Global leaders will meet from 6 to 18 November at the 27th Conference of the Parties of the UNFCCC (COP27) in Egypt, to discuss some of the most pressing issues around climate change. Adaptation, climate finance and loss and damage are high on the agenda.

COP27 will be different

COP27 has been framed as an implementation summit. This means COP conversations are not likely to be centred around new mitigation measures to reduce emissions, but rather on how to implement climate actions in order to fully operationalise the Paris Agreement.

In particular, discussions will have a focus on how to reduce the gap between targets and tangible actions. Parties will be expected to highlight how they will put the Paris Agreement into practice in their economies, showing progress on legislation and policies. This will be important for the financial sector as the definition of energy transition plans from the governments gives confidence to investors on the direction of travel.

We think COP27 is not going to deliver more climate action. A bigger push for more emissions reductions is not on the cards, as it is unlikely countries will agree on stricter regulation to tackle carbon emissions.

While higher carbon prices are necessary to incentivise the move away from fossil fuels and to decarbonise the global economy, they are not in favour at a time in which inflation is surging globally and energy supply is being squeezed by geopolitical tensions. Countries’ priorities have changed since COP26, and higher carbon prices are not in line with their concerns over energy security and affordability.

While increased ambition is on the agenda for COP27, prospects for stronger climate pledges on emissions reductions are looking poor, at least in the short term.

Key items on COP27 agenda

If not mitigation and more severe regulation to cut emissions, what is likely to be discussed?

This COP is the first to be held in the African continent - one of the regions most exposed to the effects of global warming and extreme weather events, but also one of the least climate resilient regions of the world.

Adaptation, how to prepare for the increasing impacts of a changing climate, is a key issue, especially for developing countries. The Egyptian Presidency has highlighted that adaptation will be high on the agenda, while the recent drought in China and floods in Pakistan, but also heatwaves in Europe and in the western states of the US, have reminded us of the urgency of adaptation.

That was also highlighted by the 2022 Report on Climate Impacts, Adaptation and Vulnerability from the Intergovernmental Panel on Climate Change (IPCC), that found that climate impacts are already more widespread and more severe than expected.

How vulnerable countries are going to change their economies to prepare for a warmer world are important steps in ensuring stronger economic stability. Investing in projects like updating water infrastructure and making agriculture more resilient are set to improve the economic growth outlook for many economies.

The IPCC also finds a large gap between current adaptation levels and those needed, mainly due to lack of financial support. It estimates that adaptation needs will reach US$127 billion and US$295 billion per year for developing countries alone by 2030 and 2050, respectively.

Mobilising capital not only into reducing emissions but also into projects to adapt will be another pillar of negotiations at COP27. But this will not be an easy task.

Climate finance on the agenda, again

Climate finance demands from developing economies to help them cope with a changing climate are not new. The promises from richer nations of regular finance to support them in both adaptation and mitigation efforts are also long standing. In 2009, developed countries agreed to mobilise US$100 billion of assistance for developing nations per year by 2020.  More than 10 years later, these finance pledges have not been fulfilled.

Provisions for climate financing were also discussed at COP26, but not much progress took place. As a result, developing countries have become increasingly frustrated on the failure to deliver on these green finance promises, and have been particularly vocal about this issue.

In particular, African leaders have noted that while the continent has contributed the least to climate change, being responsible for less than 3% of global carbon dioxide emissions, it is highly exposed to the impacts of global warming.

Developing countries are therefore also looking for funding to address the costs of loss and damage, i.e. the impacts of climate change that go beyond what countries can adapt to and mitigate.

Key challenges

All countries agreed to address “losses and damages related to the impacts of climate change”, but developed countries have been reluctant to discussing this facility, as the loss and demand function is highly controversial. In particular, richer countries have been concerned about liability claims for climate damage caused by their emissions.

A few weeks ago, Denmark became the first UN member to grant money to compensate for climate losses and damages, with the Danish government allocating 100 million Danish krone (€13.5 million) to assist the most vulnerable communities.

The move could put pressure on other wealthy countries that have contributed to the rise in emissions since the industrial revolution, like the U.S. and Europe, to start fulfilling their green finance commitments while recognising climate responsibility.

António Guterres, UN Secretary-General, highlighted in a recent speech to world leaders that a successful COP27 outcome has to include a financing facility for loss and damage. Setting up of a public financing facility is not on the cards, as the current energy crisis and increased spending during the Covid-19 pandemic have already put government finances under pressure.

World leaders could still find a compromise around the finance issue, avoiding fuelling the disappointment and frustration of developing nations once again. This could also provide support for geopolitical stability between poor and rich countries, while improving growth outcomes for developing nations.