Previewing COP28: Opportunities, Challenges and Anticipated Outcomes
The 28th Conference of the Parties (COP28) to the United Nations Framework Convention on Climate Change (UNFCCC) has commenced this week in Dubai, United Arab Emirates (UAE), and will run through December 12, 2023. The UAE is convening world leaders, scientists, government decision-makers, climate actionists, businesses from every sector and other stakeholders to take stock of progress (or lack thereof) in the global fight against rising planetary temperatures; to make pledges, commitments and new business arrangements to facilitate the energy transition; to finance adaptation, new technologies and “loss and damage”; and to mitigate greenhouse gas (GHG) emissions, with emphasis on methane, a fast-acting climate pollutant.
At COP21 in December 2015, 196 countries signed the Paris Agreement, a landmark international climate change treaty that seeks to keep global temperatures from rising 2 degrees (with aspirations of 1.5 degrees) Celsius above pre-industrial levels. To stay below these targets, each signatory submitted a nationally determined contribution (NDC), an individualized action plan setting out their greenhouse gas emissions reductions goals, with the goal of increasing ambition at least every five years.
COP28 concludes the first “Global Stocktake” (GST), a comprehensive assessment of progress measured against the goals of the Paris Agreement. The GST is expected to demonstrate that the global community is falling far short of Paris Agreement objectives to limit temperature rise to 2℃ with aspiration to keep temperatures within 1.5℃ from pre-industrial levels. This “bad climate report card” will elevate the stakes and calls to accelerate dramatic actions to curtail GHG emissions and enable all nations to adapt to climate change.
As the narrative shifts toward implementing climate solutions, numerous industries and communities are focused on how the conference will “deliver a comprehensive plan of action” to meet the increasingly critical need to address the adverse impacts of the climate crisis. In a series of letters1 to stakeholders, COP28 President-Designate and UAE Special Envoy for Climate Change Dr. Sultan al Jaber has outlined four key areas of focus during the conference:
- Accelerating the energy transition and reducing emissions before 2030.
- Transforming climate finance by meeting past commitments and establishing a new green financing framework.
- Placing nature, people, lives and livelihoods at the center of climate action.
- Mobilizing a diverse, inclusive COP in which the UAE increases a wide range of stakeholder voices from the public to COP negotiators and state participants.
Priorities for the negotiators and participants include: (1) assessing worldwide progress toward reducing emissions; (2) agreeing on methane emissions abatement measures; (3) enhancing climate finance; (4) operationalizing and securing funding for the loss and damage fund; (5) finalizing certain particulars pertaining to Article 6 of the Paris Agreement and on the Global Goal on Adaptation; and (6) making determinations regarding carbon removals.
While traversing the globe, Dr. al Jaber also revealed four technical areas of focus, urging governments to update their 2030 NDCs early, aspiring to the following targets: (1) tripling renewable energy output to 11,000 gigawatts (GW) by 2030; (2) doubling low carbon hydrogen production to 180 million tons per year by 2030; (3) transforming food and agricultural systems through agri-tech, smart water use and food production; and (4) accelerating decarbonization through work with energy industry leaders, national oil companies (NOCs) and international oil companies (IOCs) to zero out methane emissions and expand hydrogen by 2030. The thematic program will focus on fast-tracking the energy transition, fixing climate finance, implementing adaptation measures and assuring inclusivity.
Global Stocktake
Every five years, all Parties participating in the Paris Agreement must undergo a comprehensive assessment of their progress. The GST is “intended to inform the next round of climate action plans under the [Agreement],” including NDCs to be put forward by parties by 2025. As a result, discussions and policy decisions following the assessment are expected to play a critical focal point of this year’s conference. The GST is divided into three phases: an information collection phase, a technical assessment phase and a “consideration of outputs” phase, with each phase intended to drive collective decision-points for countries coming out of the process. The third phase of the GST is expected to conclude during COP28.2
Preliminary findings from the GST indicate that the international community is significantly off-track to achieve the Agreement’s goals. The GST outlined four areas in which Parties must make progress to keep global temperatures within a 2°C range of pre-industrial averages:
- Mitigation. GHG emissions must be reduced by 43%, 60% and 84% relative to 2019 levels by 2030, 2035 and 2050, respectively, to limit global warming to 1.5°C. To do so, Parties will be encouraged to significantly scale up development and deployment of renewable energy sources, wean their reliance on fossil fuels, cut emissions across industry and transport, and preserve and protect forests.
