The International Carbon Market – 18.12.2022

Key Take-aways from COP27

The month of December was marked by the UNFCCC COP27 that took place in an international context  distinguished by serious geopolitical tensions, an energy crisis, unprecedented energy prices, inflation and slowing economies. A situation that forced states to rethink their strategies, both to respond to threats to energy security and at the same time to accelerate the shift in economic systems toward clean energy.

This meeting will be remembered as the one that achieved a historic result for climate justice and adaptation policies. In fact, the Loss and Damage Fund was created to support the most vulnerable countries affected by climate-related disasters-a mechanism that has always been at the heart of the claims of developing countries, which are demanding that industrialized states compensate for the effects of climate change, the damage of which they suffer the most even though they have not contributed to the causes. Yet, we remain skeptical if the pledged invoked by the developed countries will conduct to the real implementation and help of poor affected countries. Many details still remain to be worked out: the actual size of the fund, who will pay for these offsets, who will receive them, how impacts will be measured, which countries will be asked to contribute, which will benefit, and according to what criteria.

Positive notes include climate finance and especially market mechanisms. Indeed, discussions related to Article 6 of the Paris Treaty, the article that regulates the emissions market, appeared in all national pavilions at the COP, and this helped provide a significant amount of guidance that will help the operation of emissions markets. In the future, this may be the new model for COPs, with negotiators providing guidance on the implementation of Article 6 and Parties highlighting their progress in its use.

Yet, what is worrying is the lack of ambition on climate change mitigation. COP27 had started out with the goal of following up on the trust of last year’s COP26 in Glasgow, which aimed to make the 2020-2030 decade the transformative one for climate action, with the goal of keeping global warming within 1.5°C of pre-industrial levels, as envisioned by the Paris Treaty. However, there were no steps towards this, and the final text of the conference is effectively a repeat of the COP26 text on decarbonization, fossil fuel use, and emissions reductions. The 1.5°C. goal of halving greenhouse gas emissions by 2030 seems distant at the moment.

Interesting was India’s position at this COP. Last year in Glasgow, it had strongly opposed the call for abandoning coal as a source for producing energy, and this had resulted in the final document referring to mere “reduction” and not “elimination.” In Sharm El Sheikh, however, it was India that put forward the proposal to move away from fossil fuels, obviously supported by Europe and the United States, while now there were countries such as Saudi Arabia and Russia, which have oil production and trade as the basis of their economies, that prevented the final text from bringing advances. On the issue of moving away from fossil fuels, therefore, next year’s COP28 is eagerly awaited, in the knowledge of an already obvious underlying criticality: it will be hosted by the United Arab Emirates, a country holding some of the world’s largest oil reserves.

Source: UNFCCC and Aither Group