Can COP27 Avoid the Energy Crisis?

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Can COP27 Avoid the Energy Crisis? | Future Business

Global politics remains dominated by the energy crisis, with Transport, Telecommunications and Energy Council of the EU meeting on 9th September 2022 in Brussels to address the extraordinary situation of energy prices in the EU, and to discuss work on possible emergency measures to mitigate current high prices. Also discussed was demand reduction for gas and electricity to strengthen the EU’s winter preparedness. Ministers reviewed the state of play on electricity and gas prices in Europe, taking note of the Commission’s analysis and the latest developments during the summer months. The situation has considerably worsened over the last few weeks, with the EU now experiencing tight electricity markets. This is predominantly due to the impact of Russia’s war against Ukraine and related gas supply disruptions and increase of gas prices.

In the UK, new Prime Minister Liz Truss has faced a barrage of claims and demands on how to protect both business and consumers from the hiking energy costs in the UK. But similar challenges are facing countries like Germany, which has just put in place a massive energy protection package. This is a global issue.

And for worldwide business and the environment, the consequences may not be pretty. This November, the world’s most crucial climate summit, COP27 convenes. Its official website admits the event may be hijacked by concerns over energy and geopolitics, when what business needs is clarity on climate crisis.

COP27 President Designate and Egypt’s Minister of Foreign Affairs Sameh Shoukry has reiterated the need to further accelerate climate action on all fronts, namely in adaptation, loss and damage, climate finance, and adopting more ambitious mitigation measures to keep the 1.5C degrees warming target within reach.

“It is concerning to see coal coming back as a source of energy in some parts of the world. It is equally concerning that climate finance commitments, especially the 100 billion dollars goal, are still lagging in implementation while the needs of developing countries continue to rise, most recently estimated by the UNFCCC’s Standing Committee on Finance to amount to 5 to 11 trillion dollars,” the COP27 President said.

“Egypt believes that the role of the G20 is essential in this regard. As the biggest and the most politically and economically influential group of countries, G20 members should play a leading a role in ensuring that the challenges created by the current global situation do not serve as a pretext or justification for the continued delay in the fulfilment of climate pledges or backtracking on hard-earned gains in the global fight against climate change,” he added.

So, when COP27’s official website carries a warning to keep global warming in the spotlight versus geopolitics on energy, a potential problem is in the pipeline.

Business needs clarity globally in order to predict how to react to thematic trends and green legislation, often overarchingly driven by the COP events series. There are genuine fears little transparency is coming this winter.

Financing Change

Shoukry has also said that the “adequacy and predictability of climate finance in developing countries is key to achieving the goals of The Paris Agreement, to this end there is an urgent need to unlock climate finance through a massive mobilisation of public and private finance for climate actions solutions at the local, national and regional levels across the themes of climate action.”

He elaborates; “This would include actions needed to tackle the growing pressures on debt; domestic resource mobilisation and international tax cooperation; the potential to tap the large pools of private finance; scaling up support from multilateral development banks and other development finance institutions; bilateral and multilateral concessional finance; and new and innovative financing instruments and solutions such as the use of SDRs, debt swaps, voluntary carbon markets and leveraging private philanthropy.

“Furthermore, this would include also considering a set of de-risking tools to facilitate the translation of financial assets into financial flows for a strengthened response to climate change.”

The problem here is the planet as a whole is spending out massively on energy and supply chain, after having spent massively on countering the Covid pandemic. There may be little appetite for pledges on climate cash when the energy scenario across coming years looks so uncertain, again potentially undermining the clarity business requires to plan across green agendas.

The International Institute for Environment and Development has also spotted the problem, noting that one of the main outcomes of COP26 in November 2021 was to agree on the process to set a new collective quantified post-2025 goal for climate finance (NCQG), which will supersede the US$100 billion target set in 2009.

This, it says, is the first goal on climate finance to be set multilaterally, as part of open, inclusive and transparent deliberations scheduled to conclude by 2024.

But, less than three years to reach agreement is a short time. Climate finance is usually one of the most contentious topics in UNFCCC negotiations, and the NCQG will no doubt be among the most sensitive issues to resolve.

The energy backdrop is far from an ideal playing field against which to get these kind of challenging debates across the line, at COP27 and beyond.

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World Bank

The World Bank’s blog spots other potential blockages. It argues that public-private partnerships (PPPs) for infrastructure have an increasingly important role in fighting climate change.

Further, it explains that a hurdle to PPP is the current global geopolitical instability that includes rising inflation, high interest rates, and conflict.

Faced with an ever-growing need for either new infrastructure or maintaining existing stock, and having contracted very high levels of public debt, governments are now seeking private-sector investment through PPPs more than ever before.

The problem is that private sector investors, contemplating the same dire circumstances, are in turn more reluctant to commit financing, especially to projects in emerging markets where risks are often perceived to be higher. This situation requires more engagement by governments and multilateral development banks (MDBs) to give comfort to investors.

The Bank does observe a bright spot ahead in the field of technology. ‘We see ever-greater use of more climate-friendly materials for construction and design, blockchain applications such as those for tracking infrastructure use and managing carbon credits; with more platforms coming constantly.

‘The same way that governments improvised PPP projects to deal with the pandemic and deliver vaccines, we should encourage that creativity to focus on climate change solutions.’

An irony then; the pandemic which has helped limit available global spend, also supplied lessons that could be leveraged at COP27, with the right will.

What Next?

This piece of journalism, like every other, isn’t futureproof. Perhaps governments and businesses at COP27 will come charging out of the blocks, agreeing new financing and new legislative agendas across climate. Perhaps they won’t, and the geopolitical flux on energy will hold back arguably the most pressing business issue of our times; climate management and adaptation. Reality, in whatever form it comes, remains vexingly hard to forecast.

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