Climake Newsletter #28: All Roads Lead to COP28
A guide to what to expect from COP28 this year, written on our way to Dubai
The Climake Newsletter offers quick digests and insights around what is happening in climate finance. While Climake’s current focus of work is India-centric, we capture a global perspective of climate finance in this newsletter.
In about 24 hours, the Climake team will be heading to the shiny Expo City in Dubai, where the world has gathered for this year’s Conference of Parties (COP28). COP28 promised to be one of the most controversial yet. Not only is the setting a gleaming city built on fossil fuel wealth, the COP Presidency has also attracted a fair amount of criticism.
Yet, the progress in the first three days has defied expectations. Typically, COPs start slow and negotiators work late in the final days to reach important goals. Not so in Dubai. The first day itself brought us an agreement on loss and damage fund. The same day, UAE announced a staggering $30 billion commitment into a climate investment fund.
COP28 has ten more days to go and we will report back on how things progress. But before we get there, here’s a recap of everything leading to COP28, the expectations that the negotiating countries have set and what you can expect over the next few days. Also, if you would prefer to hear this story, Shravan talked about the run-up of what we can except in COP28 in a podcast with Forbes yesterday.
What can we expect from COP28
The UAE, as the host, has set out four key pillars for COP28:
mitigation through energy transitions,
strengthening climate finance,
adaptation and loss and damage,
and inclusivity.
While these will guide the official negotiations, there will be much more happening off-COP and at side events. Apart from the big announcements by governments, the wider off-COP engagements that can see significant commitments, pledges and steps that can be quite transformative in driving direct action. For instance we had the International Solar Alliance and GFANZ launched publicly in Glasgow in COP26, and they were big statements almost on par with policy commitments.
Overall, we expect the COP28 conversations, official or not, to be dominated by six key areas:
1. The Global Stocktake:
This is the year for the first global stocktake, our report card on the progress in climate action since Paris 2015. Most likely, it will say that we are not doing enough. However, with more details on performance in specifics areas/sectors, the stocktake will act as an important guide on where to direct more focus and hopefully bring attention to lagging or neglected areas.
2. Climate Mitigation and Energy Transition:
There is an easy part to climate mitigation: nations have already agreed to triple renewable capacities. Now for the more difficult part: we are yet to hear what progress is being made on phasing out fossil fuels and reducing subsidies to the sector.
COP27 had intense negotiations on the word phase down or phase out, and it’s likely to be more of the same here. It’s interesting that UAE has stated halving oil and gas industry scope 1 and 2 emissions, including reaching near-zero methane emissions by 2030 as their commitment, but what this means in reality needs to be seen. There’ll also be some scrutiny on how we tackle emissions in other areas, specially in heavy-emission industrial sectors, where the likes of green hydrogen and carbon dioxide removal have been touted as solutions.
3. Kickstarting adaptation effectively:
Compared to mitigation, too little attention has been paid to adaptation thus far. Although it is now widely accepted that achieving 1.5 degrees is tough and people and natural environments will be negatively affected in the coming decades, adaptation is still largely seen in the purview of public finance.
Countries pledged to double adaptation finance from 2019 to 2025 at COP26 in Glasgow and we will watch with interest the reports on any progress made on this front. While loss and damage fund to help the most vulnerable countries was approved on the first day of the COP28, it currently has funding commitments of around $475 million, less than 1% of the what is needed.
4. Commitments around methane reduction:
There is a lot of push to reduce methane globally, such as through the Global Methane Pledge - the 30 x 30 initiative - where signatory countries look to reduce their methane emissions by 30% by 2030. Methane reduction is important because it only stays in the atmosphere for about a decade once released versus CO2 molecules that stay for centuries and it is this presence of molecules that traps heat and leads to warming and climate change. So theoretically, if we start reducing the amount of methane emitted, we will see direct results in ten years.
India is not a signatory to the Global Methane Pledge and it is the 4th largest methane emitter globally, primarily from the agriculture sector. India’s stance is that implementing changes in from rice farming and livestock rearing, the two largest sources of methane emissions, have implications for food security. This is a topic we expect will come up as methane reduction pledges are renewed.
5. Climate finance:
Everyone agrees that climate action is going to need a lot of capital. It’s who provides this capital is what is expected to be a central theme to COP discussions. While loss-and-damage fund from developed economies to developing ones is a good start, other open issues remain. Two key areas that we expect will come up for discussion are Article 6 and an international compliance based carbon market, and how private finance can be incentivized.
There is a lot of expectation from developing countries, including India, for a clear roadmap to be agreed at COP28 on climate finance which would be important for delivering on the new, collective, quantified goals. Public finance targets are expected to incentivize private capital, debt and equity, to follow. We are getting to an inflection point where there is more demand for finance, especially private finance to participate more strongly. Development institutions are getting mandated to focus on more in-depth areas around climate action and how they back and position towards targeted sectors would be something to keep an eye on as they can catalyse financing for more emergent sectors.
