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COP27: a Tale of Reparation, Confrontation, Competition, and Cooperation

COP27: a Tale of Reparation, Confrontation, Competition, and Cooperation
 Joseph Dellatte
Resident Fellow - Climate, Energy and Environment

The 27th Conference of the Parties (COP27) is over. As expected, establishing a financial mechanism for climate-related loss and damage was the most debated topic in the Sinai Desert over the past two weeks. Beyond the traditional half-hearted outcome, what emerged was the collusion of three antagonistic iterations: the call for necessary cooperation, the recognition of competition, and the chilling effect of confrontation between blocs of countries. Back from the negotiations in Sharm el-Sheikh, Joseph Dellatte, Research Fellow for Climate in Institut Montaigne's Asia Program, analyzes the politics and coalitions at play during the conference and their implications for the fight to tackle climate change.

Loss and Damage: the bitter taste of a historic agreement 

The "African COP" finally ended with a symbolic agreement on creating a fund to compensate "particularly" vulnerable developing countries suffering loss and damage from climate change. This decision is essential for the countries already affected; it is also historic since it is the first time that a financing mechanism for climate "reparation" is agreed upon at the level of the United Nations. 

Discussions on implementing a loss and damage (L&D) finance mechanism were added to the official agenda on the first day of COP27, a historic first in a climate conference. This has raised high hopes from vulnerable countries, supported by most developing countries, of obtaining funds to repair the most direct impacts of climate change. However, developed countries such as EU Member States and the United States were initially against a financing mechanism without solid rules of definition and traceability - an objective that they considered unattainable at COP27.

Developed countries were also unwilling to support a mechanism that would not commit other newly high-income countries such as Singapore, the Gulf petro-monarchies, and even China to pay their fair share. Along the same line, the Alliance of Small Island States (AOSIS), the most concerned with loss and damage, demanded that China and other big polluters contribute significantly to the financing mechanism discussed at COP27. China was hesitant about loss and damage financing in Sharm el-Sheikh. This is a dilemma for Beijing to resolve: supporting loss and damage financing provides further legitimacy to its desired leadership position with developing countries.

After an unexpected U-turn in the form of a "political stunt" by the European Union arriving at the end of the conference, an agreement was finally found with developing countries on a fund for loss and damage. 

Also, as China is already the second-largest absolute emitter of greenhouse gases in history, it would make sense for the country to contribute to L&D financing at some point. Nevertheless, China does not want to. Indeed, a Chinese contribution would open Pandora's box to discuss its position as a developing country in the Paris Agreement regime. The AOSIS position has been a very contentious issue within the G77 - the main coordination platform of developing countries gathering 134 nations - which sticks to the 1992 Rio Summit definition that considers China, and other large emitters like Saudi Arabia, as any other developing country. 

After an unexpected U-turn in the form of a "political stunt" by the European Union arriving at the end of the conference, an agreement was finally found with developing countries on a fund for loss and damage. However, the most difficult questions concerning this loss and damage financing mechanism remain to be answered by future conferences. They stem from a fundamentally different vision of this fund among the actors. Firstly, the document on the funding arrangements does not provide a clear definition nor an agreement on what is a "particularly vulnerable developing country" that should benefit from the fund. Europeans, Americans, and Japanese do not want to be forced to fund "high and middle-income" developing countries, while the G77 + China do not want to discriminate among its members. The final agreement also refers to vague "broader sources of finance," implying a "mosaic of solutions" using debt relief, calling on institutions like the IMF and the World Bank to contribute, and maybe countries beyond the traditional developed ones. All of this remains to be determined at future COPs. 

Coalitions and trade-offs

Europe's change of heart in favor of creating a loss and damage fund at COP27 was a tactical concession. It was initially conditioned on support from developing countries for an increased and concrete mitigation ambition in the final text that would have "saved" the 1.5°C target of the Paris Agreement. The EU, along with 80 other nations, called for strong language on phasing down all fossil fuels in the final declaration - language first proposed by India to expand the coal phasedown pledge agreed at COP26 - and for a Mitigation Work Program working to implement the 1.5°C. 

Neither of these goals materialized, much to the EU's regret. The final text of COP27 refers to the 1.5°C target, but without any reference to the solutions to be implemented, which underlines a lack of practical ambition. Regarding mitigation, only a few new references to "renewable" and "low-emission" energy were agreed upon. The Egyptian presidency, allied with oil interests, initially proposed weaker language than the Glasgow Climate Pact adopted last year at COP26. This is confrontation at its worst - and directly and egregiously contradicts the aim for this COP to be about implementation…

Still, the EU, quickly followed by other developed nations, supported the creation of the loss and damage fund, despite the failure to link reparations and solutions. Europeans would like to believe that the goodwill they showed in committing to a loss and damage fund at COP27 will help soften the traditional bloc confrontation between developed and developing countries, creating space for a greater mitigation commitment at future COPs.  

The main result is that the multilateral climate change gridlock is more alive than ever. 

But at this stage, this political strategy could be overly optimistic. Only the long term will tell, but sweet dreams are made of this. The main result is that the multilateral climate change gridlock is more alive than ever. As long as the balance of power within the G77 remains the same - aligning the interests of fast-growing developing industrial giants like China and India, oil states entrenched in their economic interests, and some of the countries most vulnerable to climate change - this will not change. 

