Crises and Geopolitics Weigh Heavily on Global Climate Talks – But Opportunity Awaits

Where’s the money?

The most contentious issue in climate negotiations is money. It is accepted that rich countries need to help the developing world financially to reduce emissions and deal with climate change. How and how much has been a big topic in climate negotiations for decades. But developing economies do not see money flowing their way at anywhere near the scale needed.

The finance pledges from the 2015 Paris Agreement have still not been properly met. At COP26 last year, developed countries promised to double their climate adaptation finance to developing economies by 2025, in response to the fact that the gaps are largest for this type of climate finance which developing economies need most. But developed economies have big public debts from the Covid-19 pandemic, and huge pressure at home to help people and businesses cope with energy bills. The German government alone is preparing to spend around €200 billion (US$200 billion) to buffer gas and electricity price rises. And interest rates are rising.

So, funding pledges now look much harder to fulfil. This could become a particularly sore point as this year’s COP is hosted in Africa, a continent highly vulnerable to climate change and with generally poor financial resources. It is likely there will be a strong focus on climate change adaptation and international equity.

In a basket yet harder is the so-called “loss and damage” debate. Developing countries argue that they should receive financial compensation for inevitable climate damages, given that it is mostly the rich that have caused climate change. The moral case is sound, but the politics in most rich countries is firmly stacked against sending money to poorer countries as compensation, as distinct from support for actions to reduce emissions or help deal with climate impacts. Loss and damage could become a bigger and bigger roadblock in climate negotiations.

Race to the top

Stepping back from controversies over money, the overarching topic for international climate policy is ambition. The Paris Agreement framework is geared to continually ratchet up the ambition in countries’ commitments to cut emissions. Last year’s COP decided that countries that had not yet updated their 2030 emissions targets should do so by now. But only a few have done so, and the overall strength of pledges remains insufficient.

The impact of Russia’s Ukraine war

Russia’s incursion in Ukraine in February sent shockwaves through global energy markets. The war forced a rethink on energy security in Europe especially, as it exposed a reliance on Russian energy. Russia is a major fossil fuel producer – the world’s largest exporter of gas, second largest of oil, and third largest of coal. Europe is especially reliant on Russian gas. Before the invasion, 40 percent of the gas used to heat European homes and drive industrial processes came from Russia.

In the short term, the war has seen European policymakers scrambling to find new sources of gas ahead of the upcoming winter – the first in 50 years without Russian energy supplies. European countries are compensating for lacking Russian gas by slowing the shift away from coal and nuclear power, by building infrastructure to import gas from elsewhere, accelerating renewable energy deployment and saving energy. Major economies like Germany have built new import terminals to switch from piped Russian gas to liquefied gas shipments from the US and the Middle East. France has also moved to keep existing nuclear power plants online, while other countries are burning more coal.

These short-term measures, however, are not long-term climate solutions. High energy prices in world markets encourage continued investment in new coal, oil and gas production, which runs counter to the climate objective. But they also promote investment in clean energy supply, investments to use energy more efficiently, and shifting from fossil fuels to electricity for example through heat pumps and electric cars. The sky-high prices of 2022 will not last.

It appears Russia’s President Vladimir Putin has done more to speed up the clean energy transition in Europe than anyone else, by making the transition to clean energy an issue of security. Europe’s big Russia lesson is that dependence on energy imports can be dangerous. Diversification of import sources helps but there is a fundamental sense that a safe energy supply needs domestic energy production. For any country not rich in fossil fuels this means renewable energy, or in some cases nuclear – climate-friendly options that also avoid the risk of future energy price shocks. In the words of Germany’s finance minister, “renewable energy is freedom energy”.

Russia’s invasion of Ukraine has highlighted the benefits of renewables for energy security. Countries moving away from coal, oil and gas will be less captive to the nations that produce them, and less exposed to international price hikes and disruptions to supply chains. Almost all major EU economies have raised their renewable energy targets in response to Putin’s invasion of Ukraine. In May, the European Union set out a plan – called REPowerEU – to cut Russian gas imports by two thirds this year and to end them altogether before the decade is out. The strategy will cut Europe’s overall gas use – not just Russian gas – by a third by 2030. It also sets more ambitious 2030 targets for renewable energy and energy savings; and requirements for new buildings to add rooftop solar installations.

Rising investment in clean energy

The new US Inflation Reduction Act gives huge subsidies for American clean energy industries. Europe supports its own emerging zero-carbon industries, as does China and other East Asian countries. The Paris-based International Energy Agency (IEA) in its flagship annual report released last week, finds that global clean energy investment is poised to rise quickly.

For countries strong in clean energy technology, there can be a positive feedback effect on climate policy. If domestic industries benefit from the shift to zero carbon energy, then that is an extra reason for setting stronger emissions targets, and encouraging other countries to do the same.