Another way to fund climate projects is to build a clear economic case around carbon projects and revenue. Carbon markets have faced a hit recently due to quality issues, and it is hoped that a mechanism as outlined in Article 6 which would in effect be backed by governments can address that credibility issue.
6. Inclusivity and Just Transition:
Climate transition has to be equitable, and there is considerable focus this year on addressing how climate change affects the most vulnerable populations. This is a debate that we expect goes beyond the obvious areas like loss and damage funds. There will likely also be focus on trade related policies, specially those put in place by developed nations that affect access to markets, technologies and other resources that developing nations and the low-income or disadvantaged communities, people, and countries need for effective climate action.
Required Reading
Our top five picks from the many, many reports published in the run up to COP28
The UNEP Emissions Gap Report 2023
Aptly titled ‘Broken Record’, the report finds that GHG emissions hit new records and climate impacts continued to intensify in 2023. The report, now in its 14th edition in a series that brings together many of the world’s top climate scientists to look at future trends in greenhouse gas emissions, warns that the world is heading for a temperature rise far above the Paris Agreement goals unless countries deliver more than they have promised in the previous COPs.
Global GHG emissions have increased by 1.2% from 2021 to 2022, setting a record of 57.4 gigatons of CO2 equivalent (GtCO2e). There is a huge inequality in consumption based emissions. 10% of the world population (with highest income) accounted for almost half of world’s emissions. While the bottom half of the world's population contributed to only 12% of the emissions.
The report believes that if the conditional and unconditional NDCs are met, the global warming is estimated to reach 2.5 degree Celsius, with the additional fulfilment of all net-zero pledges bringing it down to 2 degrees Celsius. However, if current policies continue, global warming could be 3°C.
OECD Report on Climate Finance and the USD 100 Billion Goal
By 2025, developing countries are estimated to need around USD one trillion annually for climate investments, rising to roughly USD 2.3 trillion each year from 2026 to 2030. Harnessing a range of financial resources from public, private, domestic and international finance is necessary. In that regard, the OECD report presents some interesting data and insights.
In 2021, total climate finance provided and mobilised by developed countries for developing countries amounted to USD 89.6 billion. Public climate finance (bilateral and multilateral) contributed almost USD 73.1 billion in 2021. Mobilised private climate finance amounted to USD 14.1 billion in 2021.
There exists a need for international climate finance providers to mobilise more private finance to changing key sectors (from energy to transportation and storage, and agriculture) and redirect public and concessional finance to support nascent sectors and geographies
Investors should take advantage of blended finance structures like syndicated loans, credit lines, guarantees and tailor the instruments to de-risk and improve the long term returns of these projects in developing countries.
Investment in capacity building and making the developing countries financing ready will pay off in the long run. These include reducing the intricacies of the accreditation and evaluation process, building capacity of local expertise.
WRI’s State of Climate Action 2023
The report assessed progress in 42 indicators of sectoral climate action versus where we need to be in 2030 to achieve the Paris Agreement goal of limiting warming to 1.5 degrees celsius. We seem to be far from this goal.
Progress made in closing the global gap in climate action remains woefully inadequate, with 41 of 42 indicators assessed not on track to achieve their 2030 targets. Progress for more than half of these indicators remains well off track, such that recent efforts must accelerate at least twofold this decade.
Within this set of laggards, efforts to end public financing for fossil fuels, dramatically reduce deforestation and expand carbon pricing systems experienced the most significant setbacks to progress in a single year.
On a positive note, indicators focused on increasing mandatory corporate climate risk disclosure, sales of electric trucks and the share of EVs in the passenger car fleet saw the most significant gains in a single year.
McKinsey’s look on what it would take to scale critical climate technologies
Mckinsey’s latest report focuses on 12 key technologies that already exist, and if scaled up, have the potential to reduce carbon emissions by up to 90 percent.
The maturity levels of the 12 technology categories are uneven: only 10 percent are commercially competitive, while a further 45 percent are commercially available but will require further cost reductions through innovation and scale-up to become competitive. The technologies are also interconnected. For example, renewable energy underpins many of the others, but cannot achieve net-zero on its own.
UNEP’s Adaptation Gap Report 2023
This is one report that we believe needs to be read and understood widely. In 2023, temperature records toppled, while storms, floods, droughts and heatwaves caused devastation. While this should have meant more adaptation spends, the report finds the reverse: progress on climate adaptation is slowing when it should be accelerating to catch up with these rising climate change impacts.
The adaptation finance needs of developing countries are 10-18 times as big as international public finance flows. As a result of the growing adaptation finance needs and faltering flows, the current adaptation finance gap is now estimated at US$194-366 billion per year.
The report identifies seven ways to increase financing, including through domestic expenditure and international and private sector finance. Additional avenues include remittances, increasing and tailoring finance to Small and Medium Enterprises and a reform of the global financial architecture. The new Loss and Damage fund will also need to move towards more innovative financing mechanisms to reach the necessary scale of investment.
That’s it for Edition #28 of our newsletter.
As always, send all feedback, compliments and brickbats our way. And of course, we do appreciate you spreading the word about this newsletter.
Best,
Simmi Sareen and Shravan Shankar