- Adaption. More deliberate and actionable strategies are necessary. This may include supporting local communities in developing countries and promoting Party submission of transparent and clear adaptation reports and communications.
- Finance. There is a substantial gap in meeting the estimated $5.9 trillion in climate financing needed by 2050 to assist developing countries achieve their climate objectives. Parties must mobilize financing commitments toward this goal and reduce investment in fossil fuels.
- Cooperation and knowledge transfer. There remains a wide gap in Parties’ climate targets and mitigation capabilities. Parties should strengthen capacity building and help deploy existing clean technologies within developing countries to help advance their climate goals.
Parties have agreed to evaluate progress on cutting emissions, adaptation to climate hazards and the mechanisms of implementation and support (i.e., raising the level of climate financing directed at developing nations).
Over the past two years, governments, scientists and civil society groups have submitted over 170,000 pages of addenda to the UNFCCC’s Global Stocktake information portal and have engaged in 250 hours of meetings and discussions, all of which will form the overall synthesis report to be revealed at COP28. Governments also have submitted proposals for how the central outcome of the GST could accelerate climate action, with ideas including phasing out fossil fuels, tripling renewable energy capacity and raising climate finance to trillions for developing countries.3 By some accounts, the importance of the GST is not the gaps and concerns identified by the evaluation process, but rather the response by global stakeholders to such gaps and concerns.
Methane Emissions
The decision to host this year’s conference in the UAE, a major oil and gas exporting country, sets the stage for critical discussions on reducing methane emissions from the oil and gas industry and highlighting methane abatement measures.
It is expected China and the United States will move closer to a new joint climate agreement, which is encouraged by the fact that China recently released its long-anticipated Methane Emissions Control Action Plan in early November, pledging to “effectively improve” its monitoring and supervision system for methane in its five-year plan period through 2025, before moving to “significantly improve” those systems in 2026-2030.4 The plan does not provide a comprehensive methane mitigation goal, and instead lists sectoral methane-mitigation targets. Nevertheless, it signals renewed cooperation on climate targets between the United States and China and could potentially lead to more concrete action at the conference.5
Last year, COP27 saw some momentum around methane abatement with the number of countries participating in the Global Methane Pledge (GMP) rising to 150, up from approximately 100 after the GMP’s launch at COP26. Political resistance and industry pushback has hindered some jurisdictions that have introduced methane regulations, and it is expected that India will come under increasing pressure to sign onto the GMP. India has cited the GMP’s potential adverse impacts on its agricultural sector as a reason for not signing the GMP. Nevertheless, India is the second largest global methane emitter and generally is considered the most prominent country not to sign onto the GMP. With China releasing its methane abatement plan,6 pressure will continue to mount on India to follow suit.
Dr. al Jaber has urged the oil and gas industry to eliminate methane emissions by 2030 and adopt comprehensive net zero plans by 2050. He said while the use of hydrocarbons will continue, everything possible must be done to “reduce and eventually eliminate its carbon intensity.” In a speech delivered in March 2023, he underscored the outsized importance the oil and gas industry play in mitigating climate change. He stated that oil and gas companies will need to address Scope 3 emissions as companies can no longer ignore value-chain emissions and called for net-zero methane emissions by 2030.
Loss and Damage Fund
COP28 delivered a breakthrough moment and an early success on Thursday when the conference opened with parties quickly adopting a framework for operationalization of a loss and damage fund intended to provide financial support to vulnerable countries coping with permanent (loss) or transitory (damage) impacts caused by climate change.
The fund received more than $420 million in voluntary opening-day pledges. COP28 host UAE kicked off funding with a $100 million commitment, followed by $245 million from the EU, $50 million by the U.K., $17.5 million from Japan and $10 million from the United States. Governments will have the remainder of the conference to make contributions, and the agreement is viewed as an early success of the climate summit. Proponents hope that the fund will eventually reach annual contributions of up to $100 billion.
The fund was established last year at COP27, where the parties mandated a Transitional Committee to make recommendations on the operationalization of the fund. The draft framework for the fund, which was issued by the Transitional Committee early last month, outlined which financial sources would feed into the fund, what kind of activities the fund could support and how it would work alongside existing funds, as well as the structure, governance and physical location of the fund.
