Agribusiness News December 2022 – Management Matters: COP27 Update

Unlike in 2021, when Glasgow hosted the global climate change conference, COP26, this year’s conference in Egypt seems to have flown slightly under the radar.  Coming out of COP 26 last year, climate finance was one of the main unresolved areas which looked likely to be a main focus of this year’s summit. However, the energy crisis triggered by Russia’s war on Ukraine has since shifted priorities on the agenda, and demanded a much more nuanced discussion around reducing global emissions. In particular, issues of global food and energy security now have greater importance, reflecting economic instability and recession, and there is arguably greater resignation to the role of fossil fuels in the short-medium term for transition to low-carbon energy system in the long term. This year saw greater representation of fossil fuel delegates, with mixed views, some feeling that it was necessary to find solutions to current, complex energy problems, and others feeling it allowed greater influence of vested interests of an unsustainable and carbon-intensive energy system.

Climate finance was still a large theme for COP27, (and was in the lead up to the event, especially given various extreme weather events in recent months around the world), but the focus was on adaptation and remuneration, rather than on mitigation (as per previous years). This perhaps reflects the interests of the host country and of Africa more broadly, to which much current available climate finance is in the form of (more) loans (a continent that is burdened with decades of existing development loans from western nations), along with an array of conditions on finance (adding further burden). The adaptation and remuneration (or ‘Loss & Damage’) focus also crucially reflects the increased struggles of developing countries to adopt green transition in the current economic and energy crisis, and their willingness but limitations to advance low-carbon trajectories.

In summary, Loss & Damage would entail developed/’Western’ countries paying developing countries for historic carbon emissions (essentially a sort of climate polluter pays compensation), which would allow developing countries to invest in their own low-carbon transition and green infrastructure. Crucially, COP27 outlined that a global carbon windfall tax on fossil fuel companies would be a main source of revenue for a Loss & Damage fund. Arguably, Loss & Damage also provides ongoing greater financial incentive for developed countries not to continue emitting, assuming a long-term picture is considered.

The scale of such finance however is hard to grasp. Recent analysis suggests that around 4 trillion USD would be required every year to finance climate mitigation (emissions reduction) and adaptation (resilience to climate change), and this excludes Loss & Damage. To put this into context, that’s around 10% of all money circulated globally each year. What is clear from this is that private sector investment is absolutely essential to meet climate goals, and public legislation is not sufficient. Currently there is no obligation for the private sector to set or meet green targets, leaving two options for governments – one, to regulate to hold the private sector to account, or two, to adjust the incentives for green investment and adaptation. While we are seeing a huge increase in interest and availability of green finance, it could be argued that the majority is not yet fundamentally adjusting incentives to catalyse sustainable & green financial decisions.

Linking back to Scottish agriculture, there are implications of the above in relation to scope for and assurance required for offsetting emissions, where agriculture sits as both a contributor to emissions (requiring offsetting) and also a potential source of offsetting. COP27 also highlights the importance of climate change becoming a critical part of food sourcing and security in the future, the need for adaptation of agriculture systems and increased efficiency, and the role of agriculture in fossil fuel transition.

anna.sellars@sac.co.uk