COP27 explained: the what, why, and how of the final agreement

World leaders, ministers, diplomats, activists, lobbyists, and civil society groups convened in Sharm El-Sheikh from 6th-18th November 2022 for COP27. Sust Global has been following developments closely and has produced a series of articles that explores the most interesting developments to emerge from proceedings and explains the key outcomes contained in the final agreement. We cover the core themes that shaped debate, including climate finance, climate justice, physical climate risk and adaptation, the role of carbon offsets, and more.

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In the first entry into the series, we take a deep dive into the final agreement produced at the summit, discussing what exactly was agreed, the wider background informing the debates, what it means, and why it has met with such a conflicting reception among stakeholders.

COP27 explained

This year’s COP27 summit took place in the bleak context of a global polycrisis that encompasses energy price shocks, faltering food systems, the looming risk of widespread debt default, a global economic recession, a lingering pandemic, and the threat of nuclear conflict in Eastern Europe.

Given this formidable list of pressing short-term challenges commanding their attention, few anticipated that the world leaders gathered at COP27 had the political will or bandwidth to make any major commitments to address the future perils of climate change.

Billed as an ‘implementation’ COP that would get to work enacting many of the items of the agenda agreed in last year’s Glasgow pact, expectations were already low with regards to the significance of any initiatives agreed at the conclusion of talks.

However, the summit ended up making history as developing countries secured an agreement from wealthy nations to establish a loss and damage fund to provide support for the victims of climate disaster. While there are few details as of yet regarding how the fund will work and who will pay, this symbolic acknowledgement of moral and financial responsibility by wealthy nations is a radical departure from more than three decades of resistance to the idea of climate compensation.

This landmark commitment was greeted triumphantly by the G77 coalition of developing nations and celebrated as an important first step towards climate justice.

Yet excitement over progress on loss and damage was tempered by dismay at the concessions required in the wider agreement to secure the deal. Delegates from nations including the US, the UK, the EU, and many Pacific island nations pushed for stronger measures to achieve a drastic and rapid reduction in emissions and keep the global warming target of 1.5 degrees alive. They ultimately failed in many of their efforts, with the final text excluding any mention of phasing down use of fossil fuels and offering little indication that many nations were serious about the commitment to scale up measures to transition to net zero.

In the article below, we explore the detail of the final agreement and place the debate over loss and damage and fossil fuels in a broader context.

Table of contents

Wealthy nations commit to dedicated loss and damage fund

The most significant outcome of COP27 is the agreement in principle to establish a ‘loss and damage’ fund to support the poorer nations that are the most vulnerable to the physical impacts of climate change.

In diplomatic climate talks, ‘loss and damage’ refers to costs incurred through the destructive impacts of climate change, whether through acute hazards such as extreme weather events or chronic issues such as rising sea levels. The issue was first raised in 1991, when the Alliance of Small Island States (AOSIS) proposed an insurance mechanism for inclusion in the UN Framework Convention on Climate Change (UNFCCC). This proposal made specific requests for industrialized nations to pay for loss and damage caused to island nations by rising sea levels.

Three decades later, vulnerable nations have finally succeeded in overcoming resistance from the wealthy nations and securing much-needed funding commitments from those whose emissions they regard as historically responsible for climate change.

It became clear during the opening day of proceedings in Sharm El Sheikh that loss and damage would be the defining issue of the summit. Delegates from nations recently ravaged by extreme weather, such as Pakistan, raised the issue of restitutive climate finance in a series of impassioned addresses to the gathering of world leaders.

One such address that received widespread coverage was delivered by Mia Mottley, the prime minister of Barbados, who spoke with powerful moral clarity on the subject of climate justice. Her remarks offered a blistering critique of the rich countries who fail to live up to their promises to reduce emissions and provide climate finance while poor people in the developing world bear the brunt of damage to the climate in the form of extreme weather events and rising seas.

With loss and damage placed at the forefront of the summit agenda, vulnerable nations emerged from two weeks of COP27 talks with an historic win. However, while this is undoubtedly an important symbolic acknowledgement of responsibility by wealthy nations, details for how the fund will be operationalised and where the money will come from are yet to be confirmed.