Negotiations will now continue at the conference to specify how much funding is needed for its operation, who the contributors should be and the eligibility criteria for recipients. The World Bank will administer the fund for four years, after which control will be transferred to a permanent host. The fund is planned to launch in 2024.
Article 6 of the Paris Agreement and the Voluntary Carbon Markets
Article 6 of the Paris Agreement provides a mechanism to enable the Parties to cooperate voluntarily to achieve—and potentially even exceed—their NDCs. It also acts as a practical framework for global cooperative climate action through market and non-market mechanisms.
In particular, Article 6.2 of the Agreement allows countries to authorize and then trade “internationally transferred mitigation outcomes” (ITMOs), which are emission reductions and removals measured in metric tonnes of carbon dioxide equivalent (CO2e). ITMOs may be used to either count toward a buyer country’s NDC or for “other purposes” determined by the host country in which they were authorized. Following last year’s COP, negotiators reached a consensus on Article 6.2 in terms of essential reports, instituted a review process for information submissions to the United Nations and offered detailed guidance on the various components of the Article 6 tracking infrastructure. Countries such as Japan, Sweden and Switzerland have already established concrete frameworks to buy credits under Article 6.2 and count them toward their respective NDCs. So far, it has been a challenging process to establish and execute Article 6.2 bilateral agreements.
Article 6.4 is expected to be a focal point at COP28. Article 6.4 establishes a GHG emissions reductions trading mechanism akin to the Clean Development Mechanism of the Kyoto Protocol. It will create a global carbon market overseen by a United Nations Supervisory Body (referred to as the Article 6.4 Supervisory Body or 6.4SB), in which project developers will request to register a project with the 6.4SB. The project would be required by both the country where it is implemented and the 6.4SB, before it can start issuing U.N.-recognized credits. Negotiations are expected to continue conversations around Article 6.4 during COP28, specifically the environmental criteria carbon credits must satisfy, activities that can generate credits, methodologies that will apply, and safeguards to protect against adverse impacts.
The most notable difference between Article 6.2 and Article 6.4 is that ITMOs issued under Article 6.2 are governed by bilateral or multilateral agreements that countries engage in together, while Article 6.4 will form a centralized governance system in which the 6.4SB will be responsible for keeping a registry of emissions reductions (called A6.4 ERs). Therefore, rather than individual countries issuing, transferring, retiring and conducting monitoring, reporting and verification, the Article 6.4 mechanism will implement those tasks.
COP28 offers the opportunity to bridge the relationship between compliance carbon markets and voluntary carbon markets (VCMs). Environmental organizations such as the Environmental Defense Fund (EDF) have underscored the vitality in understanding the interplay between VCM industry guidelines and what emerges from Article 6.4 negotiations, while the ICVCM7 has stated “similarities between the solutions proposed in Article 6.4 and ongoing conversations in the ICVCM indicate an intriguing convergence…these are the main triggers for observation at this COP.”8 Negotiators will be tasked with finding consensus on “eligible methodologies and their determination” under Article 6.4, including discussing the eligibility of carbon removal activities like direct air capture (DAC) and ecosystem revitalization/restoration.
Clearly, there are different emissions trading schemes currently under development: Article 6.2 pathways, Article 6.4 pathways and VCM pathways. A primary factor that will influence the development of those markets will be the transaction costs of working with national governments for Article 6.2 ITMOs authorization vs. the transaction costs of the Article 6.4 mechanisms vs. the transaction costs of voluntary markets.9 COP28 can provide the backdrop for discussing how to best align these mechanisms to improve interoperability, accountability, integrity, transparency and oversight.
Africa generally has experienced a notable shift to the front of the climate conversation when discussing disparate impacts and funding. Ahead of the conference, the UAE is generally positioning itself as a carbon credits leader in the continent, announcing its intention to buy $450 million of carbon credits generated in Africa by 2030, as part of the African Carbon Markets Initiative (ACMI) launched at COP27. The ACMI entered into a non-binding agreement with the UAE Carbon Alliance to facilitate the arrangement.10 In its announcement, the Carbon Alliance acknowledged its intention to establish the Emirates as “a leading hub for high integrity, high quality carbon markets.” It is expected that the ACMI will take center-stage as nation-states develop methods to incorporate the Global South and provide more robust financing, with African states pushing for an expansion of special drawing rights at the International Monetary Fund that could unlock $500 billion of climate finance.11
The chair of the ICVCM is also a member of ACMI’s steering committee and described verification and validation of carbon credits as the weakest link currently hindering the African carbon market, and hopes the scaling up of validation and verification bodies in Africa will boost implementation of the ICVCM’s Core Carbon Principles.
