Race against catastrophe

There is no good or bad ‘COP’ when we talk about the annual Conference of Parties (COP) to the United Nations Framework Convention on Climate Change (UNFCCC).

This year was the 27th COP, and like the earlier 26 COPs, this COP had some good and some bad news for developing countries like Pakistan. If the sign of successful negotiations is that their outcome equally displeases the negotiating parties, then this COP was successful too. Before I share my disappointment, let me start with the good news first.

As the president of G77 and China (a group of 135 developing countries), Pakistan displayed excellent climate diplomacy. It successfully fought the case of getting a loss and damage fund established. The devastation due to this year’s unusually heavy monsoon resulting in super-floods in Pakistan was a living example of the extent of losses and damages that a country with a negligible share of global greenhouse gas emissions (GHG) could suffer due to the historic emission of the rich world. “What goes on in Pakistan won't stay in Pakistan” was the punchline used by Climate Change Minister Sherry Rehman in mobilizing the support at COP27 for a loss and damage fund. The fund is not a charity or donation but a mechanism by which rich countries would provide money to help the climate-vulnerable developing world to repair the damages wrought by a warming globe.

The idea for such a fund was floated 31 years ago (before the UNFCCC was formally established) but has met great resistance from the leaders of the developed world, who were not willing to talk about anything that might suggest liability or compensation for their historic role in warming the planet and hence causing climate change. They were mindful that, through computer models, climate scientists could quantify the role that greenhouse-gas emissions play in a given disaster – and therefore the enormous sums they could be on the hook for. This is why they resisted the inclusion of ‘funding for loss and damage’ as an agenda item during any previous COP. Overcoming that resistance and deciding to set up a new UN fund, the details of which will be agreed upon by November next year, is good news for developing countries.

The second good news is that COP27 agreed to tinker with the global financial system to make it more responsive to the climate crisis. International financial institutions or IFIs (World Bank, IMF, regional development banks, etc) are separate from the UNFCCC, so COP cannot require them to reform. However, 200 countries have sent a strong signal that they expect the IFIs to do more in the context of the climate crisis, suggesting how that should happen.

Before coming to that, let me explain why the role of IFIs matters in tackling climate change.

Last year, the World Bank concluded that by 2050, without more mitigation and adaptation, 216 million people would be displaced within their own countries by climate change. Mitigation (reducing the emissions) will require massive investments, not only in renewables but in switching to low-emission technologies and providing farmers with alternatives to chopping down forests. Adaptation (living with current and future global warming) to a warmer planet will require vast sums for building flood defences and heat-proofing infrastructure. The World Bank also estimates that, globally, every dollar spent on climate-change adaptation brings an average of $4 in benefits.

According to a report jointly commissioned by Britain and Egypt as the past and current hosts of COP, developing countries require a combined $1 trillion a year in external funding to meet the goals set out in their Nationally Determined Contributions, or NDCs (the climate action plan set out in the Paris Agreement). In addition to the countries' own expenditures, this funding is needed to cut emissions, deal with deadly disasters, and restore nature. This money cannot be mobilized through the existing UNFCCC mechanism which is why the role of global, regional, and national financial institutions becomes important.

Lack of access to finance for climate emergencies can drive developing countries even deeper into debt, as Pakistan discovered this year. According to the Economist magazine, countries at higher risk of natural disasters already have debt-to-national income ratios that are 11.2 percentage points higher than those that are less vulnerable.

Access to loans becomes challenging due to the (negative) opinion of credit rating agencies about lending to climate-vulnerable countries and often the (harsh) conditionalities attached to such funding.

In a welcome move, parties at COP27 seized on a set of proposals by Barbadian Prime Minister Mia Mottley. The proposal is to expand the lending capacity of the World Bank and other development banks by allowing them to take greater financial risks. An additional $1 trillion can be unlocked without any shareholders (America is the largest for the World Bank) having to put in any more money. The extra financial risk is justified when set against the harm that climate change will cause.

The closing text adopted at COP27 called on multilateral development banks and other IFIs to “reform their practices and priorities” to channel money where it is most needed. It also encouraged such organizations to “define a new vision” with “channels and instruments that are fit for adequately addressing the global climate emergency”. Though the text does not mention specifically the “debt for nature swaps”, an instrument through which the lenders give concessions in return for environmental commitments, the language opens the window for countries like Pakistan to get debt relief in exchange for flood rehabilitation through “debt for flood rehabilitation swa”.

The bad news is that, while providing hope for finance to developing countries, COP27 failed to expedite the curbing of greenhouse gas emissions.

Under the Paris Agreement, countries were required to submit their national plans (NDC) on reducing (or curbing, in the case of developing countries) their GHG emissions. These were to be resubmitted only every five years, a provision known as the “ratchet”. The NDCs submitted at Paris would have led to a temperature rise of more than 3C, far higher than the target of 1.5-2C. Hence, in Glasgow (COP26), countries agreed to hasten the ratchet and submit new NDCs yearly. However, few countries submitted revised NDCs this year in line with the ratchet, and current NDCs would see a rise of about 2.5C.

The final text of COP27 contains a provision to boost “low-emissions energy”. This term is quite vague and can cover energy from wind and solar farms to nuclear reactors and coal-fired power stations fitted with carbon capture and storage. Many interpret it as gas, which has lower emissions than coal but is still a major fossil fuel. Text like this, no follow through on the phasing down of coal, and an absence of a formal agreement to reduce the world's fossil fuel use have disappointed many.

With all the shortcomings of COP27 output, the decision to set up the Loss and Damage Fund is a huge success. However, our struggle does not end here. Unlike many of the missed promises and unmet pledges developed countries made to developing countries in the previous COPs, the Loss and Damage Fund must be set up and filled with cash. There has yet to be an agreement on how the finance should be provided and where it should come from. The question of who would get these funds, and how the competing requests for its access would be met still needs to be solved.

I foresee our negotiators spending sleepless nights in many more COPs. The only problem is that the rapidly changing climate will not give us time to linger on this issue indefinitely. It's a race against catastrophe.

Twitter: @abidsuleri

The writer heads the Sustainable Development Policy Institute.