What Was, and What Wasn't Accomplished at COP27

Episode 23 of The Green Investor Podcast from Investopedia (November 23, 2022)

Welcome to The Green Investor, powered by Investopedia. I'm Caleb Silver, the editor-in-chief of Investopedia, and your guide and fellow traveler on our journey into what it means to be a green investor today, and where this investing team is headed in the future. In this episode, COP27 wrapped up in Egypt last weekend, with a historic agreement to create a new fund to compensate poor nations for the so-called loss and damage they are experiencing as a result of extreme weather worsened by climate change. We'll get into the details and we'll speak with Alice Hill of the Council on Foreign Relations, who attended the gathering about what was and what wasn't accomplished.

Let's do the news. The U.S. and China appear to be working, or at least talking about working, on climate again. U.S. climate envoy John Kerry and his Chinese counterpart Xie Zhenhua said on Saturday that they had resumed formal cooperation, which had been suspended after House Speaker Nancy Pelosi's visit to Taiwan earlier this year. Xie said the two countries are putting forward on the formal negotiating agenda the issue of how to address the losses and damages developing nations are experiencing as a result of climate change, but he stressed that any new deal on the issue should mirror the Paris Agreement, by putting the onus on developed countries to contribute.

More countries signed up to the methane pledge launched in Glasgow last year, and there are now 150 nations that have pledged to cut emissions of that greenhouse gas by 30% by the end of the decade. China, for its part, said it has developed a draft plan to curb methane emissions, but did not join a global pledge to reduce its output. Other major gas producers still outside the pledge include Russia, Turkmenistan, and India. A new $3 million global methane hub program to track and manage methane emissions from the global waste sector in Africa and Latin America, was announced Wednesday at COP27.

Temperatures in Europe have a strong chance of being significantly higher this winter. That's according to the European Union's Copernicus Climate Change Service. Coastal regions along the Baltic, Mediterranean, and North Sea are almost certain to see temperatures exceeding the historical average, and there is a 50 to 60% probability that temperatures will be significantly above historic norms across much of the U.K., central, and southern Europe. Warmer temperatures might ease the concerns and costs around natural gas this winter, most of which the EU imports from Russia.

U.S. greenhouse gas emissions from major industrial sources climbed by 4.1% in 2021, according to new data recently released by the U.S. Environmental Protection Agency. The increase is the largest yearly increase in emissions in more than a decade of reporting. The 2.7 billion metric tons of carbon dioxide-equivalent were self-reported to the agency by more than 8,100 of the nation's largest climate polluters under the agency's mandatory greenhouse gas reporting program.

The COP27 Climate Summit in Egypt

The two-week-long COP27 climate summit that took place in Egypt's Red Sea resort town of Sharm el-Sheikh, wrapped up in the early dawn hours last Sunday with a historic agreement to create a new fund to compensate poor nations for the loss and damage they have suffered due to climate catastrophes. Government ministers and negotiators from 200 countries finally secured that agreement, after talks nearly collapsed on Friday—the final scheduled day of the summit. They also reaffirmed efforts to limit global temperature rise to the crucial temperature threshold of 1.5 degrees Celsius above pre-industrial levels. Here are some of the particulars of that agreement:

Number one: a new fund for loss and damage. Under the agreement, the nations decided to establish new funding arrangements for assisting developing countries that are particularly vulnerable to the adverse effects of climate change in responding to "loss and damage." That includes a focus on providing and assisting in mobilizing new and additional resources, which are meant to complement existing programs and funds. No sums of money were actually committed at the summit, and the rules of how the fund would work were left to be decided at next year's COP28 summit in the United Arab Emirates.

Number two: potential changes coming to multilateral lenders. For the first time, a COP meeting included a call to reform the global financial architecture, so that it better aligns with climate goals, as reported by Bloomberg. The idea is to amend the mandates of multilateral development banks, like the World Bank, and international financial institutions such as the International Monetary Fund (IMF), to ensure that greater financing flows to energy transition projects and efforts to adapt a warming planet.

Number three: mitigation work programs. This is one of the big sticking points of COP27, and it is centered around ensuring that countries set clear targets, plans, and metrics to reduce emissions on pace to meet climate goals. So far, commitments have not followed the same standard, with countries using different criteria and baselines for their targets. Without a common system, those pledges may not turn into actual emissions reductions, but no agreement was reached on those programs, or a timetable for making changes.