At the inaugural Africa Climate Summit (ACS) held in September 2023 in Nairobi, Kenya, African leaders signed the Nairobi Declaration on Climate Change and Call to Action, proposing a “global taxation regime including a carbon tax on fossil fuels, maritime transport, and aviation, that may also be augmented by a global financial transaction tax (FTT),” and urging industrialized nations to honor their $100 billion climate finance pledge made at the 2009 COP15 in Copenhagen. The declaration will serve “as a basis for Africa’s common position” at COP28 and beyond. The UAE will likely be aggressive in seeking out further pledges to replenish these funds and enhance Party commitments. The UAE has already stated that it wishes to make significant progress toward doubling adaptation finance by 2025. Saudi Arabia’s Regional Voluntary Carbon Market Company (RVCMC) held the inaugural Global South Carbon Markets Conference in Riyadh on October 26. Government and industry leaders convened to call for accelerating development of VCMs. The conference echoed calls to develop high-integrity carbon credits that represent real and measurable emissions reduction or removal, and to harmonize carbon credit methodologies in relation to Article 6.4 of the Agreement.12
Saudi Arabia also announced it will formally launch early next year a national carbon offset scheme for corporations aligned with Article 6. The framework is coined the Greenhouse Gas Crediting and Offsetting Mechanism (GCOM), and it was initially announced at COP27. The launch date was pushed from late 2023 to early 2024 since negotiations are still ongoing around Article 6.4 of the Agreement and are expected to see significant development out of COP28.
Climate Financing
One highly anticipated topic that participants expect to take center stage is climate financing. In the COP28 President’s four “Letters to Parties,” Dr. al Jaber provides a high-level discussion of the critical issues pertaining to climate financing that Parties should consider at the conference.13 These include: (a) affordability, availability and accessibility of climate finance to developing countries; (b) engagement by Parties to replenish the Green Finance Fund, with the goal of doubling climate finance by 2025; (c) development of new financial structures that is “fit-for-purpose” to bridge the investment gap in developing countries; (d) bolstering international finance institutions who are deemed “fit-for-purpose” to scale up concessional finance for finance and support for the energy transition; and (e) development of holistic and innovative solutions that channel private capital at scale toward climate action in developing countries.
Recently, on November 2, 2023, COP28 President Dr. al Jaber met with presidents of nine multilateral development banks (MDBs) and managing director of the International Monetary Fund (IMF) to reiterate that addressing climate finance is a cornerstone of the Action Agenda. The COP28 Director-General Majid al-Suwaidi has equally expressed a conference priority is establishing a global carbon price to standardize the VCM and reposition it as a key tool in the flow of capital needed to fund the energy transition.14
COP28 President Dr. al Jaber outlined three main requests for MDBs ahead of the conference: MDBs must work through country platforms, revise climate finance targets for coming years and lower the risk for the private sector.15 He pushed for a “strong joint announcement” on country platforms to “demonstrate the commitment to working together,” which indicates a shift away from financing on a project-by-project basis and instead toward country platforms.