Furthermore, there is no agreement yet on what should count as loss and damage caused by the impact of climate change. It could include losses accrued on physical assets, such as damage to infrastructure and property, as well the destruction of natural ecosystems and cultural assets. While it is relatively straightforward to account for the costs of destruction of physical assets, it is much harder to place a nominal value on damage to natural and cultural capital.

A report released in June 2022 by the V20 group covering 55 vulnerable countries estimated that they had lost $525bn dollars due to the impact of climate change on temperatures and precipitation patterns since the year 2000 - equivalent to 20% of their collective GDP. Research elsewhere suggests that financial impact on at-risk economies could rise to as much as $580bn by 2020 and exceed $1tn by 2050.

The US and the EU (among others) have long resisted the argument that industrial nations are responsible for funding loss and damage payments for such costs for fear of spiraling liabilities. There was also widespread opposition to the establishment of a new, dedicated fund, with the EU in particular arguing for the adoption of a ‘mosaic approach’ that leveraged funding from a network of existing institutions, such as the World Bank and other development banks, existing climate funds including the Green Climate Fund and Global Environment Facility, and national funds.

However, the G77 coalition acted with singular purpose, their resolve strengthened by the recent memory of the devastating floods in Pakistan and mistrust in developing nations who have failed to meet their longstanding promise to provide $100bn of climate finance a year by 2020. They held firm on the single, united demand for a dedicated fund that would have the capacity to disburse funds quickly in the event of natural disasters. Opponents of the fund eventually relented, with the EU Commission releasing a press statement saying that it agreed to compromise in order to keep the ambitions of the Paris Agreement alive.

Nevertheless, their concerns were addressed in the language included in the final agreement. The fund agreed at the summit will be aimed at providing financial support to countries that are ‘particularly vulnerable’ to the impacts of climate change - wording wanted by wealthy nations to ensure financial flows are targeted at the most urgent cases while limiting the pool of potential funding recipients.

Village homes destroyed by catastrophic flooding this summer in rural Khyber Pakhtunkhwa, Pakistan.

The text of the agreement also calls for funds to come from a variety of existing sources, such as raising capital from financial institutions or generating funds through windfall taxes on fossil fuel companies, so that the initiative isn’t reliant solely on payments from rich national governments.

Moving forward, the deal lays out a roadmap for decision-making over the next year and sets a deadline for next year’s COP28 for recommendations to be laid out regarding oversight of the fund, the appropriate mechanisms for dispersing funds, and who should receive the support.

While it remains to be seen how effectively the loss and damage fund will be financed and utilized, the announcement has been largely celebrated by the international community and represents a historic step forward for those suffering most from the consequences of climate change. Hailing the landmark decision, Pakistan’s climate minister - Sherry Rehman - described the agreement as a ‘downpayment on climate justice.’

A setback on 1.5 degrees amid bitter ongoing disputes over fossil fuels

While the final deal at COP27 was regarded as a triumph by many due to the loss and damage announcement, others were dismayed at the lack of progress made on climate mitigation (i.e reducing emissions to limit the extent of any further climate change). At several stages, disagreements over emissions targets and the use of fossil fuels were so stark that there was a genuine risk that talks might collapse.

Representatives from the US, the EU, the UK, and the Pacific Islands argue that the final agreement is a step backwards from the commitment to the 1.5 degree limit made in Glasgow last year, and that this was the heavy price paid for progress on loss and damage. With visible emotion, frustrated negotiators stressed that stalling efforts on the transition to renewable forms of energy highlighted the yawning gap between the dire warnings of climate scientists and international climate policy.

Reaching consensus on new forms of climate aid for developing nations meant bargaining with oil-producing countries that blocked stronger text on the 1.5 degree limit and the phasing down of fossil fuels. According to officials from the EU and the UK, a group of nations led by Saudi Arabia, China, Iran, led efforts to resist including the 1.5 degree target in the official text of the final agreement and obstruct any further efforts to restrict the use of fossil fuels. Attempts to link global warming targets to the agreement on loss and damage were also defeated.

