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Another Informed View of the Outcome of COP-27 in Sharm El Sheikh

According to my most recent podcast guest, Billy Pizer, the Vice President for Research and Policy Engagement at Resources for the Future, agreement by negotiators at the 27th Conference of the Parties (COP27) of the United Nations Framework Convention on Climate Change (UNFCCC) in Sharm El Sheikh, Egypt, earlier this month on a mechanism to provide funding for particularly vulnerable nations suffering from climate change was a significant outcome, while the negotiators’ inability to achieve substantive commitments by nations to increase their Nationally Determined Contributions (NDCs) was a disappointment. Dr. Pizer offers those views and much more in the latest episode of “Environmental Insights: Discussions on Policy and Practice from the Harvard Environmental Economics Program,” a podcast produced by the Harvard Environmental Economics Program. I hope you will listen to the interview and our conversation here.

[As you know if you follow this blog, I have my own views of the outcome of COP27, about which I wrote just a couple of days ago, but in these podcasts I strive to feature the work and views of my guests, so in the podcast you won’t hear much from me on the various issues that arose at COP27. If you want to get my own take on that, you can find it here and here.] Now back to Billy Pizer …

The eyes of the world were focused on Sharm El Sheikh as negotiators representing nearly 200 countries discussed myriad issues with the goal of advancing international efforts to limit global warming to well below 2° C and pursuing efforts to limit it to 1.5° C this century, as specified in the Paris Agreement. COP27 did not have a particularly ambitious agenda, Pizer observes in our conversation, but it did move the ball forward.

“We’re now at a place after Paris where everything is a little bit lower stakes, in a sense, because we have the framework in place. And everything now is simply moving that framework along to the next step,” he says. “I think it’s inevitable that there’s a little bit less high-level drama and stakes going on at the COPs. That doesn’t mean they’re not unimportant, it just means that the nature of the COPs is different.”

Pizer says that one of the most significant outcomes during the two weeks of the COP took place 6,000 miles away, at the G20 summit in Bali, where President Biden and China President Xi agreed to resume bilateral cooperation on climate change as well as other issues.

“Now the negotiations have stepped back up,” Pizer remarks. “And I think that is certainly a significant development because I think it’s just very hard to make progress [on international climate policy] without the US and China talking.”

Another major outcome from this year’s COP was the agreement to establish a “Loss and Damage” fund to help poor nations suffering from the impacts of climate change. Pizer admits that he was somewhat surprised that the U.S. supported that proposal.

“The United States has been very concerned about whether or not there would be a notion of liability that went with such compensation. But remarkably, it was on the agenda, it got negotiated. And in the end, there was an agreement to a new fund,” he states. “The United States typically does not like to create new funds. But in the end, they were isolated, and I don’t think they wanted to be responsible for a bad outcome. And I think they also recognized the writing on the wall, that this was what the majority of countries wanted, and so they agreed to it.”

As an aside, I will note that as a result of work by the United States – and other delegations – at COP27, the Loss & Damage Fund is explicitly not about compensation or legal liability.

On another topic, Dr. Pizer observes that the negotiators made little progress on the issue of increased ambition among the parties to increase their commitments through their NDCs, an outcome which Pizer found disappointing.

“There is a broad recognition that we’re not on track to meet the targets, the goals of the convention or the goals of the Paris Agreement to limit warming to two degrees or 1.5 Degrees. And despite that, there weren’t dramatic increases in ambition announced. So that’s almost like the lack of an outcome that was notable,” he says.

The author along with Billy Pizer and others at RFF’s recent Net-Zero Economy Summit in Washington, D.C.

On a very positive note, Billy Pizer cites the power of recent youth movements of climate activism to help advance international climate efforts.

“I think the youth movement and the popular movement to address climate change has that sort of catalyzing role to help move things along,” he notes. “And I think it also creates a dynamic where, with the younger generation … even more committed to taking action, it helps decision makers, businesses, people that are betting literally their money on different events taking place, that this sort of action in the future is going to even accelerate more because the younger generation is even more concerned about it.”

