COP27: Sharm El-Sheikh Implementation Plan agreed, but leaves more work for COP28

After witnessing the fissures between Parties during the final few days of negotiations at COP27 (including during plenary sessions to discuss a draft covering decision) COP27 was brought back from the brink with a last-minute compromise deal – the Sharm El-Sheikh Implementation Plan.

Despite making progress on establishing a fund to address loss and damage from climate change, the Plan is decidedly unambitious when it comes to the actions required to keep the 1.5°C goal of the Paris Agreement within reach.

This is perhaps not surprising given the current geo-political tensions and ensuing energy crisis. The result was that, like the last few conferences, COP27 went well beyond its scheduled end time, reflecting the growing difficulty in reaching a consensus on many contentious issues. Even though there were no significant items on the agendas for COP27 and its affiliated meetings^[1] requiring a decision, COP27 became a test of the commitment of the Parties to implement actions to keep the 1.5°C goal of the Paris Agreement within reach, and deliver on the financial requirements to drive mitigation ambition, assist adaptation and fund climate change loss and damage.

Mitigation ambition, mitigation reality

Significant concerns were raised during plenary sessions of the Heads of Delegations about draft decisions using language that undermined or potentially walked back on commitments made in the Paris Agreement and Glasgow Climate Pact. While the language in the Plan reaffirms these previous agreements, it contains no new commitments to achieve their objectives, merely resolving to pursue further efforts to limit the temperature increase to 1.5°C. This is despite the acknowledged significant gap between the Parties’ current commitments in NDCs and what is required to keep the global rise in temperature to 2 or 1.5°C.

The work programme for scaling up mitigation ambition established at Glasgow was confirmed, with the decision made to “operationalise” that programme through focused meetings and detailed processes. Included among these are investment focused events with a view to unlocking finance from public and private sources to enhance mitigation. The programme will continue until 2026 with annual reports, the first being due in 2023. However, the decision makes clear that the programme will not impose new goals or targets, and reaffirms the primacy of NDCs as the vehicle for Parties to set their national targets and goals.

At the closing plenary, a number of interventions were made, particularly by the European Union, Australia (on behalf of the Umbrella group of countries) and Barbados (on behalf of the Alliance of Small Island States), expressing disappointment that the Plan did not contain stronger language and commitments with respect to mitigation actions.

Adaptation measures must be scaled up

The Plan references the existing gap between the current levels of adaptation response and what is required to meet the adverse effects of climate change. It acknowledged that more work is required to be done to strengthen resilience and reduce vulnerability of countries to climate change, with developed countries urged to significantly scale up climate finance, technology transfer and capacity building for adaptation. In this regard, there is express recognition for the central role of the Adaptation Fund and the new pledges made to that fund at COP27. A report has been commissioned to investigate doubling of adaptation finance for consideration in 2023.

The Plan also acknowledges the progress of the Glasgow-Sharm El-Sheikh work programme on the global goal on adaptation, deciding to initiate the development of a framework to guide the achievement of the global goal and assess overall progress. The framework will include consideration of themes such as water, food and agriculture, cities and key infrastructure, terrestrial and freshwater ecosystems, cultural heritage and biodiversity, as well as the metrics and methodologies to inform targets. A report of workshops to be conducted during 2023 under the programme is due at COP28.

Funding loss and damage, moving on the Santiago Network

The most significant outcome from COP27 was the decision to establish funding arrangements to respond to loss and damage suffered by countries on account of climate change. This was seen as a critical outcome by developing countries that are particularly vulnerable to the adverse effects of climate change. The decision to establish a fund specifically to support loss and damage was therefore greeted with considerable enthusiasm by the G77 and China, Like Minded Developing Countries and AOSIS.

A transitional committee on the operationalisation of these new funding arrangements has been established with terms of reference, which will make recommendations at COP28 on how the funds should be operated. Matters to be considered by the committee include institutional arrangements, identifying and expanding sources of funding and ensuring co-ordination with existing funding arrangements.

A related decision concerns the establishment of the institutional arrangements for the Santiago Network, whose goal is to provide technical assistance to developing countries for averting and minimising loss and damage from climate related disasters. The network will have its own secretariat and advisory body, and operate as a network of member organisations and experts to provide the technical assistance. It will be responsible for developing appropriate guidelines and procedures, including in respect of responding to requests for technical assistance.

Finance; the buck stops… where?

As with most COP conferences, the issue of finance permeated almost every aspect of the deliberations at COP27 including mitigation, adaptation and loss and damage. The Plan noted the significant disparity between the finance needed per year to transition to a low carbon economy and meet the goals of the Paris Agreement (estimated at US$4-6tn per year), against the estimated financial flows including to developing countries.

There was also the continuing frustration with the failure of developed countries to make good on the pledge made in 2009 to mobilise US$100bn per year by 2020 to support meaningful mitigation action. Even though delivery on this commitment was deferred at Glasgow until 2023, developing countries regarded the failure as a breach of trust which influenced their approach to negotiations on other issues.

