The COP27 climate conference in Egypt concluded this weekend. As a conference attendee and event moderator, Resources for the Future President and CEO Richard G. Newell highlights four key issues from the conference that are sure to hold people’s attention in the coming year.
The Conference of the Parties (COP) to the United Nations Framework Convention on Climate Change brings together nearly 200 parties for an annual meeting to assess the progress that’s been made in achieving global climate objectives, and to make the further decisions necessary to promote their effective implementation. The first of these annual gatherings, COP1, was held in Berlin in 1995. Over the last two weeks, the 27th Conference of the Parties (COP27) was held in Sharm el-Sheikh, Egypt.
I had the opportunity to participate in COP27, together with colleagues from Resources for the Future (RFF), and I want to share some insights on several of the issues that rose to the top at the conference. Of course, with estimates of upwards of 35,000 delegates participating, hundreds of issues were explored at COP27. The COP platform provides a unique opportunity for thought leaders from around the world and across all sectors to come together to grapple with challenges and build cross-cutting strategies for climate progress.
Given the magnitude and extent of the implications of climate change and decarbonization strategies, COP27 unsurprisingly covered issues that ranged across development, finance, technology, human rights, local communities, and gender, to name a few. All these issues and more were explored at COP27 through hundreds of side events and thousands of public and private discussions that were held alongside the two weeks of official negotiations.
Backdrop of the Dual Energy Crisis and Climate Crisis
At this year’s COP, the global energy crisis was a major issue that hung in the background rather than foreground. The market upheaval brought by the COVID-19 pandemic, followed quickly by the Russian invasion of Ukraine in February 2022, have elevated energy-security risks and climate risks as key issues of concern that need to be addressed across the world. These decisions have fueled tensions on both the decarbonization and foreign-policy fronts. What’s more, some worry that the energy crisis has underscored an unfortunate reality: the world remains heavily reliant on fossil fuels, and global communities remain extremely vulnerable to both sourcing and pricing until and unless a major shift occurs toward clean energy technologies.
I had the honor of moderating a related discussion at COP27 that brought together four expert voices who explored this topic through the regional and national lenses of Africa, China, the European Union, and India. The discussion reinforced that the impacts and responses to the energy crisis have varied considerably across different regions of the world. While the European Union has been the most directly affected due to its heavy historical reliance on Russian natural gas, energy price impacts have been felt globally and have hit lower-income developing economies particularly hard.
The influence of the energy crisis on climate action and the clean energy transition also varies globally, with the European Union accelerating its planned move away from fossil fuels, while coal-dependent countries like India may find it more difficult to switch to the currently higher-priced imported natural gas. A recent analysis by the International Energy Agency nonetheless suggests that, at a global level, the energy crisis has accelerated the transition from fossil fuels.
Our conversation at the COP also shone a light on the historical inequities that the developing world has experienced in terms of the financial resources that are needed to address both deficits in energy access and efforts toward climate mitigation and adaptation. A recording of this discussion will soon be available, and I hope you will tune in.
From my vantage point, four key issues bubbled to the top at COP27 that will inform RFF research, policy engagement, and other activities in the coming year: US climate policy within the global context; carbon markets, including voluntary carbon markets; border carbon adjustments; and the climate finance tools that are needed to curb global emissions and support a clean energy transition worldwide.
US Climate Policy within the Global Context
With significant recent climate action from the United States since the previous COP in Glasgow, the evolving US role in global climate ambition proved to be a top area for discussion at COP27. Since rejoining the Paris Agreement last year, the United States also recently ratified the 2016 Kigali Amendment to the Montreal Protocol, curbing the use and production of hydrofluorocarbons, which are potent greenhouse gases. The United States now has joined 136 other nations and the European Union in ratifying the amendment.
Over the past year, the United States also has delivered a series of major policy packages on climate change—among them, the Infrastructure Investment and Jobs Act in November 2021 and the August 2022 passage of the Inflation Reduction Act. Additionally, during COP27, the United States announced new domestic standards to reduce methane emissions from oil and gas production in support of its international pledge to reduce methane. The outcome of the US midterm elections, which took place while COP27 was underway, reduced the uncertainty around what lies ahead for both the implementation and final impact of new climate legislation in the United States.
RFF has tracked these recent major policy packages—including the Infrastructure Act and the Inflation Reduction Act—and has provided timely modeling and analysis on the likely impacts for both emissions reductions and energy costs to Americans. But the passage of major legislation is only the beginning. Questions of implementation remain absolutely critical: What lies ahead for the implementation of these historic climate policy packages? What are the international implications? What additional actions will be needed to meet US decarbonization goals?
To address these questions, RFF hosted an event at COP27 that set out to explore these US climate policy issues with leading voices across nongovernmental organizations, policymakers, and the private sector. The discussion examined some of the most critical aspects of recent climate-policy packages and explored the potential challenges with successful implementation.
RFF researchers are continuing to examine both the projected and unanticipated impacts of climate legislation on the clean energy transition, transportation, energy sources and prices, permitting, equity, and more. The conversations we held and heard at COP have only underscored the importance of rigorous, independent modeling and analysis to provide an accurate view of the road ahead for implementation. Stay tuned for more upcoming work in this area.
Ambition and implementation remained key drivers on the global front, as well. In recent years, we’ve seen subnational actors of all kinds accepting responsibility for their emissions, as well as increased attention to accountability. Whether through net-zero emissions strategies or science-based targets, subnational and multinational actors like major corporations increasingly have taken action to reduce their emissions. As stakeholders look toward the near-term decarbonization targets they have committed to meet, carbon markets have attracted keen interest as sectors look toward the actions that are needed to meet net-zero emissions goals. A key way this topic intersects with the COP is through ongoing discussions about the specifics of implementing Article 6 of the Paris Agreement.