Again, I encourage you to listen to this 42^nd episode of the Environmental Insights series, with future episodes scheduled to drop each month. You can find a transcript of our conversation at the website of the Harvard Environmental Economics Program. Previous episodes have featured conversations with:

Gina McCarthy, former Administrator of the U.S. Environmental Protection Agency
Nick Stern of the London School of Economics discussing his career, British politics, and efforts to combat climate change
Andrei Marcu, founder and executive director of the European Roundtable on Climate Change and Sustainable Transition
Paul Watkinson, Chair of the Subsidiary Body for Scientific and Technological Advice (SBSTA) within the United Nations Framework Convention on Climate Change
Jos Delbeke, professor at the European University Institute in Florence and at the KU Leuven in Belgium, and formerly Director-General of the European Commission’s DG Climate Action
David Keith, professor at Harvard and a leading authority on geoengineering
Joe Aldy, professor of the practice of public policy at Harvard Kennedy School, with considerable experience working on climate change policy issues in the U.S. government
Scott Barrett, professor of natural resource economics at Columbia University, and an authority on infectious disease policy
Rebecca Henderson, John and Natty McArthur University Professor at Harvard University, and founding co-director of the Business and Environment Initiative at Harvard Business School.
Sue Biniaz, who was the lead climate lawyer and a lead climate negotiator for the United States from 1989 until early 2017.
Richard Schmalensee, the Howard W. Johnson Professor of Management, and Professor of Economics Emeritus at the Massachusetts Institute of Technology.
Kelley Kizier, Associate Vice President for International Climate at the Environmental Defense Fund.
David Hone, Chief Climate Change Adviser, Shell International.
Vicky Bailey, 30 years of experience in corporate and government positions in the energy sector.
David Victor, professor of international relations at the University of California, San Diego.
Lisa Friedman, reporter on the climate desk at the The New York Times.
Coral Davenport, who covers energy and environmental policy for The New York Times from Washington.
Spencer Dale, BP Group Chief Economist.
Richard Revesz, professor at the NYU School of Law.
Daniel Esty, Hillhouse Professor of Environment and Law at Yale University.
William Hogan, Raymond Plank Research Professor of Global Energy Policy at Harvard.
Jody Freeman, Archibald Cox Professor of Law at Harvard Law School.
John Graham, Dean Emeritus, Paul O’Neill School of Public and Environmental Affairs, Indiana University.
Gernot Wagner, Clinical Associate Professor at New York University.
John Holdren, Research Professor, Harvard Kennedy School.
Larry Goulder, Shuzo Nishihara Professor of Environmental and Resource Economics, Stanford University.
Suzi Kerr, Chief Economist, Environmental Defense Fund.
Sheila Olmstead, Professor of Public Affairs, LBJ School of Public Affairs, University of Texas, Austin.
Robert Pindyck, Bank of Tokyo-Mitsubishi Professor of Economics and Finance, MIT Sloan School of Management.
Gilbert Metcalf, Professor of Economics, Tufts University.
Navroz Dubash, Professor, Centre for Policy Research, New Delhi.
Paul Joskow, Elizabeth and James Killian Professor of Economics emeritus, MIT.
Maureen Cropper, Distinguished University Professor, University of Maryland.
Orley Ashenfelter, the Joseph Douglas Green 1895 Professor of Economics, Princeton University.
Jonathan Wiener, the William and Thomas Perkins Professor of Law, Duke Law School.
Lori Bennear, the Juli Plant Grainger Associate Professor of Energy Economics and Policy, Nicholas School of the Environment, Duke University.
Daniel Yergin, founder of Cambridge Energy Research Associates, and now Vice Chair of S&P Global.
Jeffrey Holmstead, who leads the Environmental Strategies Group at Bracewell in Washington, DC.
Daniel Jacob, Vasco McCoy Family Professor of Atmospheric Chemistry & Environmental Engineering at Harvard.
Michael Greenstone, Milton Friedman Distinguished Service Professor of Economics, University of Chicago.

“Environmental Insights” is hosted on SoundCloud, and is also available on iTunes, Pocket Casts, Spotify, and Stitcher.

What Really Happened at COP27 in Sharm El-Sheikh?

The Twenty-Seventh Conference of the Parties (COP27) of the United Nations Framework Convention on Climate Change (UNFCCC), held November 7-20 in Sharm El-Sheikh, Egypt, turned out to be important in several ways, but disappointing in others.

