Key Takeaways from COP27: Progress and Challenges

Last year's COP26 was a success. Its negotiations resulted in significant outcomes, including the Glasgow Climate Pact and the completion of the Paris Agreement Rulebook, and the creation of guidelines for international cooperation on carbon markets and requirements for reporting on climate impact. It was against that impressive backdrop that COP27 would take place. The pressure was on COP27 delegates and the Egyptian presidency to make real progress on this year's goal of ensuring the implementation of pledges. 

So, what were the outcomes of this year's COP? What climate action progress was made? How will these outcomes affect the carbon market? 

In this piece, we'll share COP27 highlights through the lens of our experts. We'll explore progress made relating to climate mitigation ambition, as well as measures taken that will help vulnerable countries manage, minimize, and recover from loss and damages caused by extreme climate events. Some climate discussions at the G20 Summit, which overlapped with COP27, will also be considered, as will some geo-political factors with significant climate influence. 

The Paris Agreement includes two market-based mechanisms nations may use to hit their climate targets, Articles 6.2 and 6.4. While the general guidelines were agreed-upon and passed last year at COP26 in Glasgow, the technical details were set to be discussed at COP27. This included making progress towards answering questions like: 

Should carbon removals be included under Article 6.4, the follow-up to the CDM? 

Should emissions avoidance credits be allowed? 

Should it be possible to “revoke” authorizations for the export of carbon credits? 

Unfortunately, progress was stalled on this front as these issues incited heated debate among delegates. Decisions on these topics have been postponed to next year, so we should expect to see more clarity on these topics then. Nonetheless, there was some progress made pertaining to carbon markets, explicitly relating to Internationally Transferred Mitigation Outcomes (ITMOs) under Article 6.2 and the rules and processes relating to the Article 6.4 mechanism. 

Article 6.2, which governs voluntary international cooperation on carbon emissions reductions to meet national climate targets, is already operational. At COP27, there was a rise in the number of nations participating in these types of bilateral agreements cooperate on carbon emissions reduction activities. 

These emissions reductions, known as Internationally Transferred Mitigation Outcomes (ITMOs), allow one country (Purchasing Country) to support the development of an emissions-reducing climate project taking place in another country (Host Country). Article 6.2 holds rules vital to ensuring ITMOs are created and used with a high level of integrity, and that the emissions being addressed are not double counted. By ensuring that a project’s Host Country makes a corresponding adjustment to transfer the mitigation outcome to the Purchasing Country, climate projects under Article 6.2 ensure that only the Purchasing Country counts the emissions reductions towards their national climate targets (Nationally Determined Contributions, NDCs) and not both countries. 

Many nations announced that they would be actively collaborating through this framework at this year's COP, a promising sign that bilateral cooperation is an attractive option. Singapore signed MOUs with Peru and Papua New Guinea, as well as concluded negotiations on an Implementation Agreement with Ghana to collaborate on carbon credits. Japan launched its Article 6 Implementation Partnership which attracted pledges of participation from 40 nations and 23 institutions. It includes a platform to share knowledge on carbon markets, coordinate capacity-building efforts, and implement training programs while working to improve the integrity of carbon markets. Additionally, Ghana officially authorized the transfer of mitigation outcomes to Switzerland, becoming the first country to launch a project and issue an authorization statement under Article 6. 

We are currently in the process of developing projects under Article 6.2 in the context of the Swiss cooperation agreements with Ghana and Malawi. The technologies disseminated include improved cookstoves and small scale-biogas, focused on rural areas of Ghana and Malawi. Switzerland will use the resulting emission reductions to meet a share of its NDC target. At a COP27 Side Event, our expert Raphael Eberle participated in a panel that showcased best-case examples of Article 6.2 cooperative approaches to share the insights our teams have gained developing these projects. 

Progress was also made on the Article 6.4 mechanism, which will succeed the CDM as the UN-approved international mechanism for the voluntary mitigation of greenhouse gas emissions. Approved CDM projects and credits (CERs) can transition to the new Article 6.4 mechanism. As for the new mechanism, two types of carbon credits will emerge: Authorized 6.4ERs and Mitigation Contribution 6.4ERS. A share of these credits will be allocated for purposes of adaptation and mitigation of overall global emissions (through the Overall Mitigation in Global Emissions mechanism). Authorized 6.4ERs can be used as ITMOs, authorized by the Host Country for export to another country to use towards its NDC. Mitigation Contribution 6.4ERs can be used domestically within the Host Country to account towards its NDC and, for example, within domestic compliance carbon markets. 