Carbon markets, and specifically voluntary carbon markets, proved a key topic for discussion at COP27, as private-sector stakeholders contend with the tools that are needed to reach net-zero emissions—including within the sectors that will be hardest to decarbonize, like fuel, aviation, and heavy industry. Carbon markets can be grouped broadly into two categories: compliance markets, which are driven by binding emissions-reduction policies and related regulation enforced by governments, and voluntary markets, which are (as the name suggests) voluntary actions taken by corporations and other nongovernmental institutions to offset or neutralize the emissions associated with their activities.
In a COP27 side event about voluntary carbon markets, I pointed out the important connections between compliance and voluntary carbon markets, on both the supply side and demand side of these markets. I also noted the critical need for voluntary carbon markets to have integrity in terms of their additionality and transparency, particularly given that voluntary carbon markets likely will play an increasingly important role until the day when all emissions and removal options globally are under a compliance regime—which may be a considerable way off.
RFF has a deep history of work on carbon markets, which to date has been more focused on compliance markets and mechanisms like a price on carbon. Coming out of COP27, RFF will step up its activities on voluntary carbon markets through products that will include timely blog posts, podcast episodes, and our signature RFF explainer series. Watch this space for more in the weeks and months to come.
Border Carbon Adjustments
As nations grapple with the mechanisms that are needed to support decarbonization strategies while also ensuring economic competitiveness on the global stage, border carbon adjustments (BCAs) have seen a growing interest in recent years. RFF explored the topic against the backdrop of last year’s COP26 through two virtual events. The first of these events examined whether net-zero policies may cause “leakage” (i.e., economic activity and emissions moving away from countries with more ambitious climate policies to countries with lower regulations) and how BCAs can be designed to mitigate this risk. The second of these events explored recent BCA proposals that have been introduced in both the European Union and the United States.
RFF built upon this collaborative, international body of work on BCAs with an in-person event at COP27. At this side event, international experts across the United States, European Union, and Japan explored how international strategies like BCAs and related “climate clubs” can help create greater economic assurances and incentives for countries with high climate ambition. The event was opened by US Senator Sheldon Whitehouse, who joined a fireside chat hosted by RFF Vice President for Research and Policy Engagement Billy Pizer.
That discussion built on legislation introduced earlier this year that would create a BCA in the United States, to explore how such mechanisms can help maintain international competitiveness while nations pursue increased national climate ambition. The panel discussion that followed welcomed experts across three continents to explore issues of competitiveness and emissions leakage.
RFF’s body of work on BCAs continues to grow, bolstered by the research and policy analysis of the Global Climate Policy Partnership, of which RFF is a founding partner. The COP27 discussions have underscored the potential utility of a variety of national mechanisms related to BCAs in the absence of a global, harmonized carbon pricing policy.
Financial Tools for Climate Mitigation and Adaptation
The final key theme was, in many ways, the bedrock of the conversations that we saw at COP27. Broadly, this theme comprised the financial tools that are needed to both mitigate and adapt to climate change, along with the tensions that can be seen between developed and developing countries on these fronts. One of the top conversations being tracked at COP27 was related to “loss and damage” and the developing world’s desire for a fund that would help vulnerable countries cope with the destruction caused by extreme weather events, which are increasing in both frequency and intensity with climate change, along with slow-onset events like sea level rise.
Remarkably, on the last day of COP27, a landmark decision was announced on climate loss and damage. The agreement established a fund that will help the poorest and most vulnerable nations cope with the unavoidable impacts of climate change—both economic and non-economic (e.g., biodiversity loss). The full details of this agreement—including who will contribute to it, how much, and how these funds will be disbursed—have yet to be determined, but its adoption by delegates from nearly 200 countries marks a shift in what has been a contentious issue for many years.
Looking Ahead to COP28
As the world looks ahead to COP28 and the Global Stocktake that will conclude next year in Dubai, nations have been challenged to demonstrate the efficacy of their efforts and their progress on climate change mitigation to date. Decisions coming out of COP27 expressed “alarm” and “grave concern” about the growing impacts from climate change, noting how reports on the “emissions gap” show that we are not on track globally to prevent temperatures from exceeding the 1.5°C or 2°C target that the Paris Agreement set as a goal.
The Global Stocktake will serve as a tangible measure of where we are in terms of that goal, taking stock of our progress to date. RFF has assessed the many possible paths to the future via projected socioeconomic and emissions pathways that have helped inform an updated social cost of carbon, and in our Global Energy Outlook report and data tool. Next year’s Global Energy Outlook will explore these projections in greater detail, with an eye toward the actions that may help to meet both the climate crisis and the near-term global energy crisis. These analyses both send the same message: that the world is not currently on a path to hold temperature change to well below 2°C, and unfortunately instead is currently on a path centered around a 2.5°C increase in global average temperature by 2100.
The world has been thrown two unprecedented curveballs in quick succession—the COVID-19 pandemic and the Russian invasion of Ukraine—with little time to rebound from the first before being hit by the second. What both crises have demonstrated, and what COP discussions have underscored, is that the world must transition from unabated fossil fuels toward a diverse and reliable portfolio of clean energy sources. What’s more, to be global, this transition must be catalyzed by the innovations, policies, market forces, and international finance needed for developing nations to leapfrog from deficits in energy access to resilient clean energy economies.
It’s a tall order, to be sure. But RFF will be there at every step along the way to provide the research and policy engagement that can inform the effective, efficient, and equitable solutions for meeting this challenge.