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How COP28 advanced climate finance outcomes and what's next

How COP28 advanced climate finance outcomes and what's next

COP28 was in important moment for climate finance. It demonstrated the growing recognition and commitment to mobilise funds for climate action. And it also highlighted the persistent gaps and challenges that need to be addressed. We discuss the key climate finance related outcomes.

How COP28 advanced climate finance outcomes and what's next

COP28 course correction through a climate finance lens

COP28 was a critical moment in global climate action. The first ever Global Stocktake – the report card on our progress to the 1.5-degree goal – delivered grim, albeit not surprising, news.

The global climate summit was therefore largely about setting us on a path of course correction.

Did it deliver? The answer is highly nuanced.

We first must recognise that Conference of the Parties (COP) is a complex democratic process that relies on 100% agreement between all parties present.

It involves diverse perspectives and interests. Each negotiator brings a different point of view shaped within their unique cultural, economic and geographic context.  

As such, even significant progress captured in the outcome documents is often disguised in subtle language changes. While there is no doubt that we must increase our ambition and do more, it is also important to recognise progress when it has been made.

In this article, we zoom in on one of the key themes of COP28: climate finance.

We explore the main achievements, challenges and opportunities in this area, including:

  • Key climate finance outcomes captured in the Global Stocktake decision text
  • Highlights in the mobilisation of private investment
  • Status and next steps in the Article 6 discussions
  • Progress on fossil fuel phase-out and other notable highlights

The climate finance challenge

Climate finance was one of the key cross-cutting themes at COP28. The change required simply cannot happen without increasing the level of investment in climate mitigation and adaptation strategies.

One of the key problems we face is the large investment gap between developing and developed countries. This gap needs to be closed to support greater technological development and capacity building across all parts of the planet – not just the large economies.

To achieve this, we need almost US$6 trillion per annum to flow into developing countries by 2030. Most recent estimates by the Climate Policy Initiative, show that our investment is at around US$1 trillion per annum – or a mere 1% of the global GDP.

We also need to address the imbalance of funds directed toward mitigation and adaptation solutions. Out of the US$1 trillion of current annual investment, only US$63 billion (or 6.3%) is directed into adaptation measures.

The original target agreed under the Paris Agreement was US$100 billion towards adaptation by 2020. This has since been raised to $212 billion by 2030.

Key climate finance outcomes captured in Global Stocktake decision text

COP28 has committed over US$85 billion to address the above challenges, through new financial initiatives, targets and pledges. The final text of the Global Stocktake has listed the breakdown as follows:

  • Adaptation Fund
    In the COP28 process, a commitment of US$187.74 million was made to address adaptation. While this represents progress it is still short of the new US$212 billion by 2030 target.

    The Global Stocktake has urged developed countries to double their investment in climate finance by 2025, from 2019 baseline levels.

    According to the Climate Policy Initiative, 2019’s investment value was $49 billion, so in the next two years, we need to see US$98 billion - or an almost 30% increase on what is being pledged today. This investment then needs to double in the following 5 years.
  • Clean energy investment target
    Clean energy is the most accelerated field in terms of capacity building, technological development, investment and implementation.

    One of the key outcomes of COP28 was a multilateral agreement to triple renewable energy capacity to 11,000 GW by 2030, and to double the annual rate of energy efficiency improvements from 2% to 4% in the same time frame.

    This commitment was made by 118 countries, including Australia.

    The final draft text also mentioned a target to increase annual investment to US$4.3 trillion by 2030, and US$5 trillion by 2050.
  • Loss and Damage Fund
    The opening day of COP28 saw investment from several countries – including the UAE, UK, US, Germany and Japan - reach the minimum of $US200 million needed to establish the new Loss and Damage Fund.

    This announcement immediately closed off one of the biggest ticket items on the agenda that was carried over from COP27 in Egypt.

    By the end of COP28, the investment in this fund grew to a total of US$792 million.

    The funds will be distributed to countries most vulnerable to climate-induced extreme weather from early 2024.
  • Other funds
    Several other funds were established to address the geographical imbalance of investment distribution.

    These include:  the Least Developed Countries Fund and the Special Climate Change Fund, with a combined value of US$179.06 million, the Green Climate Fund with a value of US$12.83 million, and a further investment towards lives and livelihood, as well as inclusion totalling up to US$10.4 million.

Mobilisation of private investment

The private sector is currently contributing only 49% of the whole climate investment and only 1% toward adaptation. The final Global Stocktake text includes a call for policies that better support private sector investment in innovation and new technologies, increasing public capacity, and scaling existing solutions.

In addition to the funds mentioned in the Global Stocktake (and outlined above), COP28 saw the launch of the largest private investment fund dedicated for climate: Alterra. The fund is established by the UAE with an initial investment of US$30 billion. The objective is to mobilise US$250 billion globally – with contributions from the private sector and other partners.