Number four: strengthening rules for carbon markets. At COP27, negotiators outlined a more detailed framework for how a carbon market would work, including allowing corporations to buy credits from governments. Again, no new rules or policies were put in place, but the discussion is at least ongoing.

And number five: that 1.5 degrees Celsius goal remains a long shot. There were no new targets set for reducing global warming beyond the 1.5 degrees Celsius warming target that was agreed upon in the 2015 Paris Agreement. Pleas to phase out all fossil fuels and peak global emissions by the year 2025, which is likely to happen anyway, according to the International Energy Agency (IEA), were rejected by many nations who export oil.

Meet Alice Hill

Alice Hill, Council on Foreign Relations (CFR)
Alice Hill.

Alice Hill is the David M. Rubenstein senior fellow for energy and the environment at the Council on Foreign Relations (CFR). Her work at CFR focuses on the risks, consequences, and responses associated with climate change.

Alice previously served as special assistant to President Barack Obama and senior director for resilience policy on the National Security Council staff, where she led the development of national policy to build resilience to catastrophic risks, including climate change and biological threats.

In 2009, Alice served as Senior Counselor to the Secretary of the U.S. Department of Homeland Security (DHS), in which she led the formulation of DHS's first-ever climate adaptation plan and the development of strategic plans regarding catastrophic biological and chemical threats, including pandemics. While at the Department of Homeland Security, Hill founded and led the internationally recognized anti-human trafficking initiative, the Blue Campaign.

Her coauthored book, Building a Resilient Tomorrow, was published in 2019. In 2020, Yale University and the Op-Ed Project awarded her the Public Voices Fellowship on the Climate Crisis. Hill’s new book, The Fight for Climate After COVID-19, was published in September 2021. Alice's writing has appeared in numerous publications, including AxiosThe Bulletin of Atomic ScientistsCNNForeign Affairs, Foreign PolicyNature, and Lawfare, among others.

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As another conference of the parties comes to a close, member nations, NGOs, companies, grassroots organizations, investors, and other interested parties leave Sharm el-Sheikh, Egypt, with many unanswered questions: Who's going to pay for climate disasters? Who's going to pay to prevent future disasters? Who's going to pay for investments needed to slow and hopefully reduce global warming? It always comes down to money, which is why progress seems so slow, even as the urgency around climate change becomes even more intense. Alice Hill is the David M. Rubenstein Senior Fellow for Energy and the Environment at the Council on Foreign Relations (CFR). She focuses on the risks, consequences, and responses associated with climate change, and she is our special guest on The Green Investor this week. Thank you for being here, Alice.

Alice: "Great to join you. Thank you."

Caleb: "You're just back from Egypt. You were at COP27. You and I are speaking on a Friday—they're going to go through the weekend having conversations about funding facilities to pay for a lot of this, but that really was the dominant theme. Give us your brief takeaways from the time you spent there, and what was really happening."

Alice: "Well, yes, the COP should have ended by now, but it's not, because the fight is—as you've noted—over money. And that will be the continuing theme since we've seen, from our windows, that climate change continues to unfold. And we know that it will take a lot of money to transition to clean energy and cut our harmful greenhouse gas emissions, plus to prepare for these worsening climate impacts. That was very obvious during my stay in Sharm el-Sheikh."

"You know, Sharm el-Sheikh is a resort town on the southern tip of the Sinai Peninsula. It just is strong with water parks and seemingly countless pools as you fly in, but it's a very dry area. So it's ironic that that is the choice of places to be, given the challenges that climate change brings with too much or too little water."

"Some 30,000 delegates from over 190 nations, as well as NGOs and other observers like me, joined at the COP. This was a bit of a stretch for the Egyptian government to put this on. There were certainly lots of complaints about everything from the food—inadequate food, inadequate access to drinking water, so that those of us attending had to purchase bottled water. We couldn't refill our bottles, and then even the toilets were overflowing. There were also complaints about some harassment. Activists—I met one activist who claimed that she had been harassed by the military during her stay. Very young woman, and quite upset by the whole experience."

"But as you walked around this gigantic trade show—that's essentially what a COP is, and visited different booths, It was clear that there is a world of the haves and the have-nots. And that issue increasingly became the topic of discussion during my time."

