COP 27 | An urgent call for greater sustainability efforts and energy transition investments
“In just days, we cross the threshold of having more than 8 billion humans on the planet…”
“The clock is ticking. We are in the fight of our lives. And we are losing. Green-house gas emissions keep growing. Global temperatures keep rising. And our planet is quickly reaching tipping points that will make gales irreversible. We are on a highway to climate hell with our foot still on the accelerator.”
(UN Secretary-General Antonio Guterres, COP 27 Opening Remarks, November 7, 2022)
What is going on?
World leaders gathered in in Sharm El Sheikh, Egypt for the 27th Conference of the Parties (COP 27). Between November 6th and 18th, they will discuss the state of climate change, its largest challenges, and attempt to agree on joint action to be taken to combat it.
As you can see from the UN Secretary’s opening remarks, there are serious concerns about the progress the world is making on tackling climate change. The Secretary put it this way in his opening remarks:
“The science is clear. Any hope of limiting temperature rise to 1.5 C means achieving global net-zero emissions by 2050. But that 1.5 C is on life support and the machines are rattling. We are getting dangerously close to the point of no return. And to avoid that dire fate, all the G-twenty countries must accelerate their transition now in this decade. Develop countries must take the lead. But developing countries are also critical to bending the global emissions curve.”
What key items are on the COP27 Agenda?
Signals for what to expect from COP27 were partially established before the conference even began.
For starters, developing countries were successful in getting “loss and damage” on the Agenda. Loss and damage refers to reparations potentially owed to poorer, more vulnerable developing nations for the climate harm caused by wealthy nations and their large-scale historical carbon emissions. This is one of the most controversial issues, as many developed countries reject the notion. Reasons range from how can it possibly be determined if a weather catastrophe was caused by climate change? To the practical concerns that there are simply not enough funds. Having the topic on the agenda signals there will be much more debate on this point for years to come.
The COP 27 Presidency launched the Sharim El-Sheikh “Adaption Agenda.” This is a list of 30 adaption outcomes aimed at enhancing resilience for the most vulnerable communities living in developing nations by 2030. The Agenda is intended to help developing countries with “mitigation and adaption” methods to cope with climate change. It includes items such as protection against extreme weather conditions, threats to food and water supplies, protection of key infrastructure. It also includes finance targets to fund such efforts.
The COP 27 Presidency also identified sustainable transport as a high priority. Two major initiatives are being pushed: The U.S. and Norway are advocating for a Green Shipping Challenge. It encourages entities along the shipping supply chain to announce concrete steps at COP 27 outlining how they will put the shipping sector on a pathway toward Net-Zero by 2050. The U.S. is also leading the Collective 2030 Zero-Emissions Vehicle Goal, encouraging countries to announce plans for reaching a collective goal of 50 percent of vehicles on the road being Zero Emissions Vehicles (ZEVs) by 2030. It follows on the heels of the EU agreement last year to reduce GHG emissions from cars by no less than 50 percent by 2030 compared to 2021 levels.
On November 11, 2022 The US, EU, UK, Japan, Canada, Norway and Singapore pledged to dramatically reduce methane, CO2 and other GHGs from the fossil fuel chain. This includes the need to eliminate routine venting and flaring and to carry out repairs in upstream, midstream and downstream oil and gas operations. They called for robust and transparent measurement and reporting to support the reductions.
What can we expect to come out of COP27?
If the recommendations coming out of COP27 have anything to do with it, the answer is increased regulations around mandatory measurement, reporting and mitigation of GHG’s. The UN commissioned the “United Nations’ High-Level Expert Group” to make recommendations on the Net Zero Emissions Commitments of Non-State Entities Integrity Matters: Net Zero Commitments by Businesses, Financial Institutions, Cities and Regions (November 8, 2022). [https://www.un.org/sites/un2.un.org/files/high-level_expert_group_n7b.pdf]. It is chaired by Canada’s former Environment Minister, the Honourable Catherine McKenna. Her speech at COP 27 highlighted recommendations from the report, including:
“You must have a detailed transition plan and focus on immediate emission reduction across your value chain and capital expenditures aligned with these targets and the Net-Zero pathway. You must report publicly and transparently on progress, with verified information that can be compared with peers.”
“Second, we set very clear red-lines on greenwashing. This is what you cannot do. If you announce publicly, you put up your hand and say “I’m a climate leader, I am committed to Net-Zero. You cannot claim to be Net-Zero while continuing to build or invest in new fossil fuel supply.”
“Deforestation is disqualified. “You can’t buy cheap credits, that very often lack integrity. And very often hurt local communities and Indigenous peoples rather than prioritizing cutting emissions across your value chain.”
“You can’t simply reduce the intensity of your emissions. You need to reduce absolute emissions. You need to reduce emissions across your value chain. That includes reducing scope 3 emissions.”
“You cannot say you are a climate leader and lobby against climate action, including through trade associations.”
What will clearly be one of the most contentious aspects of the report relates to fossil fuels. Ms. McKenna references the reports recommendation that “Non-state actors cannot claim to be net zero while continuing to build or invest in new fossil fuel supply.” Given that the recent IEA report (2022, October 27) World Energy Outlook 2022 [https://www.iea.org/reports/world-energy-outlook-2022] demonstrates “The share of fossil fuels in the global energy mix in the stated policies scenario fall from around 80% to just above 60% by 2050,” it is clear we still need secure and responsible oil and gas in 2050. This aspect of the report makes no sense. Particularly when responsible producers like the Pathway’s Alliance have committed to Net-Zero by 2050 and is taking current steps to make that commitment a reality, the recommendation is counter-productive. In essence, it is discouraging fossil fuel developers from taking action to achieve Net-Zero, which clearly cannot have been the intent.
We can also expect a huge ramp up of investment in all forms of renewable energy. As the IEA report referenced above laid out in its key findings, “A smooth and secure energy transition will require a major uptick in clean energy investment flows. Getting on track for the NZE Scenario will require a tripling in spending on clean energy and infrastructure to 2030, alongside a shift towards much higher investment in emerging market and developing economies.”
EU Commission President, Ursula von der Leyen highlighted the need for investment in her COP27 remarks:
“Because we know that every kilowatt-hour of electricity that we generate from renewable sources – like solar and wind, and green hydrogen – is not only good for our climate, but also good for our independence and our security of supply.”
There is consensus by world leaders that the fight against climate change is not occurring fast enough. This will result in more countries introducing regulations to increase the pace of GHG reductions. There will be many risks and opportunities for businesses. These will include increased mandatory emissions testing, and sustainability reporting that clearly outlines midterm and long-term plans to achieve Net-Zero by 2050.
We will conclude as we opened with strong words from the UN Secretary at the opening remarks.
“Humanity has a choice. Cooperate or perish. It is either a climate solidarity pact or a collective suicide pact.”
Sustrio ESG Advisors Inc. helps educate businesses on climate-related reporting, understand the international reporting regimes, scenario analysis and produce quality and data driven disclosures relevant to investment and financial markets.