The Most Important Development During COP27 for Long-Term Climate Policy

Ever since Donald Trump was elected U.S. President in November 2016, a major question has been when would the United States and China return to the highly effective co-leadership they had played during the years of the Obama administration in the runup to the Paris Agreement. This was an important question at last year’s COP26 in Glasgow. It turned out that this year’s COP27 provided an answer, although in somewhat surprising fashion.

In my view, the most important development during COP27 held November 7-20 in Sharm El-Sheikh, took place six thousands miles away in Bali, Indonesia, when U.S. President Joe Biden and China President Xi Jinping met on November 14 on the sidelines of the G20 summit, shook hands, and engaged on in a three-hour conversation in which, among other topics, they signaled their return to the cooperative stance that had previously been so crucial for international progress on climate change. That three-hour meeting marked the end of the breakoff of talks that had been initiated by China in response to Speaker Nancy Pelosi’s trip to Taiwan in early August, and the two leaders’ intention to not allow disagreements regarding international trade, human rights, movement away from democracy in Hong Kong, and Taiwan’s security to contaminate their cooperation on climate change.

The discussion between the two heads of state quickly (and explicitly) trickled down to the heads of the respective negotiating teams at COP27 — John Kerry of the United States and Xie Zhenhua of China. They are longtime friends, but had not been engaged in discussions or cooperation on climate change because of the problems that had existed since August at the highest level between the two governments. After the Biden-Xi meeting in Bali, statements from both John Kerry and Xie Zhenhua indicated that the two countries will resume cooperation. I believe it is reasonable to anticipate that there may even be something of a return to the co-leadership on climate change policy which China and the United States had previously exercised, and which was absolutely essential for the successful enactment of the Paris Agreement (adopted by 196 Parties at COP21 in Paris, December 12, 2015, and entered into force on November 4, 2016), but cooperation that had disappeared long before Pelosi’s trip to Taiwan, namely with the beginning of the former Trump administration and throughout much of the first two years of the Biden administration.

The Most Contentious and Dramatic Decision at COP27

If the restart of China-U.S. climate cooperation was the most important development during the COP for long-term climate policy, the most dramatic and contentious decision reached within the halls of COP27 by the negotiators from 195 countries was the establishment of a fund for so-called “Loss and Damage,” an issue that has been kicked down the road since it was first floated in 1991 when Vanuatu, a small island nation in the Pacific, suggested the creation of a United Nations fund to help pay for the consequences of rising sea levels. For thirty years, action on this notion has been delayed, including with a clever approach in the Paris Agreement itself. One year ago, at the conclusion of COP26 in Glasgow, I predicted that this Loss & Damage issue would be the major focus of this year’s COP27. My predictions do not always come true, but this one did.

First, some background for those of you who are not UNFCCC/COP junkies. “Loss and Damage” refers to the range of impacts associated with climate change, since even if emissions are reduced to zero tomorrow morning, damages will continue due to the long lag time of greenhouse gases (GHGs) in the atmosphere, particularly CO₂ with its atmospheric half-life of more than 100 years. Most of the Paris Agreement targets reducing emissions (via the mechanism of the Nationally Determined Contributions), and the famous $100 billion commitment for finance from developed countries for developing countries targets mitigation and adaptation. But adaptation is not possible for all impacts – think about the very existence of small island states, or this year’s floods in Pakistan.

The controversy has been with regard to who should pay for such loss and damage, with the focus on those most responsible for climate change, namely the countries with the greatest contributions to the accumulated stock of GHGs in the atmosphere – the United States and other large, wealthy countries, plus – importantly – China.

This has been controversial because, on the one hand, it is absolutely (and understandably) viewed as essential by countries such as the small island states, whereas countries such as the USA, China, and the EU member states worry that talk of “loss and damage” raises the specter of compensation for bad weather and unlimited legal liability. Indeed, at some climate talks before the Paris Agreement (2015), debates on this issue nearly caused the talks to collapse.

But the issue was finessed in the Paris Agreement’s Article 8, which recognizes the importance of loss and damage, but then eliminates the most contentious aspects in Decision 52 (a document that accompanied the Paris Agreement), where the Parties agreed that loss and damage “does not involve or provide a basis for any liability or compensation.” Understandably, some countries were not satisfied with this “resolution.”