Further, the COP28 Presidency, VCMI and the Glasgow Financial Alliance for Net-Zero (GFANZ) convened a roundtable in late September 2023 of businesses, financial institutions and standard setters with the goal to build high-integrity demand in the VCMs. ICVCM also joined the roundtable, which works closely with VCMI and launched the Core Carbon Principles earlier this year in June. The co-hosts of the conference committed to use those Principles to engage end buyers and financiers of carbon-credits into making claims under VCMI or purchase commitments for ICVCM-CPP approved credits leading up to COP28.16 The goal is to give a clear and ambitious demand signal by COP28 that facilitate stakeholder discussions at the conference and speak to the urgency of creating high-integrity credits.17
Leading Climate Financing Proposals from COP28 Participants
Scaling up deployment of renewables and accelerating the low-carbon energy transition, investments in renewables requires a significant increase of between $2-5 trillion annually by 2030. Of that figure, around $2 trillion a year is needed for developing countries. Currently, public funding only partially covers the cost, and even so, there are significant disparities among countries and regions.18 Recent analysis suggests the private sector will need to supply close to 80% of the required annual investment. Illustrating the importance of mobilizing private finance toward climate action, Dr. al Jaber became the first COP President to ring the bell and open the New York Stock Exchange (NYSE) in September of this year. He urged investors to explore innovative and new mechanisms that lower risk and expand private investment, and used his country’s pledge to provide $4.5 billion in climate financing toward Africa’s clean energy initiatives as an example of utilizing a mix of private and public funding.19
During this year’s G20, the European Union (EU) president put forth a proposal to set up a global carbon pricing mechanism, but it was ultimately not included in the final declaration. On September 9, G20 nations signed the declaration agreeing to “pursue and encourage efforts to triple renewable energy capacity globally…in line with national circumstances by 2030.” It stops short of setting an emissions reduction goal and does not commit to reach net-zero emissions earlier than 2050.20 However, it reiterates the importance of a policy mix of “fiscal, market, and regulatory mechanisms, including, as appropriate, the use of carbon pricing and non-pricing mechanisms and incentives toward carbon neutrality and net-zero.” The declaration acknowledged the need for $4 trillion/year to expedite the energy transition, “including accelerating efforts toward phasedown of unabated coal power, in line with national circumstances.”
The EU will be taking the lead in pushing for a phase-out of fossil fuels after approving on October 16 the bloc’s negotiating position for COP28. The 27 EU climate ministers unanimously called for a phase-out of “unabated” fossil fuels, however, that still leaves room for companies to emit fossil fuels if they “abate” the emissions, such as with carbon-capture technology. The EU is largely looking to facilitate discussion on the first GST, the mitigation work program, the global goal on adaptation and climate finance.
Conclusion
The benchmarks for a strong outcome at the climate summit largely center on whether Parties agree an ambitious response to the first Global Stocktake and if they can demonstrate sufficiently plans to deliver on past pledges regarding mitigation, adaptation, technology transfer and financing. Whether Parties agree to “phase out” fossil fuels and accelerate the transition to a low-carbon or zero-carbon economy remains to be seen, but we can expect significant action and commitments on methane abatement going and on the role of market mechanisms to drive critical financing.
Akin will be participating in the conference and providing regular written updates through our Speaking Sustainability blog.
1 Letter to Parties I, Dr. Sultan Ahmed Al Jaber, COP28 President-Designate and UAE Special Envoy for Climate Change, July 13, 2023. https://www.cop28.com/letter-to-parties.
2 Aruna Chandrasekhar and Josh Gabbatiss, Q&A: What is the “Global Stocktake” and Could it Accelerate Climate Action?, Carbon Brief (November 17, 2023). https://www.carbonbrief.org/qa-what-is-the-global-stocktake-and-could-it-accelerate-climate-action/.
3 Ibid.
4 Daniel Stanway, Valerie Volcovici and Ethan Wang, China Unveils Action Plan to Reduce Methane Emissions, Reuters (November 7, 2023). https://www.reuters.com/world/china/china-unveils-action-plan-reduce-methane-emissions-2023-11-07/.
5 PRESS RELEASE: China Releases Methane Emissions Control Action Plan, Institute for Governance and Sustainable Development (November 7, 2023). https://www.igsd.org/china-releases-methane-emissions-control-action-plan/.
6 Wood Mackenzie, COP28: Three Key Methane-Related Expectations, Forbes (November 21, 2023). https://www.forbes.com/sites/woodmackenzie/2023/11/21/cop28-three-key-methane-related-expectations/?sh=9162dd318648.
7 The Integrity Council for the Voluntary Carbon Market’s (ICVCM) recently published assessment framework on “Core Carbon Principles,” which “sets a robust, achievable threshold that aims to raise standards across the voluntary carbon market to a consistent level of quality.” The Voluntary Carbon Markets Integrity Initiative (VCMI) has also developed a Claims Code of Practice (CoP) to guide credible, voluntary use of carbon credits and associated claims. However, international consensus has not yet coalesced around one set of guidelines for ensuring credit integrity, and companies will continue to face a patchwork of standards that may deter some from entering the market. That patchwork will only become more complex as ITMOs begin to be traded at greater scale and will undoubtedly face their own questions of integrity and verifiability.