In the end, the final text did reaffirm an international commitment to limit further warming and reiterated the agreement from Glasgow to ‘phase down’ the use of coal. However, it did not commit to the phasing down of all fossil fuels and did not include any initiatives to encourage fast action on reducing emissions. It also included ambiguous language on ‘low emissions energy’ that some experts are warning could be used to open the door to certain forms of fossil fuels (particularly gas) being considered as part of green energy strategies.

The recent UNEP Emissions Gap Report indicated that the updated emissions plans following COP26 leave no credible pathway to achieving the 1.5 degree warming limit. The failure to agree on the urgent action and system-wide transformation required to avert future climate disasters means that the COP27 agreement will be perceived as backtracking on the Glasgow pact despite more or less preserving its targets.

Complicated historical legacies loom over contemporary negotiations

Another contentious debate that shaped negotiations over the ongoing use of fossil fuels emerged over the question of whether African nations should be allowed to exploit their natural gas reserves.

While there were several calls urging an end to the extraction of any new sources of fossil fuels, leaders from across the African continent maintained that they must be permitted to access their natural resources to drive economic development.

Their argument is that Africa has contributed the least of any continent to climate change, with greenhouse gas emissions generated by African nations accounting for less than 4% of the CO2 stock in the atmosphere.

Despite this, they are being asked to sharply reduce their carbon emissions in a way that developing countries were never required to. This is why leaders such as Macky Sall, the president of Senegal and chairman of the African Union, are saying that the global north should take the lead on drastically reducing emissions as Africa needs access to its resources to power industrialisation and economic prosperity (as rich nations have already done - often at the expense of the developing world).

At the same time, Africa has been disproportionately affected by the impact of climate change. Its temperatures have warmed faster than the global mean since pre-industrial times, sea levels are rising faster along its coastline than the global mean, high water stress is estimated to impact 250 million people on the continent by 2030, and 22 million people are currently at risk of starvation due to drought in the Horn of Africa.

Dry river bed in Makueni County, Kenya, July 4th 2022. Kenya is among the nations worst affected by the ongoing hunger crisis caused by drought in the Horn of Africa.

Climate scientists and African climate activists argue that the scale of the expansion of fossil fuel infrastructure proposed by proponents of gas are incompatible with reducing emissions enough to hit global warming targets. If these targets are missed, it is Africans who will be worst affected and who will have the highest costs associated with climate adaptation.

The apparent contradiction between the desire of leaders to benefit from Africa’s vast natural resources to increase economic prosperity while also mitigating and adapting to the impacts of climate change was put to Sall in Sharm El-Sheikh according to reports from CBC. An outspoken advocate for greater climate adaptation funding, when asked about natural gas he reaffirmed that the African Union is in favor of reducing GHG emissions, but that Africans ‘cannot accept that our vital interests are being ignored.’

As demand for gas rises in the short term due to the global energy crisis while the cost of adaptation increases (not to mention the ongoing human tragedy of the climate crisis in Africa), it is likely that fraught debate will continue between now and next year’s COP28.

What does it mean?

As with many COP summits, there was scant detail on how its cornerstone commitments would be fulfilled and widespread disillusionment with the perceived inadequacy of efforts to reduce emissions.

Glasgow’s COP26 was derided by many as FLOP26 due to the failure of the delegation to agree to the urgent action we know is necessary to avert major climate tipping points. The text of the COP27 agreement just about leaves the provisions of the Glasgow pact intact, which will offer little encouragement to those concerned by the lack of progress over the past year.

However, the commitment of wealthy nations to offer dedicated financial assistance to countries ravaged by extreme weather and other climate hazards is an important step in ensuring that those who are least responsible and worst affected by the impact of climate change are given adequate support.

If implemented correctly, this development has the potential to rebuild the broken trust between the global north and south and serve as a platform for future collaboration to mitigate and adapt to climate change.

In part 2 of our COP27 explained series, we focus on the topic of climate finance and look at how and why it became one of the defining issues underpinning negotiations. You can read more research and insights from the frontline of the climate economy on our blog.

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