The developing-country voices regarding loss and damage – this time favoring the creation of a new fund for loss and damage payments – were more prominent at COP26 last year than at any previous COP, but on the final day of the talks last year the wealthy countries blocked such proposals, and instead agreed to talk more about it in the future by setting up a “dialogue” on the issue in future COPs.

That brief history will convey the significance of what happened at COP27, when China, the European Union, and a few other developed countries came out in support of a loss & damage fund; and, then, as the second week of the COP was approaching its close, John Kerry announced that the U.S. also supported (in principle) the creation of such a fund, reversing its long-standing opposition. It’s important to note that the agenda item on Loss & Damage, which was adopted at the outset of COP27 (and was the basis for the Loss & Damage decision), was agreed on the understanding (in the report of the meeting) that Loss & Damage does not involve compensation or legal liability, and, furthermore, that understanding is cross-referenced in the preamble to the Loss & Damage decision. Hence, the important caveat from Decision 52 accompanying the Paris Agreement was reiterated in the Loss & Damage decision produced at COP27.

Such a fund could – on the demand side – eventually amount to trillions of dollars per year. Note that the World Bank has estimated that this year’s floods in Pakistan caused $40 billion in damages. However, on the supply side, the few quantitative financial pledges stated thus far are in the tens of millions of dollars. COP27 established a transition committee to develop recommendations on funding arrangements at COP28 in 2023. The transition committee will have a majority of developing country representatives (which may not be a prescription for a pragmatic and effective process).

So, is the new Loss and Damage Fund an empty shell? China is important, as the world’s largest emitter, but not the greatest contributor to the atmospheric stock of greenhouse gases, a title held by the United States. And damages are a function of the existing stock, not the emissions in any year. However, depending on relative rates of economic growth and other factors, China may become the largest contributor to the stock in a decade or two. China’s announced position at COP27 was that it supports the creation of the Loss and Damage Fund, but that as a “developing country” it will not be responsible for any contributions to the fund. By the way, China’s definition of itself as a “developing country” links to the 1992 list of non-Annex I countries under the UNFCCC, when China’s per capita GDP was less than $400/year. The fact that its per capita GDP has grown by 3,330% since then is not considered relevant by China.

Interestingly, there is some convergence on the Loss and Damage Fund between China and the United States, although certainly not in regard to China’s self-proclaimed exemption from financial contributor status. Rather, the U.S. has a story that winds up in a similar place. It goes like this. “We support the Loss & Damage fund, but due to the new Republican majority in the House of Representatives, it is impossible for us to make any commitment of new funding.” (Minor caveat: What about a quick move via inclusion in the Omnibus Budget Bill in December, before the Republicans take control? Not going to happen.)

So, is the new Loss and Damage Fund an empty shell, or is it a principled first step toward equitable allocation of responsibility under the Paris Agreement? It may be both. How it will evolve in the future is difficult to say.

Other Developments and Issues at COP27

There were plenty of other debates and developments at COP27, but in my view they were of secondary consequence compared with the Biden-Xi rapprochement and the establishment of the Loss & Damage fund.

Of course, the UNFCCC, the Paris Agreement, and the annual COPs are ultimately and mainly about reducing emissions of GHGs. There have been many statements in the popular press and from some of the delegations of disappointment because the COP27 closing statement did not fully embrace the 1.5 C target (relative to pre-industrial temperatures), versus 2 C target of the Paris Agreement, nor did it state the intention – in what is really no more than a non-binding resolution – to phase out not just “unabated coal,” as in the Glasgow decision, but all fossil fuels.

These are valid, indeed important concerns. But I remember when the Business-as-Usual (BAU) predictions from the Intergovernmental Panel on Climate Change (IPCC) were as high as 7.0 C this century, then with Paris, 3 C; then with enhanced Paris & the Kigali amendments to the Montreal Protocol, 2.5 C; and now with the latest pledges from China and India, capping warming at 1.7 C this century may be feasible, according to the International Energy Agency. Much will depend upon future actions by the large emerging economies – China, India, Brazil, Korea, South Africa, Mexico, and Indonesia – as well as by the United States and other developed countries. But this COP need not cause excessive hang-wringing, let alone depression. This is a marathon, not a sprint.

