Scores of high-profile government officials, corporate interests and protestors converage by Egypt’s Red Sea for the next two weeks, charged with quickening the progress in curbing costly and deadly global warming.
And they meet, under the banner of another United Nations Conference of Parties, this one COP27, faced with the pressing crises of food and energy shortages and a globe-impacting war in Ukraine.
Efforts at subsequent COP summits remain focused on honoring the pivotal gathering, in 2015 in Paris, when countries voluntarily agreed that warming must be held to 1.5 degrees Celsius compared to pre-industrial times.
How best, and how quickly, to hit that target — and adapting to the higher-intensity storms and rising oceans that have already gripped the globe — remains up for debate.
In an opening speech, Hoesung Lee, the chair of the U.N.’s primary environmental arm, the Intergovernmental Panel on Climate Change (IPCC), said countries have “a once in a generation opportunity to save our planet and our livelihoods.”
What takes place at COP27 and key figures to watch
COP27 is the next meeting of the group of 198 countries that have signed the U.N. Framework Convention on Climate Change. The World Economic Forum is watching for milestones within five categories: nature, food, water, industry decarbonization and climate adaptation.
More than 40,000 participants have been registered for this year’s talks, a number up from other recent COP summits and likely reflecting the tightening sense of urgency as major weather events around the world impact many people and cost billions of dollars in economic loss and replacement.
Focus of the talks will be on how wealthy nations can financially resolve the added burden they put on developing nations when it comes to resource use, deforestation and the health and economic costs of pollution. Vendors and entrepreneurs also exhibit technology and other solutions for converting fossil fuel energy CL00, -0.01% to alternatives such as solar, wind, nuclear, hydrogen and more ICLN, +0.74%. Or, how industry might capture, and in some cases resuse their carbon emissions for energy or other products.
Organizers say about 110 world leaders will attend, many speaking at a high-level event on Nov. 7-8.
But the leaders gather in a year that has been marked by war and economic upheaval and major elections that have brought large swings in political leanings.
“The Russian invasion of Ukraine, and [trade and security] tensions between the U.S. and China may hamper collaboration at COP27,” said Ruth Townend, research fellow in the Climate Risk and Diplomacy, Environment and Society Programme at U.K.-based Chatham House, in a commentary.
“Success will be strongly contingent on goodwill between all parties, which is currently under increasing strain,” she said.
U.S. President Joe Biden was expected to arrive later in the week. Biden faces global leaders the same week as the U.S. midterm elections, a major test of his party’s razor-thin advantage in Congress and to the landmark climate-change spending bill he just signed a few months ago.
“COP27 is ‘greenwashing’ and will ‘encourage gradual progress’ in curbing global warming.”
The U.S., as the globe’s largest economy, is always expected to advance developed nation efforts. Eyes will be on officials to make significant progress on climate finance, including the delivery of the promised $100 billion per year to assist developing countries.
China’s President Xi Jinping and Prime Minister Narendra Modi of India were not planning to come in person, instead sending delegations and stirring some doubt on whether the talks in Egypt could result in any major deals to cut emissions without the top leaders of two of the world’s biggest polluters. The U.S. rounds out the top three nations that emit the most greenhouse gases.
It was a pact by China and India, and their subsequent holdout, at the COP26 in Glasgow last year that softened the summit’s communique on quickly eliminating heavy-polluter coal as an energy source.
Notably absent among the protestors in Egypt, according to the source herself, is Greta Thunberg. The young Swedish activist, who has addressed the U.N. previously and single-handedly launched one of the best know climate activism campaigns, Fridays for Future, called the event “greenwashing” and said it would “encourage gradual progress.”
Why does COP27 matter?
According to the IPCC, in all scenarios in line with 1.5°C or 2°C warming limits, global emissions must fall between 2020 and 2025.
In reality, emissions are still rising, with atmospheric levels of the three main greenhouse gases (carbon dioxide, methane and nitrous oxide) all reaching new record highs in 2021.
Most major industrial nations, the U.S. among them, have set a goal to halve greenhouse gas emisisons across all sectors of the economy by 50% as soon as 2030. That’s a key marker on the way to net-zero emissions by 2050.
But the U.N. says evidence to date shows countries aren’t moving fast enough to hit those targets.
‘Loss and damage’: Key policy issue right out of the gate
Negotiators agreed after two hurried days of preliminary talks to formally discuss at COP27 the question of vulnerable nations receiving money for the loss and damage they’ve suffered from climate change.
