Government and industry representatives from across the world will attend the next annual UN climate change conference (COP27) in Sharm El Sheikh, Egypt, in November this year to reassert their commitment to a global energy transition. However, COP27 expectations are weighed down by a global energy crisis that risks sparking economic recession as well as social unrest.

A year ago, COP26 in Glasgow was abuzz with excitement – countries were required to ratchet up their energy transition plans in nationally determined contributions (NDCs) to the Paris Agreement. Countries also agreed to submit enhanced NDCs before the end of 2022, but few have done so.

“The focus [at COP27] will need to be on progress on delivery to give the necessary tailwinds ahead of a new ambition cycle starting next year,” said Larissa Gross and Leo Roberts at the think tank E3G in an email to Energy Monitor. Next year, countries will finish a “global stocktake” of progress started at COP26, which will inform NDCs for 2035 due for submission in 2025.

So, with just two months to go, what do businesses, policymakers and other stakeholders expect, need and fear from COP27?

“My biggest concern is that the euphoria of Glasgow gets overshadowed by Russia’s invasion of Ukraine as many countries scramble to secure fossil resources rather than focusing on clean energy solutions,” says Ken Markowitz, a former attorney at the US Environmental Protection Agency and UN climate change negotiator who now co-leads the climate change group at US law firm Akin Gump.

Carbon credits

One of the biggest achievements of COP26 was the establishment of a set of rules to govern the use of carbon markets to help countries meet their NDCs under Article 6 of the Paris Agreement.

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“One key focus of negotiations [at COP27] should be to get the mechanisms for Article 6 governing carbon markets absolutely right,” says Khaled Diab at the Brussels-based NGO Carbon Market Watch. “For civil society, the priority is to ensure environmental integrity, human rights and transparency are upheld in any future carbon crediting activities.” Negotiators agreed on the principles in Glasgow; now they have to design the market and the mechanisms governing it, explains Diab.

Trading in carbon credits could save countries up to $250bn by 2030 on the cost of delivering their NDCs, according to the International Emissions Trading Association.

However, the fear is that wealthier countries and companies will focus their energy transition efforts on purchasing credits instead of working to mitigate their own emissions. There is also the persistent challenge of avoiding ‘double-counting’, whereby emissions cuts end up counting towards the targets of both the seller and the buyer.

How emissions reduction projects can be executed without harming local people or the environment has been a concern too.

Climate finance for a just transition

The African COP has placed an accelerated just transition on policy agendas, particularly for the US.

The Biden administration is looking to strengthen its position in the Middle East and Africa through its partnership with Egypt to launch the “Adaptation in Africa” programme for climate resilience and adaptation across the continent, says Markowitz.

“Egypt is hosting an African COP, so there is going to be lots of attention – and rightly so – on [climate] finance, and loss and damage,” says Antony Froggatt, deputy director of Chatham House’s Environment and Society Programme. “This is very clearly a time in which […] we can make progress in these areas.”

With more than one-third of Pakistan submerged in floodwater, and 33 million of its people displaced, the urgency of prioritising climate-induced loss and damage is clear. Other climate-related disasters this year have included relentless sandstorms in the Gulf and unprecedented heatwaves across Europe.

“Developed countries are inching forward in […] meeting [their] commitments for funding adaptation and mitigation [in less economically developed countries],” says Froggatt. “Many developed nations highlight loss and damage as an important issue and yet it was one of the areas that saw significantly less progress than people had hoped for in Glasgow.”

Climate finance advocates hope that having a lower-middle income nation hosting the upcoming COP will put pressure on the EU and US to cough up more cash. In Glasgow, these two major economies blocked the G77 and China from proposing a finance facility for climate change-related loss and damage.

“Rich countries need to put their money where their mouth is and deliver the promised €100bn a year in climate finance to poorer countries,” says Diab. “[In addition] negotiators need to make progress on loss and damage.”

"It will be critical to highlight the link between fossil fuels, and loss and damage,” add Gross and Roberts. “Tackling fossil fuels can help reduce the need for loss and damage [support], whilst taxing their excessive profits can provide a revenue stream for loss and damage finance.”

"At [COP27], we need more global collaboration on market-based financial incentives to develop sustainable water management solutions, low-carbon supply chains and carbon capture and utilisation,” says Bill D Lese, managing partner at Braemar Energy Ventures, a US cleantech venture capital firm.



Geopolitical obstacles

The complex geopolitical climate may seem like an impediment to progress at this year’s COP, but Markowitz sees it as an opportunity for fresh collaboration too.

“The Biden administration will use the UNFCCC [United Nations Framework Convention on Climate Change] process to find common ground and strengthen cooperation with China on climate change despite the looming hyper geopolitical tensions,” he suggests. “With the passage of the IRA [Inflation Reduction Act], the US enters this COP in its strongest negotiation position in years and it will use that as leverage to motivate its strategic partners to increase their climate ambition."