Also, since I have written extensively – and worked at the annual COPs – on international linkage, trading, and Article 6 of the Paris Agreement, I should at least note that a variety of technical decisions regarding operationalizing the Article 6.2 mechanism were deferred to COP28. To some degree, this is good news, since developments with Article 6.2 since the Rulebook for it was completed at COP26 are not encouraging, nor are the interpretations of 6.2 that many policy participants seem to hold. More about this in the future.

In the meantime, there were also significant discussions and developments regarding a very important non-CO₂ GHG, namely methane. In this regard, in a previous blog post, I described a podcast conversation with my Harvard colleague, Professor Daniel Jacob, who specializes in this realm. And in my most recent previous blog post, I described my own activities and speaking engagements at COP27 regarding our work at Harvard on satellite-detection of methane concentrations, statistical estimation of related emissions, and development and implementation of appropriate public policies. This was an important focus of several bilateral meetings at COP27, as well as some of my speaking engagements (others were on carbon pricing). I’ll have more to say about our methane work and U.S. and global developments in future essays at this blog.

Next Year: COP28 in Dubai

This year was officially the “Implementation COP,” and next year’s COP28 in Dubai, United Arab Emirates (UAE), is officially the “Global Stocktake COP.” But if COP27 was, in effect, the “Loss & Damage COP,” we might anticipate that the incoming UAE presidency of COP28 will make it the “Carbon Removal COP,” with renewed attention to carbon capture & storage, carbon capture & utilization, direct carbon removal, as well as solar radiation management. If that happens, it will be controversial, like loss & damage was, but for different reasons and with very different parties.

Photos from COP27

Finally, I’m including a few photos below from some of my speaking engagements and meetings. You can find more photos and stories about activities at COP27 of the Harvard Project on Climate Agreements here.

Entrance to COP27

Speaking at China Pavilion

Panel session at China Pavilion

Speaking at China Pavilion

Group of presenters at China Pavilion

Room View at China Pavilion

Room View of session on Frontiers in Carbon Pricing in IETA Pavilion

Panel session on Frontiers in Carbon Pricing in IETA Pavilion

Panel Session Frontiers in Carbon Pricing in IETA Pavilion

Speaking in IETA Pavilion

Interview with Lisa Friedman, New York Times

Video interview with Michael Jung, Executive Director, ICF Climate Center

Meeting with Prof. Jos Delbeke, European University Institute, and Prof. Simone Borghesi, University of Siena, Italy

View of Room for HPCA-Enel Foundation Side Event on Methane Emissions Reduction

Professor Daniel Jacob speaking at Side Event on Methane Emissions Reduction

Panel at HPCA Side Event with Lena Hoglund Isaksson on Methane Emission Reduction

Can Europe Decarbonize in the Midst of a Geopolitical Crisis?

Is the geopolitical crisis due to the Russian invasion of Ukraine likely to accelerate or retard the energy transformation in the European Union? This and related topics on decarbonizing Europe were central to the most recent webinar in our series, Conversations on Climate Change and Energy Policy, sponsored by the Harvard Project on Climate Agreements (HPCA). This time, we featured a conversation with Dan Jørgensen, the Danish Minister of Climate, Energy, and Utilities, who expressed his hope (if not expectation) that the tragic war in Ukraine will help accelerate the clean energy transformation by weaning Europe off Russian gas. A video recording (and transcript) of the entire webinar is available here.

As many readers of this blog know, in this webinar series I feature leading authorities on climate change policy, whether from academia, the private sector, NGOs, or government. In this most recent Conversation, I was fortunate to engage with someone who has had solid and important experience in government.

Dan Jørgensen, who played a significant role in maintaining the focus on reducing the rise of global temperatures during the 26^th Conference of the Parties (COP-26) to the United Nations Framework Convention on Climate Change (UNFCCC) in Glasgow last November, lauded the efforts of European countries like Greece that are proclaiming their intent to reduce their use of Russian gas in favor of other energy sources, although Greece has simultaneously announced that it will therefore have to increase its use of coal for electricity generation.

“One of the few positive things that might come out of a terrible situation is that we will now be forced to speed up the green transformation away from fossils in Europe,” Jørgensen says. “It has opened the eyes… I think, for decision makers all over Europe to ramp up the replacement of fossils – that’s gas, that’s oil, that’s coal, with renewables. And we have a lot of potential for that in Europe.”