8 Aaran Fronta, All Eyes on “Interplay” of VCM Standards, Article 6 at COP28, ESG Investor (November 23, 2023). https://www.esginvestor.net/all-eyes-on-interplay-of-vcm-standards-article-6-at-cop28/.
9 Comparing Articles 6.2 and 6.4 of the Paris Agreement, cCarbon, August 30, 2022. https://www.ccarbon.info/article/comparing-articles-6-2-and-6-4-of-the-paris-agreement/#:~:text=The%20most%20obvious%20difference%20between,4%20mechanism.
10 The Carbon Alliance is not the only UAE company involved in fostering African carbon credit relationships—Blue Carbon, a company founded by Sheikh Ahmed Dalmook Al Maktoum, a member of the royal family of Dubai, signed memorandums of understanding (MOUs) with the governments of Liberia, Tanzania, Zambia and Zimbabwe to manage large swathes of their forests and produce carbon credits from conservation activities. Blue Hope would then sell those credits to governments using carbon offsets to meet their climate pledges. Blue Carbon has faced criticism from non-governmental organizations (NGOs) since the announcement arguing the partnership infringes on community land ownership rights and threaten the livelihoods of up to one million people.
11 Duncan Miriri, Hundreds of Millions of Dollars Pleged for African Carbon Credits at Climate Summit, Reuters (September 5, 2023). https://www.reuters.com/business/environment/africa-climate-summit-opens-with-focus-financing-continental-unity-2023-09-04/.
12 Press Release, Riyadh hosts Global South Carbon Markets Conference ahead of COP28, ZAWYA, (October 31, 2023). https://www.zawya.com/en/press-release/events-and-conferences/riyadh-hosts-global-south-carbon-markets-conference-ahead-of-cop28-gt74yor2.
13 Letter to Parties, Dr. Sultan Ahmed Al Jaber, COP28 President-Designate and UAE Special Envoy for Climate Change, July-November 2023, https://www.cop28.com/letter-to-parties.
14 Eklavya Gupte, INTERVIEW: COP28 Director-General Says Progress on Carbon Markets Needed to Accelerate Climate Action, S&P Global Commodity Insights (September 19, 2023). https://www.spglobal.com/commodityinsights/en/market-insights/latest-news/energy-transition/091923-interview-cop28-director-general-says-progress-on-carbon-markets-needed-to-accelerate-climate-action.
15 PRESS RELEASE: COP28 President Calls on Multilateral Development Banks to Show “More Ambition” and Work Faster to Address Climate Finance and Development Challenges, Urging Action by COP28, COP28 UAE (November 2, 2023). https://www.cop28.com/en/news/2023/11/multilateral-development-banks-to-show--more-ambition.
16 COP28 Presidency, GFANZ and VCMI Commit to Working with Businesses, and Other Stakeholders to Grow High-Integrity Demand in Voluntary Carbon Markets, Glasgow Financial Alliance for Net Zero (September 20, 2023). https://www.gfanzero.com/press/cop28-presidency-gfanz-and-vcmi-commit-to-working-with-businesses-and-other-stakeholders-to-grow-high-integrity-demand-in-voluntary-carbon-markets/.
17 Id.
18 Simon Black, Florence Jaumotte, Prasad Ananthakrishnan, Ambition, Private Funds, and Innovation to Meet Climate Goals, International Monetary Fund (IMF), November 27, 2023. https://www.imf.org/en/Blogs/Articles/2023/11/27/world-needs-more-policy-ambition-private-funds-and-innovation-to-meet-climate-goals.
19 PRESS RELEASE: COP28 President-Designate Calls on Private Sector to Usher in a New Era for Sustainable Climate Finance, PR Newswire, September 19, 2023. https://www.prnewswire.com/ae/news-releases/cop28-president-designate-calls-on-private-sector-to-usher-in-a-new-era-for-sustainable-climate-finance-301932273.html.
20 Shivam Patel, G20 Agrees to Pursue Tripling Renewables Capacity But Stop Short of Major Goals, Reuters (September 9, 2023). https://www.reuters.com/sustainability/g20-agrees-pursue-tripling-renewables-capacity-stop-short-major-goals-2023-09-09/
