The 28th edition of the Conference of the Parties (COP) is underway in Dubai. COPs result in a torrent of self-congratulatory words but often fail to unleash concrete actions that accelerate climate investments in the Global South, which is home to over 80% of the world's population, including those most vulnerable to climate change. What can we expect from Dubai's COP28?
Three major issues are at the centre stage of COP28 deliberations: the conclusion of the Global Stock Take (GST), the operationalisation of the Loss & Damage Fund, and the bolstering of carbon markets.
Global Stocktake (GST)
GST was a key part of the Paris Agreement machinery and is at the heart of a five-year "ambition cycle", which consists of reviewing country pledges for climate action, a global assessment of progress, and renewed bottom-up Nationally Determined Contributions (NDCs). By assessing aggregate progress in mitigation, adaptation, and support mechanisms of technology transfer and finance, the GST is meant to drive the ratcheting up of country pledges.
Developing and least-developed countries of the Global South argue that the GST must look at past efforts and bring accountability for the failure of many developed countries in the Global North to do what they argue is consistent with equity. Industrialised countries argue that emerging economies will account for the bulk of future carbon emissions, and the GST should focus on limiting emissions going forward. The outcome of this negotiation in COP28 will shape whether the disproportionate responsibility of developed countries for emissions is adequately reflected in future benchmarks for climate investments in the Global South.
Loss & Damage Fund
Financing of loss and damage normally refers to the destructive impacts of climate change that cannot be or have not been avoided by what is known as "mitigation" or "adaptation". COP28 is an opportunity to set a unified fund with consistent targets for enhancing the resilience and adaptive capacity of the Global South. As with other issues, the question of "who pays" is also likely to be prominent in COP28. Since the last COP, a fragile consensus was won on several thorny issues, including who will pay into the fund -- developed countries are "urged" and developing countries are "encouraged"; and who will receive -- the vaguely worded "particularly vulnerable" countries. Perhaps most contentious, the World Bank was agreed as an interim host of the fund, but under strict governance guidelines to provide a greater say for recipient countries in the Global South. Whether this consensus holds or unravels will be a key issue for COP28.
Over a decade ago, developed countries had pledged to provide an arbitrary US$100 billion a year by 2020. In addition to the deadline being unmet, the amount was too little to meet the climate investment needs of the Global South.
Coming up with a number is only a starting point; the contentious issues remain around how it will be mobilised. How important are public versus private funds? Will private capital flow in response to efforts to "de-risk" investment opportunities?
Carbon trading
COP28 is poised to bolster carbon trading as stipulated by article 6 of the Paris Agreement, which can lower the cost of climate actions by mobilising private capital. Climate negotiators representing more than 190 nations in Dubai have already started discussing the standards for credits that allow their holders to compensate for carbon pollution at home by investing in projects elsewhere to cut emissions or remove carbon dioxide from the atmosphere.
The UN-backed programme aims to ensure high-quality carbon credits are generated within an internationally agreed framework. The mechanism enables a buyer country to financially support projects in host countries. In exchange, the host country agrees to forgo the emission reductions from these projects in its own NDC, transferring this right to the buyer country which can subtract it from its NDC instead. Host countries, particularly those in the Global South, stand to gain substantially from internationally transferrable mitigation outcomes. Deals could facilitate investments into otherwise unobtainable low-carbon projects and generate co-benefits such as job creation, technology transfer, and capacity building.
For buyer countries, these internationally traded carbon transactions provide a means to fulfil their NDCs by financing projects in regions where emissions reductions or removals can be achieved more cost-effectively.
Despite the promise of carbon markets several uncertainties and challenges remain. Very few supplier countries in the Global North have developed national legislation and frameworks for the issuance and authorisation of carbon trading, and this will take time. This will include defining what they will authorise, who will authorise trades, and establishing processes to comply with reporting requirements.
Further, host countries in the Global South must balance their investment opportunities with the likelihood of meeting their own NDC to avoid overselling. If a host country transfers too many mitigation outcomes, it may be left with an insufficient amount of capacity to reach its own NDC.
Nevertheless, the Global South believes that COP28 is a beacon of hope for them to deliver on pressing issues unresolved in COP27. While not a homogeneous group, the Global South broadly comprises a wide range of developing countries with differing levels of climate risks and development levels. Yet over time, the term has become synonymous with the Group of 77, a coalition of developing countries and China bloc has struggled to be heard at some of the past COPs. Much of them lack the finance and technology needed to achieve net-zero emissions.
Sultan Al Jaber promised that COP28 will deliver a plan of action that is both ambitious and practical, focused on results that address the needs of the Global South. With the Global Stocktake sending a message that the world is not on track to meet the climate change challenge, the UAE as the host of COP28 will have its task cut out.
Venkatachalam Anbumozhi is Director of Research Strategy and Innovation, ERIA.