What to expect from COP27: the horns of the energy trilemma

What’s the game plan?

After the glitz and glamour of Glasgow, COP27 is likely to be a relatively subdued affair. Despite the exotic location (Sharm El-Sheikh in Egypt), the atmosphere is expected to be workmanlike, with a focus on pragmatism to allow a slowing down of the most ambitious short-term decarbonisation goals. At this, known as the ‘African COP’, we expect negotiations between developing and developed countries on finance for adaptation to climate change to be a key theme.

Expect the pace of NDC pledges to slow temporarily

Announcements around nationally determined contributions to climate targets (NDCs) have slowed recently, a trend we expect to continue. As part of the Glasgow Climate Pact signed at COP26, all 193 parties agreed to revisit and strengthen their targets by the end of 2022, yet at the end of October only 26 had done so. Given energy security and affordability concerns, some 2030 goals are likely to be postponed. However, a more ambitious pace should kick in once energy security concerns are addressed, putting countries back on track for 2040 and 2050 goals.

A recommitment to the Methane Pledge is likely

Amid growing public scrutiny, sectoral initiatives and commitments by companies in major methane-emitting sectors have increased since COP26. That could provide an opportunity to strengthen the Methane Pledge at COP27, thereby delivering more decarbonisation while avoiding awkward discussions on sensitive issues. However, major emitters including China, Russia and India are unlikely to join the 125 economies who have already signed the pledge.

Finalising Article 6 should boost carbon markets

Resolution of Article 6 of the Paris Agreement, which allows countries to voluntarily cooperate to achieve emission reduction targets, was a major triumph at COP26. Many countries are already actively exploring bilateral cooperation on carbon credits, so tightening Article 6 and committing to the setting up of an official body to unify crediting could be another easy win which steers clear of controversy.

Countries will buy time on coal

With energy security issues taking priority, few countries are in a position to uphold their commitments on the phasing down of coal. In some Organisation for Economic Cooperation and Development (OECD) countries such as Germany, coal-fired power plants are reopening, while globally, fossil fuel subsidies doubled in 2021 – mostly to protect consumers from high energy prices. However, we expect the current reversal to be excused by exceptional circumstances, with advances in carbon capture, utilisation and storage (CCUS) and hydrogen making up for it in the long term.

Adaptation financing will be the hot-button topic

With extreme temperatures, drought, floods, storms and wildfires becoming more frequent, we expect developing countries to demand stronger commitments on adaptation financing. So far, developed economies have failed to deliver on the agreed USD 100 billion annual climate financing goal. Yet according to some studies, the cost of adaptation alone will be closer to USD 400 billion a year. And the Intergovernmental Panel on Climate Change (IPCC) puts the cost of mitigation at three-to-six times higher than the capital flows so far committed.

This is likely to be the major stumbling block at COP27, with other issues kept at stalemate until a solution (or at least a partial one) is found. However, ultimately, adaptation pledges are likely to be increased with respect to COP26.