Jørgensen talks about important legislation being negotiated in the European Union which would create new directives on energy efficiency and renewable energy that could, he states, help EU countries greatly reduce their dependency on Russian fossil fuel.

Much of the discussion also focuses on COP-26 and the decision by participating countries to agree on language calling for a “phase down” of unabated coal and to reduce inefficient fossil fuel subsidies.

“On one hand, I’m disappointed that the text is not stronger than it is on those issues. On the other hand, it is really huge progress that it’s now in the text, meaning that…[it will be] the starting point for the next negotiations [at COP-27 in Sharm el-Sheikh, Egypt],” Jørgensen remarks. “The overall result was a positive one. There was some real progress. But first and foremost, the aim of the COP-26 meeting was to keep 1.5 alive, so to speak. What does that mean? It means that if we hadn’t made the decisions that we actually made then…it would be almost impossible for us to keep the promise of staying below 1.5 alive, and it wouldn’t be credible.”

Looking ahead to COP-27, Jørgensen says negotiators will focus on the promise of more ambitious nationally determined contributions (NDCs) as well as questions surrounding finance for developing countries requiring short-term assistance to reduce their dependency on fossil fuels and adapt to climate change.

“I do understand how some of the growing economies of this planet that are also now amongst the biggest emitters, why they think it’s only fair that the richer countries of the planet help them in the transformation,” he states. “We have a climate problem because rich countries have been polluting for more than 100 years. Now, some countries are raising their standard of living and…starting to pollute more. But I don’t really think it would be fair for us to say, ‘You cannot have the same standard of living as we do.’ That would not be legitimate, in my point of view. And it wouldn’t be fair if we didn’t also offer help to mitigate the problem. So, we need to have a clear focus on the financing part.”

Jørgensen also shares his thoughts on the potential for carbon trading systems to reduce global emissions, arguing that pricing can be complicated but is absolutely necessary.

“We need clear price signals in the market,” he says. “It needs to be more expensive to produce in a way where you’re dependent on fossil fuels and less expensive to do the opposite.”

I ask Jørgensen about the European Union’s Emissions Trading System (EU ETS), established in 2005 as the first large greenhouse gas emissions trading scheme in the world, and which now covers more than 11,000 factories, power stations, and other installations in 31 countries, including all 27 EU countries.

“It is actually pretty incredible that we have this well-functioning system with 27 countries that is economically rational, that works, that cuts emissions, even in times of crisis where normally many countries will probably say, ‘Okay, well, we want to save the climate, but we need to get through this crisis first,’” he says. “In times of crisis like that, it’s extremely important that we have these systems. And what I like especially about it is that it’s a win-win. I mean, it is the cheapest, most efficient way of making a transformation.”

During the forum, Jørgensen also responds to questions from attendees from around the world, including questions focusing on carbon capture and sequestration, solar radiation management, methane, nuclear power, and the youth climate movement.

All of this and much more can be seen and heard in our full Conversation here. I hope you will check it out.

Previous episodes in this series – Conversations on Climate Change and Energy Policy – have featured Meghan O’Sullivan’s thoughts on Geopolitics and Upheaval in Oil Markets, Jake Werksman’s assessment of the European Union’s Green New Deal, Rachel Kyte’s examination of “Using the Pandemic Recovery to Spur the Clean Transition,” Joseph Stiglitz’s reflections on “Carbon Pricing, the COVID-19 Pandemic, and Green Economic Recovery,” Joe Aldy describing “Lessons from Experience for Greening an Economic Stimulus,” Jason Bordoff commenting on “Prospects for Energy and Climate Change Policy under the New U.S. Administration,” Ottmar Edenhofer talking about “The Future of European Climate Change Policy,” Nathaniel Keohane reflecting on “The Path Ahead for Climate Change Policy,” Valerie Karplus talking about “The Future of China’s National Carbon Market,” Laurence Tubiana reflecting on “A European Perspective on COP26,” and Congressman Garret Graves on “U.S. Climate Change Policy in an Era of Political Polarization.”

Watch for an announcement about our next webinar. You will be able to register in advance for the event on the website of the Harvard Project on Climate Agreements.