Shaping the Future: Unraveling the Impact of COP27 and Anticipating the Path Forward at COP28
In an historic turn of events at the 27th annual conference of the parties (or COP) to the UN Framework Convention on Climate Change (UNFCCC) hosted by Egypt in November 2022, nations rallied to address the realities of climate change. The Sharm el-Sheikh Implementation Plan, a decision that followed the conference, emphasized the urgent need for “immediate, deep, rapid and sustained” reductions in GHG emissions – reaffirming the parties’ commitment to limit global temperature increases to 1.5°C above pre-industrial levels. A further goal of the conference was the implementation of the outcome from COP26 hosted by the United Kingdom, which included the “Paris Rulebook” guidelines on the implementation of the Paris Agreement, as well as commitments around forests, methane emissions, car emissions, and the phasing out of coal.
The mobilization of finance to help nations respond to a changing climate is frequently at the forefront of UN climate negotiations and it was no different at COP27. One of the headline outcomes was the establishment of a committee to determine the structure and financial commitments for the world’s first loss and damage climate fund, signifying a collective commitment by the parties to assist nations grappling with the most severe impacts of climate change. The Alliance of Small Island States (a group of 39 small island and low-lying coastal developing states) and other nations have been seeking funds for such loss or damage since the 1990s.
Post-COP27, the world has witnessed a surge in climate-related initiatives across the United States and the EU, many of which focus on climate disclosure requirements. Noteworthy endeavors include the introduction the Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CSDD) by the EU. New legislation in California has introduced climate-related disclosure obligations on public and private companies operating in California. In addition, new standards have been established by the International Sustainability Standards Board (ISSB) – IFRS S1 (General Requirements for Disclosure of Sustainability-Related Financial Information) and IFRS S2 (Climate-Related Disclosures) – which include reporting requirements on companies to disclose information about their climate-linked risks and opportunities to investors and avoid the risks of so-called “green washing”.
These developments are made against the backdrop of the United States’ landmark Inflation Reduction Act (or “IRA”) of 2022 – an historic investment in climate policy that touches on almost every facet of the energy transition in an attempt to dramatically reduce GHGs. That global policy and legislation around climate and sustainability is shifting is also underlined by the European Commission’s proposed Critical Raw Minerals Act, which would aim to ensure that the EU has access to a supply of critical raw minerals needed for the energy transition that is secure and sustainable.
As the spotlight shifts to COP28, which will take place in Dubai from November 30 to December 12, 2023, anticipations rise for a comprehensive strategy addressing carbon emissions control, climate investments, and crucial funding to shield the most vulnerable nations from climate impacts. The two-pronged approach of adaptation and mitigation takes center stage, with a focus on renewable energy development and innovative measures to mitigate greenhouse gas emissions.
The burning question at COP28 revolves around climate finance and development challenges. Mobilizing financial resources demands a critical examination of not only the source but also the release mechanisms. Investors and businesses find themselves at a crossroads, compelled to prioritize the assessment and management of climate-related financial risks and opportunities within the evolving regulatory frameworks.
In July 2023 the incoming COP28 President, Dr Sultan Ahmed Al Jaber (UAE Minister of State and ADNOC Group CEO), published a letter setting out the deliverables for an “ambitious” energy package that the COP28 Presidency intends to work towards:
- Tripling renewable energy capacity and doubling the rate of energy efficiency improvements across sectors by 2030, including ramping up electrification and enhanced cooling approaches, to enable the phase-down of fossil fuels.
- More than halving oil and gas industry scope 1 and 2 emissions, including reaching near-zero methane emissions by 2030.
- Transforming heavy-emitting sectors, including scaling up use of low-carbon hydrogen, carbon capture and storage, and carbon dioxide removal, aligned with science.
- Substantially shifting toward fossil-free forms of transport, including through vehicle electrification and modal shifts.
- Taking action to accelerate efforts towards the phasedown of unabated coal power and phase-out of inefficient fossil fuel subsidies, addressing coal-related methane emissions, and deploying clean baseload capacity.
- Companies and countries to set ambitious goals, take action, and remain accountable through disclosures, in line with best practices and global standards.
In addition to energy-related deliverables, the letter included further finance-related objectives for COP28. Multi-lateral development banks (MDBs) must release more capital for climate action in developing nations. MDBs must adopt innovative solutions to catalyze greater flows of private capital for the net zero energy transition (including foreign exchange risk guarantee mechanisms). Furthermore, to accelerate progress on climate finance, global regulatory systems should be harmonized and voluntary carbon markets unlocked.
A headline goal will be the operationalization of the new loss and damage fund and related funding arrangements envisaged in the Sharm el-Sheikh Implementation Plan that resulted from COP27. The related debate around climate reparations will likely be followed closely, particularly following public comments from United States climate envoy John Kerry that the United States will “under no circumstances” pay climate reparations but would support the creation of a loss and damage fund.
Unlike its predecessors, COP28 will also involve the undertaking of a formal assessment, a “Global Stocktake” to evaluate progress made under the Paris Agreement since its inception in 2016. The goals established in COP21 aimed to limit the temperature increase to 1.5°C above pre-industrial levels, marking a critical milestone in the pursuit of a sustainable future.
The list of goals for COP28 is extensive, which is an inevitable outcome in taking account of the demands, priorities and limitations of the 198 nations that have ratified the UNFCCC. Beyond COP28 lies a landscape of some uncertainty but also promise as collaboration between nations increases and the solutions deployed to mitigate climate change become more tangible and innovative. Forward-looking insights become the compass guiding nations, investors, and businesses as they navigate the uncharted waters of a climate-resilient future.
This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.