“Loss and damage” carries undertones of liability and climate justice. The countries that have profited the most and enjoyed the most ease from burning fossil fuels are not the countries who are suffering the worst from climate change impacts. Thus enters the loaded term: reparations.
“ ‘The fact that [loss and damage] has been adopted as an agenda item demonstrates progress and parties taking a mature and constructive attitude towards this.’”
The issue has colored talks for years, with rich nations including the U.S. pushing back against the idea of climate reparations.
“The fight is about, is that liability valid? How can we quantify it? Who owes what to who?” says Lisa Dale, a lecturer at the Columbia University Climate School.
The U.N. secretary-general had long urged that meaningful progress must be made to address loss and damage. The push for loss and damage payments differs from climate finance directed toward mitigation and adaptation. “Loss and damage” is considered by most as a third pillar whenever finance is discussed.
“The fact that it has been adopted as an agenda item demonstrates progress and parties taking a mature and constructive attitude towards this,” said the U.N.’s top climate official, Simon Stiell, told the Associated Press.
“This is a difficult subject area. It’s been floating for thirty plus years,” he said. “I believe it bodes well.”
Biggest themes for financial markets
Concrete, steel SLX, +7.94%, aluminum, and chemicals — as well as the ships, planes, and trucks that move them — are currently responsible for 30% of greenhouse gas emissions, and that is projected to expand to meet world goods and services demand.
The key to transition these global sectors is to drive down the prices of clean methods and technologies, compared to the carbon intensive conventional techniques. That means stocks, indexes and exchange-traded funds in these areas, and broader industrial ETFs XLI, +1.60% and materials ETFs IYM, +4.60% could see impactful news from the conference.
In addition, commodity markets DBC, +3.38% will assess not only any hot-button comments from officials on the current food and energy crisis, but the likelihood for shifts in energy-production dominance among the majors and increased and more efficient crop production.
The global food, land and ocean-use systems represents over 12% of global GDP today and over 40% of all jobs. The food crisis, exacerbated by the war in Ukraine, stretched supply chains and energy prices means that agri-commodity prices have skyrocketed. This is particularly affecting: As of 2021, over 820 million people are suffering from hunger, the World Economic Forum (WEF) said in a preview.
Similarly, water-related events such as floods and droughts are becoming frequent and more acute due to climate change. Several water-linked ETFs AQWA, +2.32% have cropped up in recent year. The U.N.’s IPCC reports that 3 billion people could face physical water scarcity with 2C of global temperature rise. In addition, water security is a key priority of the Egyptian COP presidency.
Egypt: An interesting backdrop for climate talks
Egypt’s role as COP27 host sparks plenty of chatter around its unique position, stuck in the middle of a major economic downturn and the subject of global charges of human rights violations of aggrieved citizens.
President Abdel Fattah al-Sisi has sought to bring Egypt back to the world stage, promising a “new economy” era for the country despite continuing headwinds, as Reuters reports. For instance, its currency has shed about 35% against the U.S. dollar since March.
Plus, as an African nation, Egypt represents the resource-rich continent perhaps most vulnurable in the near future to how “loss and damage” financing shakes out. But its cultural and political interests also align with Middle East economic giants. Egypt will have to tread lightly considering the globe’s traditional reliance on OPEC dictating energy markets balanced against the region’s adoption of solar and other transition energy.
“The rationale to move away from insecure fossil fuels is stronger than it’s ever been before. So that’s one position. But then, underneath all of that, there’ll be a whole bunch of countries who will argue for letting them develop fossil fuels. And Egypt may be among those countries, because obviously it’s a country that’s doing that,” said Tan Copsey, senior director, projects and partnerships, with Climate Nexus.
At the talks, “you’ll see the arguments move in both directions, and then you’ll see what’s actually happening in the negotiations… and you’re not necessarily going to see major new outcomes this year,” he said.
The hosting duties are mostly the responsibility of foreign policy-focused officials, which may allow for some separation from domestic issues. And Egypt does see itself as the voice of the underrepresented in climate talks.
“We aim to restore the ‘grand bargain’ … whereby developing countries agreed to increase their efforts to tackle a crisis for which they are far less responsible, in return for appropriate financial support and other means of implementation,” COP27 president-designate, Egyptian Foreign Minister Sameh Shoukry, wrote in a letter issued at the summit.