However, recommitments to fossil fuels have surfaced globally since Russia’s invasion of Ukraine sparked concerns over energy security. In July, US President Joe Biden made a plea for oil from Saudi Arabia. Biden’s IRA, while the first comprehensive US legislative package tackling climate change, also foresees the federal government reinstating several oil and gas drilling leases it had said it would cancel due to environmental concerns. The IRA’s methane penalty will increase the price of oil needed for producers to break even, but it will only do so by $3, according to S&P Global.

In the UK, ramping up gas production and resuming fracking were high up on the agenda for both Rishi Sunak and Liz Truss in their contest to become the next prime minister.

"Challenges to energy security over the past year have consistently stalled our climate ambitions,” says Toby Gill, CEO of IPG, a British climate tech company specialising in a pollutant-free, fuel-flexible alternative to diesel generators. “Concerns over power outages and spikes in energy costs caused by the Russia-Ukraine war and ensuing energy crisis have forced businesses to turn to behind-the-meter solutions such as the diesel generator to guarantee access to affordable power.”

Of UK manufacturers, 27% have been forced to look to on-site generation as a result of soaring fuel prices, according to a new survey from Make UK, the manufacturer’s association. Farmers are in the same precarious position, says Gill.

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“At a time of mounting economic and geopolitical problems, it will be tempting to backpedal [at COP27],” says Diab. “This would be a grave mistake because our addiction to fossil fuels is a major driving force behind these crises. We must ramp up ambition and move the entire world towards a renewable, sustainable future.”

“There has been an aggravating debate over the ‘right to develop fossil fuel resources’ for domestic development, in particular in Africa,” say Gross and Roberts. “A constructive way out of that within the COP context would be a debate that pivots to ‘what are the conditions for clean energy-based development to be an attractive proposition’.”

Despite the energy crisis demonstrating the volatility of oil and gas prices, some countries seem wary of risking a green energy transition. “Soaring energy prices may reduce the appetite of certain countries and the ability of others to speed up the green transition,” acknowledges Diab. “In addition, some of the short-term fixes for the current energy crunch, such as switching to coal and fossil gas obtained from fracking, could lead to worsening emissions, while certain investments, like the construction of new gas terminals, could potentially deepen some countries' dependence on fossil fuels.”

"I would like to see a stronger emphasis on finding clean solutions beyond wind and solar [at COP27], such as battery storage and fuel-agnostic generators," says Gill.

Gross and Roberts laud the benefits of energy efficiency as a means of enhancing energy security. “A successful COP will expand leadership on buildings decarbonisation,” they say. “The buildings and construction sector accounts for 35% of final energy use and almost 40% of energy and process-related emissions. Building stock is set to double by 2050. Ramping up renewables and large-scale energy efficiency measures is needed to meet people’s housing and energy needs, and drive emissions to zero in building sector.”

They point to Morocco and France as role models when it comes to progress on decarbonising buildings.



COP27 expectations: the jury is out

While industry professionals have an idea of what they want from this year’s COP, they are uncertain about whether they will see action.

“I am cautiously optimistic COP27 will help the energy transition, but [feel] it will fall short on the timelines necessary to try to keep the global mean temperature rise below 1.5°C above pre-industrial levels," says Lese.

"I am hopeful COP27 will conclude with a renewed commitment to expanding renewable capacity, as this is the most significant step we can take towards decarbonising our energy system, helping to lower energy costs and reduce overall reliance on fossil fuels over the long term," adds Gill.

“There are some reasons for pessimism, such as the vested interests which are exploiting the current crises to try to derail much delayed and urgently needed change,” says Diab. “[And] there are some reasons for optimism, such as the accelerating investment in renewables and the growing recognition that the environmental, social and political cost of fossil fuels is too steep for us to keep paying.”

“The economics are more firmly stacked against fossil fuels than ever before,” say Gross and Roberts. “Already, in places like Germany or Europe we are seeing talks about gas demand reduction targets – something unthinkable even a couple of years ago. Gas expansion projects are being shelved across Asia… [and] the global community can now ensure that this space is filled with investments in renewables, efficiency and grids instead.”

COP27 is a fresh opportunity to rebuild trust and cooperation between nations. “This COP is likely to be more about the rules and frameworks and the check-in on delivery, both critical parts of building trust,” say Gross and Roberts. “Europe, the US and others must mobilise finance and prove they are making progress on delivering emissions reductions at home. Current noise around Europe’s fossil fuel shopping spree and gradual progress on its Green Deal is putting [trust] at risk.

With the release of the final instalment of the Intergovernmental Panel on Climate Change’s AR6 research reports either by the end of 2022 or the start of 2023, Froggatt hopes that an even greater sense of urgency will encourage ambition.

“There are a number of barriers owing to the [current] political and economic climate that may make things difficult," he acknowledges. “[But] the need for action is becoming clearer and clearer.

"It is a relatively less important [COP], but that opens up the opportunity for other issues to rise up on the agenda."