In relation to long-term finance, the decision emphasises the importance of public funds and grant-based resources for developing countries, while recognising that a variety of financial sources will be required to meet the long-term climate finance goal. As foreshadowed, the decision also engaged with a concern raised by developing countries about what in fact constitutes “climate finance”, noting the lack of common definitions and accounting methodologies. The Standing Committee on Finance has been charged with responsibility to work on such definitions and methodologies which will likely introduce more rigour about the types of finance that will qualify as climate finance and therefore the future funding goals and targets.

In response to calls from developed countries, including Australia, for the Parties to recognise the variety of available finance sources and institutions capable of providing climate finance, the Plan calls on multilateral development banks (MDBs) and international financial institutions to scale up funding and simplify access, while encouraging MDBs to deploy a broad range of financial instruments including grants, guarantees and non-debt instruments. In particular, the Plan calls on MDBs to drive greater climate ambition by facilitating the mobilisation of private capital through concessional and risk capital vehicles.

Finally, the Plan acknowledges the progress on the work programme for a new collective quantified goal on climate finance (NCQG). The programme was established at Glasgow and is due to conclude in 2024. The NCQG aims to accelerate achievement of the goals of the Paris Agreement and the Plan provides additional measures to substantively progress work on the NCQG during 2023 including the convening of a high-level ministerial dialogue. Pointedly, the decision says that work on the NCQG should build on lessons learned from the US$100bn per year by 2020 goal of developed countries.

Article 6 negotiations kick some cans down the road

Despite the rulebook for Article 6 being largely agreed at COP26, there was work still do on the governance and procedures before any of the mechanisms established under that Article can be operationalised. The negotiations at COP27 on Article 6 were therefore the most technically challenging (and least interesting).

Unfortunately, some of the more contentious issues were deferred for further negotiations, including whether to allow credits for “emissions avoidance” and how to treat emissions removals. Also deferred was the contentious issue of authorisation of projects by host countries and when an authorisation could be revoked or amended. Unresolved and subject to further work is how infrastructure between mechanisms can be linked to facilitate the trade in emission reduction units, an important design element in ensuring ownership, use and trade of such units can be verified.

Article 6.2

In relation to bilateral approaches to trading of “internationally traded mitigation outcomes” (ITMOs) under Article 6.2, progress was made on the information that would need to be reported by countries when trading ITMOs. It is a matter for the reporting country, however, to decide whether to make this information publicly available.

This however does nothing to engender confidence in market-based approaches, and potentially lessens confidence in the integrity of the ITMOs created and their transfer. The decision requests the SBSTA to develop reporting rules which might go some way to alleviating this concern.

Article 6.4

Some progress was made on the formal rules for the operation of the supervisory body to the mechanism established under Article 6.4 (the sustainable development mechanism) as well as the transition of CDM projects under the Kyoto Protocol. Projects registered under this mechanism will be able to generate Article 6.4 emissions reductions or A6.4ERs. These can be used towards meeting NDCs or traded. When such A6.4ERs are traded between countries, there is a corresponding adjustment to the parties’ respective emissions inventories to avoid the risk of double counting the emissions reduction.

An issue unresolved at Glasgow concerned how to treat “non-authorised ERs”: emissions reductions not authorised for transfer and use towards achievement of a buyer’s NDC. At COP27 some clarification was achieved, to define them as “mitigation contributions” which can only be used towards achieving a host country’s target. This reduces the potential for double counting of these emissions reductions.

Article 6.8

This article in the Paris Agreement relates to non-market approaches to co-operative climate actions (NMAs). As they were poorly defined, COP26 established the Glasgow Committee to look at what NMAs might entail and how they could be facilitated, including whether a web portal to be hosted by the UNFCCC should simply register co-operative actions, or seek to actively match parties to deliver action. Although the issue of the function of the portal was resolved by making it voluntary, differences of opinion remained regarding what should or should not constitute a NMA. As a result, the Glasgow Committee will continue working on the issues for another two years.

Australia’s new commitments and opportunities for implementing climate change mitigation and adaptation

Minister Bowen was clear at COP27 that Australia “was back” with a focus on driving greater ambition and transparency in measures to address climate change. He was immediately thrown into progressing resolution of a decision on the contentious issue of climate finance, which he obviously assisted to achieve.

Clearly, Australia’s new commitments and renewed engagement in the climate negotiations carried greater credibility and achieved support and recognition particularly from Pacific nations. Given the changed geo-strategic dynamic in the Pacific region, Australia has a renewed interest in supporting initiatives in that region. Opportunities exist for Australia to take a leading role in:

• providing and facilitating climate finance to the Pacific region. This can support adaptation and capacity building measures, and also renewable and clean energy projects. Australia will also have opportunities to identify and mobilise new forms of finance, including working with MDBs such as the Asian Development Bank;
• influencing the operationalisation of the funding mechanism for loss and damage. A submission could be made that regional funding arrangements to support loss and damage may be more appropriate and targeted, allowing Australia to focus its funding priorities in the Pacific region; and
• as the architecture and implementation of the Article 6 mechanisms continue to be better defined, there will be greater confidence for progressing bilateral projects (article 6.2) or sustainable development projects (article 6.4) in the Pacific region.

There is also the opportunity, and responsibility, that comes from Australia bidding to host COP31 in 2026 in conjunction with Pacific nations. This will necessarily commit Australia to greater engagement in the region over the next few years with respect to climate action to ensure the support and cooperation of the Pacific nations to a successful COP.