Caleb: "Yeah, in COP terms, they call it loss and damage. That's one of the big things that comes up. And that is, basically, who's suffered the losses and the damages, and who's going to pay for it—how are we going to pay for it? But that's my sense of it, and I'm sure there's a much deeper sense of it. What do you really mean by that? What is really meant by that? And then, for events like COP and others, are these effective? Do we have to have these? Do they solve problems? Give us your assessment, but first of all, explain loss and damage to us."

Alice: "Well, loss and damage has been a theme for many COPs now. It's brought forward by, primarily developing nations, who are ill prepared for the impacts they are already suffering from climate change, be it sea level rise or increased flooding. They have said, "look, we need to have money for our loss," like land just simply underwater—that's a loss, and lives lost."

"But also the damage to their economies from these increasingly violent, extreme events that they just don't have the infrastructure like we have in richer nations, like in the United States—they don't have levees to prevent flooding. They don't have the amounts of money to rebuild that the United States does. They are often saddled with debt, and when one of these events hit, there's little private insurance available. So those losses are absorbed by the governments and the population. So clamoring for more money has been a consistent theme at COPs."

"This time, for the first time ever, loss and damage actually made it onto the official agenda of COP27. And that meant it was going to be discussed in the negotiations. At COP26 last year in Glasgow, there was a similar attempt to get something final on loss and damage. But, in the final moments before that gavel struck, closing COP26, the parties decided to kick this issue down the road. They created something called the Glasgow dialogs that were supposed to last for three years, talking about a loss and damage fund and how this money fund would work."

"Interestingly, the developing countries have gathered together and are speaking with one voice on this position, and now Pakistan has stepped forward—it leads a group of nations called the Group of 77 (G-77). There are actually far more nations in this group that are pushing for loss and damages, reparations, whatever you want to call it, for climate damage. And you'll recall that Pakistan is now essentially a poster child for what's at stake."

Caleb: "Those devastating floods the past year..."

Alice: "Right. Pakistan is, because of its geography, one of the most climate-threatened nations in the world. It had a really hard year in 2022. The spring started with an extreme heat wave, and of course, most of the country is not air conditioned—again, a difference between the rich world, certainly here in the United States. And so, it's very hard to have extended periods of very hot weather. And then the rains came—the monsoons changed and brought devastating flooding."

"Just imagine that a third of the nation was underwater, with 33 million people affected, two million homes lost. And then, severe impacts to their infrastructure—13,000 kilometers of road destroyed, over 400 bridges. And Pakistan is largely an agricultural economy. It's one of the primary exporters of cotton. Forty percent of its cotton crop was destroyed, and 15% of its rice crop was destroyed. So they're now facing significant hunger and malnutrition issues. And now in the fall planting season, there's a question of whether their wheat crops will come in."

"As I walked around COP, Pakistan had its booth. They had been very articulate, their representative, insisting that there be money coming forward. At their booth, they borrowed from our saying in Las Vegas, and the booth had a huge poster board saying "What happens in Pakistan won't stay in Pakistan." So the harm that that country has suffered has become symbolic of what's ahead, and the need for help."

Caleb: "Going into COP27, I know you guys wrote on CFR, that adaptation is also going to be a key focus. And that's exactly what Pakistan and other nations are now having to deal with—Pakistan in the aftermath of all these disasters. But other countries facing similar threats, or even every country facing some threat or another, has to deal with adaptation. What does that mean to the CFR, and did any of that come up in a meaningful way that looks like it might be addressed at COP27?"

Alice: "I just want to say that my writing—I don't take an official position for CFR—but adaptation was a key issue, and has been a key issue, at this COP. It still, with that said, struggles to get the spotlight. Adaptation historically has been the poor cousin to efforts to cut harmful pollution—and of course, the reason we're trying to cut the harmful pollution is to contain the heating, which reduces the impacts, which means you don't have to adapt as much."

"But now, with global average temperatures having risen 1.1 to 1.2 degrees Celsius above pre-industrial levels, we're seeing the impacts. And adaptation is a critical need, again, particularly in these developing countries. And they have expressed their dismay that there is so little financing going to adaptation."

Caleb: "Let's get to climate finance, because that's a key part of these conversations. Ultimately, that's what we're talking about. It's also of special interest to our listeners, but this is all about who's going to pay for the prevention, as well as investing for the future. And lots of promises have been made over time by various nations, even the private sector—we'll get into that in a second. But let's just talk about climate finance on the international front. Is it really happening? What is holding it back? I know everyone's worried about a recession in 2023—is that going to hurt it even more, at a time when the problem just keeps getting worse?"

