Forging a Resilient Future: Key Takeaways from COP 28
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The year 2023 concluded with the 28th session of the Conference of the Parties (“COP”) on 13 December 2023 (“COP 28”). Guided under the United Arab Emirates (“UAE”) presidency, COP 28 witnessed substantial progress since the Paris Agreement, ranging from the conclusion of the first global stocktake, operationalization of loss and damage fund, and declaration of climate finance-related pledges from several countries. Despite the overall positive trajectory, COP 28 encountered hurdles in the progression of markets under Articles 6.2 and 6.4 of the Paris Agreement. These challenges underscored specific areas where additional negotiations and consensus-building among participating parties were deemed essential. While the conference celebrated notable milestones, the complexities associated with advancing certain aspects of the international climate agenda brought to light the intricate nature of reaching global agreements on critical issues.
In light of these developments, this ARMA Update will provide key outcomes of COP 28.
Global Stocktake
Global Stocktake (“GST”) becomes the highlight of COP 28 as it marks the first stocktake after the adoption of the Paris Agreement in 2015. The synthesis and technical reports of GST highlight the current status of worldwide climate initiatives and emphasize the immediate need to enhance climate actions. The GST serves as a crucial tool for countries to assess their progress in climate actions and determine how they can enhance these efforts. It enables a comprehensive evaluation of the ongoing global initiatives, aligning with the concept of a GST, to inform and guide future climate action strategies.The synthesis and technical report of the GST was published in September 2023, comprising of 17 key findings. In brief, the report found that the current climate actions are not on track to meet the long-term goals of the Paris Agreement. To stay on the course to limit global warming below 2°C, the report underscores the necessity to close the current emissions gap that is estimated to be 20.3–23.9 Gt CO2 eq. Regarding adaptation efforts, the report notes a rise in losses and damage to both human and natural systems caused by the impacts of climate change. However, the response of the Parties to these conditions remains fragmented, incremental, sector-specific, and unequally distributed across regions.
Regarding climate finance, the report acknowledges an uptick in funding from developed countries to developing ones, rising from USD 30 billion in 2015 to an annual average of USD 40.1 billion in 2019-2020. Nevertheless, it also underscores the failure of developed countries to fulfill their earlier commitment to collectively mobilize USD 100 billion, a target not met in 2020. Consequently, the report advocates the necessity to escalate climate finance from both public and private sources.
Pledge of Climate Financing
During the COP 28 conference, Parties engaged in pivotal discussions regarding the establishment of a new collective quantified goal on climate finance, aiming to expand upon the initial goal of mobilizing USD 100 billion annually by 2020 set by developed countries. During the conference, governments and the private sector unveiled new commitments to funding, recognizing that the original target has not been completely met. They emphasized the vital importance of channeling capital into sustainable and eco-friendly initiatives. The significance of supporting developing countries was underscored, with estimates indicating a requirement of at least USD 2 trillion annually for climate transition.But the action wasn't confined to formal negotiations. Beyond the conference halls, a vibrant ecosystem of initiatives flourished. Thirteen nations, united under the UAE Leaders' Declaration, outlined a comprehensive climate finance framework. This ambitious roadmap encompasses four key pillars: ensuring availability, enhancing affordability, fostering collective action, and efficiently delivering financial resources.
A snapshot of financial commitments revealed at COP 28 includes:
- USD 188 million was allocated to the Adaptation Fund.
- USD 726 million was committed to the Loss & Damage Fund.
- The establishment of the USD 30 billion ALTÉRRA fund, focused on stimulating private investment in the Global South.
- An additional USD 3.5 billion was directed towards the Green Climate Fund.
- USD 100 million was dedicated to the Methane Trust Fund.
- USD 300 million was set aside for a Climate Disaster Fund, aiming to address the immediate impacts of climate catastrophes.
These financial pledges underscore a collective recognition of the urgency to facilitate the global transition to sustainable practices and the significant financial investment required to achieve these objectives.
Carbon Markets
Article 6 of the Paris Agreement sets out the principles for the carbon market. There are two market mechanisms, namely mechanisms under Article 6.2 and Article 6.4 of the Paris Agreement. Under Article 6.2, it established a decentralized system, where countries are allowed to exchange emission reductions and removals under bilateral or multilateral agreements, denoted as the Internationally Transferred Mitigation Outcomes (“**ITMO**”). On the other hand, Article 6.4 establishes a centralized system where the carbon market is under the supervision of the supervisory body established under the framework of the Paris Agreement. The key distinction between Article 6.2 and Article 6.4 lies in their governance structures. Under Article 6.2, ITMOs result from bilateral or multilateral agreements among participating countries. In contrast, Article 6.4 establishes a centralized system where a designated supervisory body, oversees and maintains a registry of emissions reductions.At COP 28, the Parties did not succeed in approving texts to advance markets under Articles 6.2 and 6.4 of the Paris Agreement. In relation to Article 6.2, the Parties faced difficulties in reaching an agreement on the processes for authorization of ITMOs, international registry, and reporting procedures of transactions. Concerning Article 6.4, the Parties failed to adopt the carbon crediting methodologies and greenhouse gas removal guidance.
