Main Takeaways From COP27 and Their Potential Impact on the UK Economy

What is COP27?

COP27 is the 27th ‘conference of the parties’ to the United Nations Framework Convention on Climate Change. Having been ratified by 198 countries, the signatories work towards the convention’s objective to stabilise greenhouse gas concentrations at a level that would prevent dangerous levels of climate change.

The conference is structured around thematic days, covering:

• Finance
• Science
• Youth and future generations
• Decarbonisation
• Adaptation and agriculture
• Gender
• Water
• Action for climate empowerment and civil society
• Energy
• Biodiversity
• Solutions

COP27 largely built on Glasgow’s COP26 initiatives.

Key highlights and outcomes

1. Loss and Damage Fund: voice for the vulnerable

Early on Sunday 20 November 2022, COP27 agreed a historic ‘loss and damage’ fund to provide financial assistance to countries stricken by climate disaster. The fund is intended to help deal with the immediate impacts of climate change, such as money needed to rescue and rebuild physical and social infrastructure after extreme weather.

The agreement comes after three decades of talks and highlights the vast inequities of the climate crisis, with wealthier industrialised nations like the US and China playing a large role in climate change, but the impact disproportionately affects those who have contributed little to the climate crisis. Just look at the current floods in Pakistan.

However, there is still a lot of work to be done – there is no agreement yet on how finance should be provided, or where it should come from, though there is a commitment to set up a financial support structure by the next COP in 2023.

2. Emissions and 1.5°C: enforceability issues

Keeping the 1.5°C target alive was a key aspect of COP26 – with countries agreeing to submit more ambitious nationally determined contribution (NDCs) climate change pledges, including cuts to emissions to align with the UN's 2015 Paris Agreement.

The Paris Agreement aims to limit global warming to well below 2°C above pre-industrial levels, and ideally to 1.5°C – as going above this could result in irreversible climate catastrophe.

While COP27 reiterates the urgency to keep 1.5°C in reach and urges developed countries to “attain net-negative carbon emissions by 2030" and for developing countries to enhance mitigation based on the provision of support by developed countries, parties were unable to reach agreement on inclusion of stronger language to limit global warming to the 1.5°C target and enforceability remains a key issue.

Prior to COP27, only 24 countries updated their NDCs and a few more did so during the summit, but it is still not enough to meet the 1.5°C target.

The UN's latest assessment of NDCs estimates that if all targets are met, global emissions will still increase by 10.6% between 2010 and 2030, yet the UN's climate science body, the IPCC, has said they need to fall by 45% by 2030 to keep global temperature rise below 1.5°C.

3. Fossil fuels: Energy crisis threatens progress

Like Glasgow, COP27 has stressed the urgent need for a quick reduction in GHG emissions through an increase in low-emission and renewable energy. It also aims for a "phase down" of unabated coal power – which is responsible for 40% of annual global Co2 emissions – and a "phase out" of inefficient fossil fuel subsidies. However, the final COP27 agreement has failed to call for the winding down of all fossil fuel use.

Russia's invasion of Ukraine in early 2022 has brought substantial disruption to energy markets and efforts to transition away from fossil fuels. Following the imposition of sanctions on Russian fuels – the world’s largest gas exporter and one of the largest oil producers – countries found themselves turning to more polluting sources of energy, such as LNG, to fill the supply glut.

For example, India (the second-largest consumer of coal) announced in April that it was increasing production of coal power and reopening 100 plants, while leaders in the UK and Germany have both extended the lifeline of coal-fired plants and asked energy companies to delay their closure. Meanwhile, subsidies are increasing, partly because of higher energy prices arising from Russia's war in Ukraine.

However, this may be temporary setback and countries can take this opportunity to make themselves more energy secure by investing in renewables, with the final text of COP27 containing a provision to boost low-emission energy from wind and solar farms, nuclear reactors and coal-fired power stations fitted with carbon capture and storage.

4. Financial Institutions reforms

COP27 has called on shareholders of multi-national development banks (MDBs) such as the World Bank and other financial institutions to reform practices and their priorities to ensure they are “fit for purpose […in] addressing the global climate change emergency”.

Developed and developing countries have called for urgent changes that have failed to provide the funding needed to help poor countries cut their greenhouse gas emissions and adapt to the impacts of the climate crisis.  

Vulnerable countries used the conference to highlight how the money that is lent by MDBs to help countries recover from devastating impacts, such as hurricanes, comes on vastly inequitable terms for developing nations.

Reform of the kind widely discussed at COP27 could involve a recapitalisation of the development banks to allow them to provide far more assistance to the developing world.

5. Adaptation financing: missed targets

Wealthy nations had promised to deliver a total of US$100 billion (£84 billion) per annum to developing nations for climate action by the end of 2020 – a pledge that has been missed twice.

Major economies such as the UK, Japan and the EU have increased their funding for climate action over the last year, while President Joe Biden promised to increase the US contribution to US$11.4 billion (£9.7 billion) a year by 2024.

However, the US Congress only approved US$1 billion (£8.5 billion) earlier in 2022. The COP27 the agreement “expresses serious concern” that it has not yet been met and “urges developed country Parties to meet the goal”.

What does COP27 mean for the UK?

Following the Prime Minister’s visit to COP27 on 7 November 2022, Rishi Sunak announced a series of initiatives for the UK to meet its commitment to reduce emissions by at least 68% by 2030 and continue to fulfil its obligations under COP27. These include:

• Committing £30 billion to support the green industrial revolution and leveraging up to £100 billion of private investment to support almost half a million high-wage, high-skilled green jobs.
• Committing £90 million to the Congo basin as part of £1.5 billion the UK is investing in protecting the world’s forests.
• Delivering on its promises on climate finance, including a commitment of £11.6 billion.
• Tripling funding on adaptation to reach £1.5 billion a year in 2025.
• Making further commitments to support clean power in developing countries, including a further £65 million investment in “commercialising innovative clean technologies” and delivering green investment projects in Kenya.