Many important external events contributed to further fueling the confrontational atmosphere at COP27. The sheer geopolitics of Russia's war in Ukraine created two coalitions that would never have formed had the invasion not taken place. On one side, Russia - openly - joined other oil-producing states to try to water down the language adopted in Glasgow on mitigation. On the other side, John Kerry announced a plan to support Ukraine in transitioning from its coal-fired power plant to nuclear SMR to produce green hydrogen. 

From the race to the bottom to virtuous competition

COP27 was also marked by the resumption of US-China climate talks, following the meeting between Joe Biden and Xi Jinping at the G20 in Bali. However, we should not be naive about the competitive nature of their relationship, including on climate. 

Just after the US midterm elections - the outcome of which was a bit more favorable for the climate than expected - Joe Biden visited COP27 on the way to the G20 summit. Taking advantage of Xi Jinping's absence from the conference, the US administration positioned itself as the leader on climate. The US posture, however, is weakened by America's poor performance on climate finance, which will remain as is until there is a favorable majority in the US House of Representatives, where Budget Committees vote on climate-related measures. This situation is widely exploited by China to denounce a lack of US commitment to vulnerable developing countries. It is also a bad omen for loss and damage financing and the political capital that developed countries hope to gain from it. 

China's approach to climate cooperation is superseded by geopolitical interests and power games. 

China's approach to climate cooperation is superseded by geopolitical interests and power games. In delivering China's national statement at COP27, Chinese climate envoy, Xie Zhenhua, mentioned that China would support Taiwan in implementing its climate policy under the One-China principle. This is the Chinese government’s first mention of Taiwan in a climate context. 

This demonstrates how China now perceives the links between climate and geopolitics. The national security objective is now part of every international policy, including global climate action. With the United States committed to preserving the status quo in Taiwan, this again draws the inevitable growing competition between the two superpowers, including in the climate arena. Beyond geopolitics, Xie Zenhua also subtly scattered many interesting comments on the "necessary competition that can be virtuous" in the climate field - many of which apply to the European Union. 

The competition narrative reached the critical issue of emissions embedded in trade and the highly political point of the future implementation of a carbon border adjustment mechanism by the EU (scheduled for adoption later this year). Xie Zhenhua made multiple comments throughout the conference against this mechanism, denouncing it as a unilateral approach which contradicts the Paris Agreement's common (but differentiated) responsibility principle. As an alternative, he repeatedly emphasized China's desire to cooperate with the EU, US, Japan, and South Korea to address differences in carbon prices and emissions in trade by developing regional carbon markets and, in the future, a global carbon market under Article 6 of the Paris Agreement. 

China's terms for cooperation

China's push for the development of regional carbon markets goes hand in hand with its opposition to the spread of carbon border adjustment mechanisms (CBAM). Still, this approach raises difficult political questions: not all countries mentioned by Xie Zhenhua have a functioning carbon market to link to or the political will to create one quickly (e.g., Japan or the US). As for linking to the EU Emissions Trading System, China has an intensity-based carbon market with a carbon price of $9/TCO2, while the EU has reached $100/TCO2 (2022) and has an aggressive emissions reduction cap driven by the Fit for 55 package. This would create a politically unacceptable rent in favor of Chinese companies over European ones. 

These discrepancies inevitably trigger a competition issue. Countries now understand that carbon revenues are essential for decarbonization, despite the high costs of reducing emissions. EU policymakers repeatedly stated this at COP27. However, a common carbon market would limit the revenues that European countries could invest in their own decarbonization. On the contrary, it would positively subsidize the decarbonization of developing countries while significantly reducing the domestic carbon revenues available to invest in their own decarbonization.

Countries now understand that carbon revenues are essential for decarbonization, despite the high costs of reducing emissions. 

This newly perceived competition jeopardizes the use of internationally transferred mitigation outcomes as designed by Article 6 of the Paris Agreement. Yet, this instrument remains critical both for future climate finance and for helping developing countries achieve carbon-free development. 

Can solution-oriented cooperation become more than just a narrative?

COP27 was supposed to be the first conference of the implementation period of the Paris Agreement. The conference delivered an important milestone for climate justice and vulnerable countries unfairly affected by climate change. However, the balance of power is, unfortunately, shifting away from mitigation commitments, and COP27 highlighted the inability of the multilateral arena to agree on commitments to reduce fossil fuel usage. This risks turning future COPs into chambers for reparations rather than places for solutions.

The paradox is that never more than at COP27 has the call for international cooperation been clearer and louder. Although it is almost dystopian, given the outcome of the Conference, cooperation is needed everywhere: industrial decarbonization, clean energy development, green finance, and green taxonomies. But cooperation cannot just be a mantra; it must mean something concrete if we are to achieve the goals of the Paris Agreement.

The failure of inclusive multilateral diplomacy highlights the urgent need for additional formats for rapid and concrete cooperation. Some of these, such as Just Energy Transition Partnerships (JETPs), are already becoming a reality. Such is the case with the recently announced G7-Indonesia Partnership, which combines climate finance with an increased ambition to phase out fossil fuels. Others will need to emerge. An ambitious climate club, for example, stronger and more realistic than the one currently proposed by the G7, is required in order to decarbonize industrial sectors and GHGs embedded in trade. Bold policy initiatives from ambitious countries are also needed, such as a fossil fuel non-proliferation treaty, which should be discussed urgently.



Copyright: JOSEPH EID / AFP

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