The failure of the Parties to adopt decisions on Article 6.2 and Article 6.4 would necessarily impede the operationalization of carbon markets, in particular the Article 6.4 mechanism. Nonetheless, these conditions may not impede the progress of the implementation of Article 6.2, since the main guidelines have been agreed at COP 26. Furthermore, there are numerous memoranda of understandings or partnership agreements between countries that reflect their commitments to engage in approaches delineated under Article 6.2 (e.g., Peru and Switzerland, Singapore and Ghana).
Loss & Damage Fund
During the summit, a landmark agreement was reached to put into action the Loss and Damage Fund, a significant step forward in supporting developing nations that are disproportionately affected by climate change. The establishment of this fund is seen as a critical move to aid those who are facing the brunt of climate-induced adversities.The decision to have the World Bank host and operationalize the Loss and Damage Fund for a provisional period of four years was one of the agreements from COP 28. It was emphasized that financial contributions to the fund are voluntary, with no obligatory commitments imposed, even on the developed nations. The governance framework of the fund ensures a transparent, equitable representation of all parties involved.
Key points of the fund's governing instrument include:
- The fund's remit covers both economic and non-economic losses due to climate change effects.
- A balanced representation from all parties on the board ensures transparent governance.
- The prioritization of assistance to developing nations most vulnerable to climate change.
- The fund encourages the strengthening of domestic measures to handle loss and damage through country-driven strategies.
- The financing of the fund is envisaged to come from diverse sources, including public and private grants and concessional loans.
- Assistance from the fund will primarily be in the form of grants and favorable loans.
By the conclusion of the conference, the fund had successfully attracted over USD 700 million in pledges, with significant contributions from several countries, such as the UAE, United Kingdom, Japan, United States, Ireland, Denmark, Norway, Canada, and Slovenia.
Energy Transition
The global community took a significant step forward in addressing climate change within the oil and gas sectors by introducing the Oil and Gas Decarbonization Charter (“OGDC”). This initiative represents a cooperative effort by over 50 companies, accounting for more than 40% of global oil production, with National Oil Companies (“NOC”) forming the majority of the commitment—marking the largest collective NOC commitment to a decarbonization effort to date.The OGDC aims to enhance climate action across the oil and gas industries, with signatories pledging to achieve net-zero operations by 2050, end routine flaring by 2030, and aim for near-zero upstream methane emissions. The signatories have agreed to several key actions, including investing in future energy systems like renewables and negative emissions technologies as well as improving transparency through better monitoring and reporting of greenhouse gas emissions.
The charter has garnered significant backing, with numerous NOCs, such as Saudi Aramco, ADNOC, Bapco Energies, and International Oil Companies, such as British Petroleum, ExxonMobil, Shell, TotalEnergies, and Trafigura endorsing the declaration, reflecting a collective acknowledgment of the oil and gas industry's role in climate action and the urgent need for transformation in energy production and consumption practices.
Another notable declaration was also made in renewable and energy efficiency sectors. More than 100 countries have announced their commitments under the Global Renewable and Energy Efficiency Pledge to triple their renewable energy capacity by 2030. Similarly, 39 countries have endorsed the UAE Hydrogen Declaration of Intent, seeking coordinated work toward mutual recognition of certification schemes for renewable, low-carbon hydrogen and hydrogen derivatives.
ARMA Law Commentary
COP 28 brought exciting advances in the global climate movement, but also revealed the daunting tasks still ahead for nations like Indonesia. The Global Stocktake report served as a powerful reminder: it's time to amplify the nation’s climate action. For Indonesia, this translates to solidifying its legal framework, ensuring clear and effective implementation of its climate commitments.
While Indonesia already boasts regulations in carbon pricing, energy transition, and environmental protection, the net remains wide. Carbon pricing, for instance, currently focuses on forestry and energy, leaving significant areas like agriculture, waste, and industrial processes untouched. Broadening this reach through thoughtful new regulations will be crucial for propelling Indonesia's Nationally Determined Contribution (NDC) towards its targets.
COP 28's stalled discussions on Articles 6.2 and 6.4 of the Paris Agreement cast a shadow on the future of the international carbon market, potentially dampening private sector involvement. While the UN-centralized market under Article 6.4 might encounter delays, the Article 6.2 mechanism remains active. Thankfully, Indonesia's carbon market is already progressing steadily, with implementation regulations and a national carbon exchange system in place.
In summary, Indonesia's response to the outcomes of COP 28 involves a multifaceted strategy that combines regulatory enhancements, active participation in international climate mechanisms, and a holistic approach that aligns climate action with broader national development goals. These concerted efforts underscore Indonesia's commitment to making substantial contributions to the global fight against climate change.