COP27 is Over: Draft of Final Decisions to Transfer Resources to Developing Countries

The COP27 meeting concluded on November 18^th; I’ve been following its progress. As I described last week, this meeting’s main topic was the difficulty developing countries are having in financing the required mitigation and adaptation to climate change. They have demanded financial help from developed countries and I promised that this week I would address the question of what they propose to do in case the funds are made available to them. Next week, I will focus on the same issue from the perspective of developed countries.

Not surprisingly, given the requirement of a unanimous decision by all participating countries (about 200), there were difficulties concluding the meeting with affirmative decisions. By Sunday morning (NY time), November 20^th, the news media reported the progress in the matter:

SHARM EL SHEIKH, Egypt — Diplomats from nearly 200 countries concluded two weeks of climate talks on Sunday by agreeing to establish a fund that would help poor, vulnerable countries cope with climate disasters made worse by the greenhouse gases from wealthy nations.

The decision on payments for loss and damage caused by global warming represented a breakthrough on one of the most contentious issues at United Nations climate negotiations. For more than three decades, developing nations have pressed rich, industrialized countries to provide compensation for the costs of destructive storms, heat waves and droughts linked to rising temperatures.

But the United States and other wealthy countries had long blocked the idea, for fear that they could face unlimited liability for the greenhouse gas emissions that are driving climate change.

The loss and damage agreement hammered out in this Red Sea resort town makes clear that payments are not to be seen as an admission of liability. The deal calls for a committee with representatives from 24 countries to work over the next year to figure out exactly what form the fund should take, which countries and financial institutions should contribute, and where the money should go. Many of the other details are still to be determined.

While the agreement above obviously didn’t find its way into the final resolution, it was good enough news that I decided to rededicate this blog to the relevant portions that did. I still plan to continue with the promised two blogs about the different perspectives on the role of inequality between developed and developing countries in adapting to and mitigating climate change. I will reexamine the final resolution at the end of this process and will let you know.

Here, I am posting the relevant sections of the preliminary resolution that deal with the transfer of resources between developed and developing countries. These resolutions take time and countless edits; they’re in the process of being updated but for now I’m bolding the sections that still need completion:

{Loss and damage}

38. Welcomes the Parties’ agreement for the first time to include a sub-agenda item titled “Matters related to funding arrangements responding to loss and damage associated with the adverse effects of climate change including a focus on addressing loss and damage” under agenda item titled “matters related to finance” under COP and CMA, as a reflection of the wide global consensus around the grave situation in relation to loss and damage and the need for effective funding arrangements related to responding to loss and damage in particular addressing loss and damage.
39. Notes with great concern, as documented by the IPCC 6th AR WG II and WG III reports, the growing gravity, scope and frequency of loss and damage in all regions, and that loss and damage associated with the adverse effects of climate change take the form of extreme weather events as well as slow onset events, and result in devastating economic and non-economic losses including through its impact on cultural heritage, human mobility and forced displacement and the lives and livelihoods of local communities, and underlines in this regard that an adequate and effective response to loss and damage is of great importance to the continue credibility and relevance of the UNFCCC process.
40. Expresses deep concern towards the significant financial costs associated with loss and damage for developing countries, resulting in increasing the burden of indebtedness and impairing the realization of the 2030 Sustainable Development Goals.
41. Welcomes the Parties’ agreement on all the institutional arrangements of the Santiago Network for averting, minimizing and addressing loss and damage associated with the adverse effects of climate change to enable its full operationalization, supports its mandated role in catalyzing technical assistance for the implementation of the relevant approaches at 6 the local, national and regional levels in developing countries that are particularly vulnerable to the adverse effects of climate change, and renews their determination to select the host of the Santiago Network Secretariat by 2023 through a selection process which is conducted in an open, transparent, fair and neutral manner in accordance with the process outlined in paragraphs 17-18 of CMA/**** COP/****;
42. {Placeholder funding arrangement responding to loss and damage}.

{Implementation – Just Transition Pathways}

43. Emphasizes the urgent need for immediate, deep, rapid and sustained reductions in global greenhouse gas emissions by Parties across all sectors, in order to limit global warming to 1.5 °C above pre-industrial levels; and highlights the importance of ensuring and enabling just transition for developing countries.
44. Affirms that sustainable and just solutions to the climate crisis must be founded on meaningful and effective social dialogue and participation of all stakeholders, and notes that the global transition to low emissions provides opportunities and challenges for sustainable economic development and poverty eradication.
45. Emphasizes that just and equitable transition encompasses pathways which include energy, socio-economic, workforce and other dimensions, all of which must be based on nationally defined development priorities and include social protection dimensions to mitigate potential impacts associated with the transition, and highlights the important role of the instruments and measures related to social solidarity and social protection floors in mitigating the impacts resulting from the applied measures.
46. Decides to establish a work program on just transition to discuss pathways to deliver on article 2.1 of the Paris Agreement in the context of article 2.2 and requests the Subsidiary Body for Implementation and the Subsidiary Body for Scientific and Technological Advice to recommend a draft decision on this matter for consideration and adoption by the Conference of the Parties serving as the meeting of the Parties to the Paris Agreement at its fifth session, in a manner that builds on and compliments the relevant work streams under the Convention and the Paris Agreement, including the Mitigation work program.
47. Decides to convene an annual high-level ministerial round table on just transition, as part of the just transition work program beginning at the fifth session of the Conference of the Parties serving as the meeting of the Parties to the Paris Agreement.

