This challenging geopolitical and economic backdrop will likely drag on the proceedings and the conclusions of the upcoming COP27.
Climate change has slipped down the list of priorities in the global agenda as governments worldwide grapple with the fallout of the war in Ukraine on energy prices. In particular, European governments — typically the most ambitious with respect to climate change policies — have watered down their commitments in the very short term as they deal with an unprecedented energy crisis this winter. Faced with the short-term pressures of surviving the winter, governments will be scrambling for supplies, putting their net-zero progress on hold. More generally, the existing multilateral architecture seems unfit to accommodate a more tense geopolitical context and a more fragmented world order, which would impair the COP process in the longer term; climate change action requires global coordination to be truly effective.
The just transition issues
In this challenging context, COP27 will likely try to emphasise the view from developing countries, with a likely focus on adaptation and finance — the latter being a particularly contentious issue which has the potential of sharpening this developed and developing divide.
Developing countries have been responsible for a minor share of the stock of post-industrial CO2 emissions, and are yet to achieve their development needs, which they legitimately see as a priority with respect to carbon intensity considerations. At the same time, they have been more vulnerable to the consequences of climate change — more frequent and more extreme weather events have already materially affected lives, health, and livelihoods in several developing countries.
The pandemic and the energy crisis have led to more fiscal spending mainly in developed economies, while fiscal space for most emerging economies now looks constrained, reflecting the debt legacy of the COVID-19 crisis and, more recently, tighter financial conditions globally due to generalised monetary tightening and a stronger US dollar. That will significantly impact emerging economies’ leapfrog potential — opportunities to bypass carbon-intensive development need investment to have a chance to materialise — and their ability to adapt.
Over the last year and especially following the Russian invasion of Ukraine, developed economies have devoted large sums to shield domestic households and firms from higher energy prices, but they have missed once again their annual €100 billion target of climate finance to developing nations this year. The goal has now been postponed to 2023, amid reciprocal accusations — this highlights a lack of transparency of delivery as well as governance issues. Also related to finance and emerging economies’ vulnerability to climate change, the issue of loss and damage will likely gain traction once again, but requests for a funding facility will likely prove controversial. COP27 could mark the start of a shift away from blanket finance pledges towards a set of country-specific plans, which should imply greater accountability (at both ends) and, accordingly, more effective implementation. However, momentum seems to be missing as we head into the event.
Overall, the set-up of COP27 works against odds for significant progress. It does not help that the first global stocktake to assess progress towards the Paris Agreement’s goals will take place in 2023. COP27 might be seen as an ancillary event, happening against an extremely challenging backdrop.
Silvia Dall’Angelo, senior economist, Federated Hermes