And those greater investments in advanced green technologies tend to bring prices down, also making large scale deployment more affordable in developing countries. This has been seen in the dramatic reductions in the cost of solar panels over the years, and it can be the case with other technologies from energy storage to electric cars.

The quest for industrial leadership in the shift to zero-emissions energy, industrial and transport systems holds real promise to drive global greenhouse gas emissions down. In this light, the COP27 climate negotiations offer a chance for countries to affirm their commitment to cut emissions and strengthen their targets. That will hardly make up for the troubled state of affairs on climate finance. But it could be helpful in keeping the global climate talks on a positive track in difficult times.

Credit: John Lang @johnlangab, Energy & Climate Intelligence Unit – Full graphic may be found at https://ca1-eci.edcdn.com/infographics/COP_27_Visual_Guide_06_Oct_22.pdf

Great power rivalry and geopolitical uncertainty

Geopolitical shifts may cause some countries to reposition on international climate action. New alliances could emerge, and ideas like the G7 “climate club” could blossom. Souring diplomatic relations between the world’s leading economies and biggest polluters could supercharge the race to net zero.

Indeed, COP27 is being held amid heightened major-power geopolitical, strategic and technological competition. Growing rivalry between the US and China will make global consensus harder to achieve, with Russia’s invasion of Ukraine complicating matters. It is not all bad news, however. Even as East-West competition hampers unified climate action, it is also accelerating the global shift to clean energy.

The US and China are key to tackling the global climate crisis. They are the world’s largest economies and biggest polluters. Together, they represent 38 percent of global greenhouse gas emissions. Any action they take to cut emissions will determine how fast the world continues to warm.

Collaboration between these two carbon titans has been key to recent global action on climate. A bilateral deal between the US and China paved the way for the breakthrough 2015 Paris Agreement, which has been signed by more than 190 countries and provides a framework for addressing the climate crisis.

Both the US and China reinforced global cooperation at last year’s COP26 talks. The US committed to cutting its emissions by 50 percent by 2030 and achieving net-zero emissions by 2050. China committed to a peak in carbon emissions by 2030, and to achieving carbon neutrality by 2060. They also issued a joint statement on Enhancing Climate Action in the 2020s, in which both nations committed to “accelerate the transition to a global net zero economy” and pledged to deliver new emissions targets in 2025.

Since COP26, diplomatic relations have soured amid growing talk of a new Cold War. Taiwan has become a flashpoint. When US House Speaker Nancy Pelosi visited Taiwan in August, Beijing responded by suspending a China-US Climate Working Group and cancelled planned bilateral meetings covering issues such as methane emissions, forestry and clean energy.

New climate legislation in the US signals Washington is serious about becoming a clean energy powerhouse. The Inflation Reduction Act – passed by Congress in September – allocates more than US$369 billion to the transition to renewable energy. This is the single largest climate spend in US history and eclipses the next-largest investment in clean energy – US$90 billion from the 2009 American Recovery and Reinvestment Act. Measures contained in the Inflation Reduction Act are expected to create 60 gigawatts of renewables capacity each year – double the amount the US deployed last year.

The US legislation is also intended to displace China as a key supplier of clean technology and components for solar, wind and batteries. Through a range of incentives, the Inflation Reduction Act aims to establish a clean technology manufacturing base in the US. Carmichael Roberts from Bill Gates-backed Breakthrough Energy Ventures estimated the legislation will spur the creation of up to 1,000 new clean tech companies.

Still, the US has a lot of catching up to do. China is the world’s largest emitter (though not on a per capita basis) – driven by its reliance on coal-fired power – but it is also the clear global leader in clean energy production and deployment. While the US installed 30 gigawatts of renewable energy last year, China deployed 180GW. In 2021, China alone accounted for 46 percent of the world’s construction of new renewable energy infrastructure. China also dominates global production of solar panels, batteries, wind-turbines and electric vehicles. More than 80 percent of solar panel production is concentrated in China, and this is expected to reach over 95 percent by 2025.

Geopolitical rivalry will make it harder to arrive at consensus during COP27 climate negotiations. But it is also clear that competition among major powers is accelerating – not slowing – the global shift to clean energy. The signal through the noise is that the end of the fossil fuel era is coming closer.

The direction of travel is now clear. The majority of countries – together representing more than 90 percent of the world economy – have committed to achieving net-zero emissions in the coming decades. Most of the developed world has pledged to at least halve emissions this decade. As climate and energy policy moves to the center of global geopolitics, the world’s biggest economies – the US, China and Europe – are working to seize the economic and political advantages of leading the race to net zero. Thankfully, it is likely that competition is here to stay.