Markets 360, BNP Paribas Global Markets’ strategy and economics division, looks back at COP27.
COP27 was something of a mixed bag. Progress was made on some issues, but – despite the fact that implementation was supposed to be the theme of the conference – in reality very little was implemented. Most notably, the expected delivery date of the long-awaited USD100bn climate financing for developing nations was pushed back yet again, to 2025 at the earliest.
Ambition was also somewhat lacking. While countries had pledged to increase their climate goals, the EU was the only major emitter to raise its emissions reduction target – to 57% by 2030 (relative to 1990s emissions levels) and at just two percentage points above its previous target of 55%, this was below Markets 360 analysts’ expectations.
With the Ukraine conflict, the energy crisis and recession looming in the background, countries didn’t make a lot of progress during COP27.
Trevor Allen, Head of Sustainability Research at Markets 360
BNP Paribas
This is partly due to economic challenges, in Markets’360 view. Many western countries are preoccupied with greater financial commitments, such as providing assistance to Ukraine, and supporting households that are struggling to cope with high energy prices – all while economic growth is slowing. Against this backdrop, the highlights were:
- Agreement on a ‘loss and damage’ fund: this is a step towards providing adequate funding for emerging markets nations to build climate resilience; but its real impact will rely on details to be decided at COP28 next year.
- The African Carbon Markets Initiative (ACMI): this should help to boost the voluntary carbon offset market and improve the credibility of nature-based offsets. By 2030, the scheme is aiming to see 300 million credits produced annually, which would likely equate to around USD6bn of income for the continent.
- Focus on restructuring the role of multilateral development banks (MDBs): this could provide a way for western countries to channel climate financing for emerging market countries, even if their hands are somewhat tied with domestic financing constraints. In addition, greater financing from multilateral development banks should help to de-risk climate financing for investors, which in turn should encourage the mobilisation of private capital towards clean energy infrastructure projects in developing countries.
- Bilateral deals for decarbonisation funding: for example, at the G20 summit – which took place alongside COP27 – the G7 pledged USD20bn to be invested in Indonesia over the next 3 to 5 years in order to help the country shift its energy mix away from coal and towards renewable energy.
- The Global Methane Pledge: the non-binding pact to reduce methane emissions 30% by 2030 – launched last year at COP26 in Glasgow – saw an influx of new signatories, including Australia, Egypt, Qatar, Bahrain and Austria. Of the 150 signatories, around 50 are now working to develop a concrete action plan on methane reduction. However, high emitters such as China, Russia and India still remain absent from the pledge.
Similarly, prior to COP27, Morocco also signed a memorandum of understanding with several EU nations – including France, Germany and Spain – where they will invest EUR1.6bn (approximately USD1.8bn) into Morocco to develop solar energy and green hydrogen infrastructure, with the intent of this energy to be sold to the European nations.
What to look out for post COP27?
Markets 360’s experts expect renewed collaboration between the US and China, who seemed to steer their two countries towards better relations during their meeting at the G20 summit. As the two largest emitters, cooperation between the two is essential to ensure that the other is taking ambitious steps. This is particularly true given that China produces around 80% of the world’s solar panels, so with little competition in this area, the US will rely on trade with China to meet its 2030 NDCs (nationally determined contributions).
In addition, analysts see significant scaling up of voluntary carbon markets. Alongside initiatives such as the ACMI, they expect that Brazil’s incoming climate-conscious president, Luiz Inácio Lula da Silva, will help to increase the number of carbon offsets from the Amazon rain forest, when he assumes office on 1 January 2023. Furthermore, the growing focus on biodiversity should help to expand this sector, and Markets 360’s analysts look forward to the UN’s dedicated biodiversity summit (COP15) held in Montréal on 7-19 December.
Finally, the team expect renewable-energy development to increase, which should be bullish for green bond issuance. This is largely due to tight European energy markets above anything else – today’s energy dependence on a select few fossil fuel-exporting countries has highlighted insufficient investment in renewable energy infrastructure over the past few decades.
Renewables are economically competitive with fossil fuels, as they do not rely on expensive feedstock materials to generate electricity. Scaling up the development of renewables now is a solution for developed nations to combat high-energy prices, whilst simultaneously meeting their emission reduction targets.