There will be a centralized Article 6.4 registry to track these credits, which will likely be connected to the registries tracking ITMOs as well. While COP28 won't take place in Dubai until November 2023, there are several technical sessions planned in the meantime to advance Article 6.4 developments. It is hoped that in these sessions, concrete rules on the Article 6.4 mechanism will be decided. These decisions should include which project types are eligible, which methodologies can be used, and what the exact registration procedures look like. 

Overall, the progress made regarding 6.2 and 6.4 increases environmental integrity in the carbon markets and signals positive momentum to advance climate mitigation efforts globally. Of course, successful implementation will require sufficient capacity building across nations, especially in developing countries, to ensure they can confidently participate. The private sector will also play an essential role in catalyzing the development of Article 6-compliant projects. 

There were also several important, non-market-related topics that COP27 hoped to make progress on, all focused on eliminating climate change’s root causes and curbing the harmful effects of its symptoms. 

After decades of discussions, the topic of “loss and damage” made its way to being formally added to the agenda of a COP this year. The results were very positive, with a historic agreement reached to develop a Loss and Damage fund dedicated to helping vulnerable countries affected by climate disasters. 

Developing nations are often affected most by the adverse effects of climate change yet have few resources to finance the costs of recovering from the loss and damage inflicted on their countries. It is for this reason that for nearly 30 years, they have been pushing for developed nations to provide financial assistance. 

Historically, developed nations have long preferred instead to provide these funds through existing mechanisms such as the Green Climate Fund, development banks, and multilateral cooperation. 

After extensive discussions on loss and damage, and despite fears that talks might be halted by gridlock, an agreement to establish a Loss and Damage fund was achieved. Critical details regarding the sources and recipients of funding will continue to be discussed at COP28, but this remarkable progress is highly encouraging.

Although progress on this front was slower than expected for some parties who hoped that COP27 would build upon the momentum achieved at COP27, progress was still made. 

COP27 reiterated the 1.5C commitment, mentioning again the need to reduce greenhouse gas emissions by, among other things, transitioning to low-emission alternatives and renewable energy. Calls for setting more ambitious targets simply did not pass. For example, the EU pushed hard to include a 2025 target for carbon emissions peaking, but the matter was left on the table. The EU, however, will raise its own ambition ahead of COP28. 

On the sidelines, a few other nations also announce plans to fulfill pledges or increase ambition. For example, Turkey revised its NDC, and India shared its implementation plan to reach net zero by 2070 for the first time. This is incredibly significant progress as India is the last of the world’s five largest economies to submit such a plan. 

At COP26, all nations agreed to revisit and strengthen their 2030 targets in their NDCs to align with the Paris Agreement. However, since then, only around 30 countries have done so. COP27 has therefore urged remaining nations to revisit and strengthen their 2030 targets in their NCDs by the end of 2023. It also urged nations to communicate their low GHG development strategies to reach net zero by or around mid-century by COP28. 

One positive development from the conference was the launch of the Mitigation Work Programme, aimed at scaling-up mitigation ambition and implementation globally. Comprised of a series of focused global exchanges of information and ideas, this program will be implemented immediately. 

Additionally, the UN's High-Level Expert Group on Net Zero issued their report "Integrity matters: Net Zero Commitments by Businesses, Financial Institutions, Cities and Regions," which includes guidance on setting credible and accountable net-zero pledges. This guidance supports the enhancement of climate action integrity overall. 

Happening parallel to COP27, on the other side of the world, the G20 also met in Bali for its annual Summit, with big implications for emissions mitigation of its own. US President Joe Biden and Chinese leader Xi Jinping agreed to resume their cooperation on climate change after talks stalled earlier this year due to rising tensions on a number of economic and political issues. This is significant as the two represent the world’s two biggest emitters of greenhouse gases, and their continued work together sends an important global signal. This breakthrough in talks also acted as a boost to bogged-down negotiations back in Egypt. 