Alice: "Well, the money has not been forthcoming in the United States. One of our challenges is that we don't have agreement, particularly in Congress. We are deeply split between Republicans and Democrats, and it's hard to get the kind of funding that's required. President Biden has put forward that he would like to start providing over $11 billion annually to assist other countries, and this is in recognition of the fact that the United States has played a large role as, historically, the largest emitter, as well as the current second-largest emitter behind China. So it's played a large role in creating the climate crisis. Congress is unlikely to approve that $11 billion, and so President Biden, at COP27, was limited to announcing smaller—much smaller amounts of funding, that he could do through ordinary government functions. He didn't need a separate appropriation from Congress."

"Other countries have similarly not come forward in the kinds of amounts that the developing world would wish for, or state that they need. And private finance has been difficult to mobilize, again, particularly in this adaptation space—it's just slow. One of the many suggestions on ways to help that—there would be guarantees offered by governments for loans. There would be further support by governments to make "de-risk" investments by the private sector. We'll have to see if those occur."

"There's a separate problem as well, that the IMF and the World Bank been asked to work on, and that is the fact that a lot of these nations are saddled with huge amounts of debt, and that increased under Covid-19, and it's become a big problem. So they want debt relief."

Caleb: "Let's talk about the private sector investments—groups like GFANZ. We love the acronyms here on the Green Investor, and this industry and this sector are so full of them. That's the Glasgow Financial Alliance for Net Zero. The efforts there seem to have either stalled or fallen apart. We have some companies backing out, or threatening to back out. But this doesn't happen—none of this money starts flowing, we don't get the kind of power we need without the private sector. How can those types of alliances be strengthened and empowered to really invest in real change?"

Alice: "Well certainly, Mark Carney, the former governor of the Bank of England (BoE) and Bank of Canada (BoC), has done a lot to try to rope in the private sector. GFANZ was announced at COP26. I think at that time, there were 130 companies—I can't recall the statistics, but a huge number of companies have been added. To your point, some have expressed concern, because once they made that net zero commitment, they realized that there might be some accountability there and they have backed off and said—particularly some large banks—said "maybe we don't want to do this." And the issue there is the continued support for fossil fuels."

"And now, the International Energy Agency (IEA) has said that we have to cut our relationships with fossil fuels to be able to achieve the kinds of gains we need in cutting our emissions to avoid the very worst of heating. So this is a tension point. And frankly, I think it's a tension point throughout the ESG arena and other efforts to have a taxonomy. The point of tension is, "what does this really mean, what do these promises mean, and how are companies going to be able to perform in a way that materially helps reduce the climate threat?"

Caleb: "In your writing and also in materials on the CFR website—pretty good about naming the risks. And the risks are really obvious: warming temperatures, rising sea levels, droughts, climate loss, biodiversity loss, and again—climate migration, climate refugees out there as well. The problems continue, and it only gets worse. But what does the CFR, and what do you think is the most critical action developed nations can take, right now, to slow any of these trends?"

Alice: "Well, unfortunately, it's not one action. It's a whole-of-society approach to getting to where we need to go. We can't take our foot off the accelerator on cutting our emissions. It's very frightening when you consider how hot we could get, if we don't continually seek to reduce the pollution that's accumulating in the atmosphere. So that's very, very important."

"But we also need to elevate adaptation. We are at risk if we don't make adequate investments in adaptation. We are risk of threatening our efforts to cut emissions, because as these events grow and harm the economy, harm the public health, and there's no insurance or other monies available, the ability to make the transition to clean energy and to have a clean economy, will be reduced."

"So we need to be able to do both at the same time, and that remains a challenge in the developing world, just as it remains a challenge in the developed world. We are way behind—and that includes the United States—in our efforts to prepare for the impacts that are already here, much less the ones that will be even more extreme in the near future."

Caleb: "I know you've been focusing on this for a long time. You have a coauthored book, Building a Resilient Tomorrow, that was out in 2019. We will link to that in the show notes. But special thanks to you, the David Rubenstein Senior Fellow for Energy and the Environment at the Council on Foreign Relations. Thanks for being on the Green Investor."

Alice: "Thank you. What a pleasure!"

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