose continued dependence on oil and gas has been laid bare in the aftermath of Russia’s invasion of the Ukraine.

Strikingly, the only commitments that developed countries were willing to make about oil and gas at COP26 was a pledge to phase out international public finance for fossil fuels. This announcement closed down opportunities for lower-income countries to develop their hydrocarbon reserves without imposing costs on higher-income countries. When developed countries faced an energy crisis of their own just months later, they reneged on their promises and scrambled to support gas investment from Algeria, to Mozambique, to Senegal. China and the G77 have wasted no time in highlighting this hypocrisy. An honest conversation about the role of oil and gas in economic development is therefore overdue, including the extent to which higher-income countries will support lower-income countries to scale clean energy alternatives through technology transfer, capacity building and – of course – finance.

Second, this COP will therefore also be about cash – but more about failed promises than new ones. Back in 2009, developed countries pledged to provide and mobilise $100 billion of climate finance each year from 2020. They fell short that year, and again in 2021. They look likely to do so again in 2022. The quality of the climate finance that has been provided is also the subject of much criticism. Most climate finance is provided as loans rather than grants, exacerbating countries’ indebtedness for a crisis that they did not cause. Most climate finance flows to mitigation, leaving countries to bear the costs of a crisis that they did not cause. Most climate finance is disbursed for discrete projects that reflect the priorities and concerns of the donors, rather than as the programmatic finance necessary for developing countries to pursue low-carbon, climate-resilient development.

Too often, developing countries caricature the shortfall of climate finance as a failure of all developed countries. While the annual $100 billion was a collective commitment, it has not been a collective failure. Research from ODI reveals that the European Union has been providing its fair share of the $100 billion. By comparison, the USA provided just 5% of its fair share in 2020. Its economy is four times larger than that of Japan, five times larger than that of Germany, seven times larger than that of the UK and eight times larger than that of France – yet it has provided less climate finance than any of them. Australia and Canada, both wealthy fossil fuel exporters, performed almost as poorly. Yet negotiators in Sharm El Sheikh are unlikely to focus on these laggards, and we can expect a sweeping condemnation of all developed countries in the decision text.

Third, loss and damage. Small island developing states (SIDS) have highlighted the need to address climate-induced loss and damage since the UN Framework Convention on Climate Change was first drafted thirty years ago. But the issue has only gradually crept on to the formal agenda of the climate negotiations. The newly confirmed agenda for Sharm El Sheikh marks a significant breakthrough, with a dedicated agenda item focused on “funding arrangements responding to loss and damage associated with the adverse effects of climate change.” Unlike conversations about the future of oil and gas or the shortfall of climate finance, there is therefore the real possibility of progress around loss and damage finance at COP27.

While the moral case for loss and damage finance may be clear, the politics are not. The European Union will not want to be on the hook if the US cannot be trusted to pay its fair share. Polluting high-income and upper-middle income countries like China, Russia and Saudi Arabia, who have not historically been expected to provide climate finance, will be wary about a bill for loss and damage. The poorest and most vulnerable countries may be apprehensive about funding arrangements that do not serve them well, having seen how most climate finance flows to middle-income countries. The agenda item on loss and damage funding is therefore only the first hurdle for two difficult weeks of negotiations.

How much does COP27 matter?

Global cooperation will be essential to tackle climate change. Diplomacy, scrutiny and knowledge sharing among the international community plays a critical role in galvanising greater climate ambition; indeed, the Paris Agreement is designed to create regular moments to stimulate new commitments and announce new policies.

However, domestic climate policy and politics seems divorced from international negotiations this year. 2022 has been an extraordinary year for climate policy, particularly with respect to mitigation. A few of the highlights include:

• The United States passed the Inflation Reduction Act, perhaps the largest single piece of climate legislation in history. The hard-won bill pledges $369 billion to support clean energy, energy efficiency, electrification and environmental justice. The Inflation Reduction Act could cut greenhouse gas emissions from the US by 40% by 2030 (relative to 2005 levels) and create a green business lobby to counter powerful fossil fuel interests in Washington, DC. However, tensions within the Democratic Party over the future of the energy transition re-emerged in the opening days of COP27 and the mid-term elections are imminent, which will profoundly affect Biden’s capacity to introduce further climate policies.
  
  
• The European Union committed in 2021 to cut its emissions by at least 55% in 2030 (relative to 1990 levels) as part of its ‘Fit for 55’ package. The Russian invasion of Ukraine and associated cuts to Europe’s gas supply has disrupted this plan, and the continent may see emissions rise in the short-term as it reverts to coal to keep the lights on. However, the European Union has doubled down on renewables and energy efficiency as part of its response to the energy crisis, which will ultimately accelerate its decarbonisation as these huge projects come online.
  
  
• President Xi of China pledged to promote the country’s domestic energy revolution and engage in global climate governance at the opening speech of the Chinese Communist Party's 20th National Congress in October. While he will not attend the conference himself, China is looking to show leadership by representing emerging economies on issues such as adaptation and nature-based solutions, as well as following up the previous year’s push with the G77 for more ambitious action on climate financing. China is certainly keen to be seen as the champion of the Global South but how this plays out in terms of loss and damage discussions is also a balancing act for China given its own emissions. There are also other emerging economies looking to establish themselves as leaders within the Global South, including India which holds the G20 Presidency in 2022.
  
  
• Australia and Brazil have been widely regarded as climate villains over recent years, with dismal track records of championing polluters at home and blocking progress in the international negotiations. Their intransigence has had outsized implications for global warming, given Australia’s immense fossil fuel exports and Brazil’s stewardship of the Amazon. But both countries elected new and progressive governments in 2022, so there are reasons to hope for stronger climate policies under the Albanese and Lula da Silva administrations.
  

These developments among some of the world’s largest emitters provide grounds for optimism, whatever the outcome of the climate negotiations this year. After all, the more we deliver on mitigation, the less finance we will need overall to respond to climate change.

Having said that, the time for investing solely in mitigation is over. The longstanding failure of high-income countries and – to a lesser extent – upper-middle income countries to reduce emissions at home and support low-carbon development abroad now justifies the focus of COP27 on an equitable use of the remaining carbon budget, adaptation, and loss and damage. These would not be easy conversations at the best of times, and these are the worst of times. With geopolitical risks and economic shocks looming large over COP27, we are yet to see countries compromise on their interests to deal with the existential threat posed by climate change.