Although keeping the COP26 text of "phasing down the use of unabated coal and inefficient use of fossil fuel subsidies" and continuing to stress the need to reduce GHG emissions and deploy renewable energy, little new was added to this discussion. 

Governments were requested to accelerate their efforts to phasedown unabated coal power and phase out inefficient fossil fuel subsidies – yet there was no mention of phasing out fossil fuels. Despite India's strong call to do so, the negotiations proved challenging as those participating represented a range of countries with differing views on what constitutes effective, practical, and realistic fossil fuel transition strategies. 

COP27 saw the first mention of nature-based solutions in the Sharm el-Sheikh Implementation Plan. Nature-based solutions refer to actions that restore, conserve, or sustainably manage ecosystems that help to address environmental and societal challenges. The plan links to Article 5 of the Paris Agreement, encouraging Parties to consider nature-based solutions for their mitigation and adaptation efforts. Importantly, the United Nations Environmental Assembly (UNEA) clarified that all nature-based solutions must respect social and environmental safeguards for local communities and indigenous peoples. 

It's important to remember that COP27 didn't take place in a vacuum, and the critical climate talks needed to advance its agenda required extremely high levels of cooperation. The global geopolitical landscape was in a changing and unsettled state going into the conference this year, affecting talks, goals, and progress made to date. 

The land war Russia is waging in Ukraine rages on – and even became more relevant during COP27 when a missile struck Poland, killing two. Aside from the incalculable humanitarian toll and the political impact the conflict has had, the war has also been highly relevant to the climate as it tremendously impacts energy and food supplies. Simultaneously, this war, like all wars, also emit large amounts of GHG emissions, as this BBC article explains. Furthermore, the tough economic circumstances this conflict has created have forced some nations to slow down their energy transition as priorities shift. 

A critical election with big climate impact also took place mere weeks before COP27 in Brazil. Former President and current President-Elect Luiz Inácio Lula da Silva beat out incumbent Bolsonaro, with a transfer of power set to take place in January 2023. At COP27, President-Elect Lula was met with enthusiasm as he promised to halt the aggressive deforestation carried out by the previous administration and revitalize and conserve the nation’s rich biomes. These promises are likely to be fulfilled if history is any indication. During Lula's previous presidency, deforestation rates were at all-time lows, dropping by 43.7% in his first term and 52.3% in his second. The President of Brazil title comes with the responsibility of being humanity’s steward of the Amazon rainforest, and preserving this colossal forest is integral to the fight against climate change, making this election relevant to us all. This is especially true at a COP where nature-based solutions were recognized and encouraged, as mentioned previously. 

While world leaders continue to work towards creating and implementing climate solutions on a global scale, organizations have many opportunities to contribute to these efforts. By taking swift, bold climate action to reduce their emissions and supporting climate projects that help vulnerable nations adapt, organizations can directly contribute to COP goals. 

There are several frameworks and initiatives that help organizations on their climate journeys to set timely goals with concrete implementation strategies, such as RE100 and the Science-Based Target initiative (SBTi). Organizations can realize these strategies by taking action in several ways. For example, phasing out fossil fuels can be accomplished by switching to renewable energy in facilities and waste stream biofuels for shipping. Organizations can also create climate-focused requirements for their suppliers that encourage other corporates to take climate action, decarbonizing their value chain. They can even go beyond their value chain to support global climate goals by investing in climate projects that reduce and remove emissions while supporting meaningful, sustainable development. Nature-based climate projects that work to restore wetlands, forests, and soil also improve the environment's ability to mitigate damages from climate disasters like flooding, fires, and hurricanes. 

As the leading global provider of market-based sustainability solutions, we provide organizations with the tools to decarbonize and enable them to achieve their climate action goals. Whether your organization is looking to honor an SBTi commitment or hit a net zero target, we have the renewable energy, biofuels, carbon credits, and market expertise to help you get there. 

We also offer climate project development to give organizations the opportunity to design their own climate projects. This allows them to support the sustainability and sustainable development goals most important to their organization while adding transparency to their carbon credit purchases. 

If your organization is ready to take climate action and help support Paris Agreement goals, get in touch with our experts today.