 {Finance}

48. Reiterates articles 2, 4 and 9 of the Paris Agreement; and highlights that about $4 trillion a year needs to be invested in renewable energy until 2030 – including investments in technology and infrastructure – to allow us to reach net-zero emissions by 2050. Furthermore, a global transformation to a low-carbon economy is expected to require investments of at least USD 4-6 trillion a year. Delivering such funding will require a transformation of the financial system and its structures and processes, engaging governments, central banks, commercial banks, institutional investors and other financial actors.
49. Notes with concern the growing gap between the needs of developing country Parties, in particular due to the increasing impacts of climate change and increased indebtedness, and the support provided and mobilized to complement their efforts to implement their nationally determined contributions, highlighting that current estimates of such needs are in the scale of 5.6 trillion USD up to 2030, while the global annual flows to developing countries.
50. Expresses grave concern that the goal of developed country Parties to mobilize jointly USD 100 billion per year by 2020 has not yet been met and urges developed country Parties to meet the goal and address the shortfall to $100 billion since 2020.
51. Emphasizes that accelerated financial support for developing countries from developed countries and other sources is a critical enabler to enhance mitigation action and 7 address inequities in access to finance, including its costs, terms and conditions, and economic vulnerability to climate change for developing countries. Scaled-up public grants for mitigation and adaptation funding for vulnerable regions, especially in Sub-Saharan Africa, would be cost-effective and have high social returns in terms of access to basic energy.
52. Notes that global climate finance flows are small relative to the overall needs of developing countries. Global climate finance in 2019–2020 was estimated to be USD 803 billion. This amount is 31–32 per cent of the annual investment needed for the global temperature rise to follow a well below 2 °C or a 1.5 °C pathway. This level of climate finance is also below what one would expect in the light of the investment opportunities identified and the cost of failure to meet climate stabilization targets.
53. Notes the important role of technology transfer in enhancing climate action and that capacity gaps and needs still exist in developing countries.
54. Urges developed country Parties to provide enhanced support, including through financial resources, technology transfer and capacity-building, to assist developing country Parties with respect to both mitigation and adaptation, in continuation of their existing obligations under the Convention, and encourages other Parties to provide or continue to provide such support voluntarily.
55. Calls on MDBs and IFIs to align and scale up funding, ensure simplified access, mobilize climate finance from various sources, and encourages the shareholders of MDBs to define a new vision and commensurate operational model, channels and instruments that fit for-purpose to adequately address the global climate emergency; including deploying full suit of instruments from grants to guarantees and non debt instruments, without exacerbating debt burdens, and address the conservative risk appetites and limited scale of capitalization towards increasing their deployment on climate finance three folds up to 2025.
56. Calls on multilateral development banks to reform their practices and priorities, in order to reduce the cost of borrowing for climate projects in developing countries and to increase their investment into adaptation financing and urges MDBs to align their operations with the Paris Agreement on Climate Change, and climate change emergency.
57. Urges the ad hoc work programme on the new collective quantified goal to produce more efficient and operational results by 2023
58. Calls on multilateral development banks to significantly increase climate ambition using the breadth of their policy and financial instruments for greater results including on private capital mobilization.
59. Calls on multilateral development banks to ensure higher financial efficiency and maximize use of existing concessional and risk capital vehicles to drive innovation and accelerate impact.

{NCQG}

60. {Placeholder for relevant outcomes from the ongoing negotiations}

NCQG stands for New Collective Quantified Goal on Climate Finance.

As I mentioned at the beginning of the blog, the agreement was “to establish a fund that would help poor, vulnerable countries cope with climate disasters made worse by the greenhouse gases from wealthy nations.” The major thing that remains open is where to draw the line of who needs to pay vs. who can withdraw from the fund. To put this question differently, how do we establish where middle-income countries fall on the binary? For instance, China is now the largest carbon emitter by far according to country measures but it trails many rich countries in emissions per capita, income per capita, and cumulative emissions. This issue has shadowed climate change agreements since its inception (put “Kyoto Protocol” in the search box for some perspective). Not surprisingly, the present agreement only establishes a committee that will submit a report about implementation to next year’s COP28 meeting, rather than trying to take definitive action now.

I will continue to follow the progress.