This initial US$30 billion investment will be done through a partnership with BlackRock, Brookfield and TPG. US$25 billion will be dedicated towards direct institutional capital investments and the remaining US$5 billion will be used to provide risk mitigation capital to boost investment in the Global South.

Alterra’s investment will be guided by four key pillars aligned with the COP28 Action Agenda: energy transition, industrial decarbonisation, sustainable living and climate technologies.

Operationalisation of Article 6 frameworks

A key finance related agenda item at COP28 was the operationalisation of Article 6 of the Paris Agreement – and specifically Article 6.2, 6.4 and 6.8.

Article 6 allows countries to cooperate with each other to reduce emissions, promote sustainable development and achieve their nationally determined contributions (NDCs). This includes, but is not limited to, the trade of carbon credits or direct investments.

There are a total of 9 paragraphs in Article 6, but the most pertinent points are captured in sections 6.2, 6.4 and 6.8:

  • Article 6.2 outlines the basis of trading carbon credits between countries through bilateral or multilateral agreements. The units used within in these scenarios are referred to as Internationally Transferred Mitigation Outcomes (ITMOs). Article 6.2 is still undergoing refinements to address the risks of double counting.
  • Article 6.4 establishes a centralised United Nations mechanism to oversee the global carbon market and replace the Kyoto Protocol Clean Development Mechanism.  

    Project developers will be requesting to register their projects under this new mechanism and projects must in-turn be approved by both the issuing country and the UN body, before they start trading as UN-recognised credits - known as A6.4ERs.
  • Article 6.8 guides the non-market mechanism of carbon credit settlement, such as direct investment, technology transfer and philanthropic engagements.

COP28 negotiations failed to reach agreement on Article 6.2 and 6.4, but Article 6.8 did make it to the final draft text of the Global Stocktake.

Next steps for Article 6 market mechanisms

Progress with Article 6.2 and 6.4 continues despite slower than hoped-for progress during COP28 negotiations.

Article 6.2 is already being pilot tested by several countries, outside of the COP process. There are 139 projects in total under bilateral agreements. This includes:

  • Japan’s Joint Credit Mechanism, which as of July 23, has formed partnerships with 27 countries
  • Singapore‘s memorandums-of-understanding with 6 countries to develop carbon projects that are aligned with Article 6
  • Australia's bilateral agreements with Fiji and Papua New Guinea with the same purpose, under the Indo-Pacific Carbon Offsets Scheme (IPCOS).

These are just three of the many examples demonstrating that progress can be made even while the international frameworks are being finalised.

Article 6.4 progress is also continuing. While COP28 negotiations stalled due to lack of consensus around the project methodologies and inclusion of avoidance versus removals, delaying the launch of the framework to 2025 or 2026, the private sector is getting ready.

Examples of this include:

  • Verra, the largest voluntary standard and registry for carbon credits in the world, launched Article 6 labels into several projects listed that qualify under the existing rules. They have also collaborated with Gold Standard and Singapore to develop an Article 6 playbook.
  • While the Voluntary Carbon Markets Initiative (VCMI) have published an access strategy toolkit for countries as a complimentary technical guidance for implementation of Article 6.2 and 6.4.

So, where to from here?

Following the outcomes of COP28, we believe that pilot testing around Article 6.2 will continue.

We will also learn from the market reaction towards Article 6 labelled credits as launched by Verra. This additional label will be helpful in improving the integrity of carbon market in the long run.

Countries who have yet to establish their own compliance carbon markets will be making decisions on whether to launch their own registry and systems, or to adopt the systems from other countries and join a shared registry.

The voluntary carbon market will continue to exist and play an important role in providing price indications and testing integrity standards, while satisfying the global demand for voluntary climate investment.

Other market developments outside of Article 6

COP28 saw notable progress on other existing market mechanisms. These include:

  • Acceleration of Hydrogen Schemes and Derivatives
    Several announcements were made to scale and unlock the cross-border value chains of hydrogen. This includes:

    1) The Intergovernmental Declaration of Intent on Mutual Recognition of Certification Schemes for Hydrogen and Hydrogen Derivatives.
    2) A new ISO methodology that provides a global benchmark for greenhouse-gas emissions assessment of hydrogen.
    3) The Public-Private Action Statement made in a partnership between the International Hydrogen Trade Forum and the Hydrogen Council to better facilitate international hydrogen and derivatives trade.
  • Sustainable Aviation Fuel credits (SAFc) Registry launch
    Aviation accounts for 2% of global emissions and Sustainable Aviation Fuels (SAF) claim to be able to reduce 80% of normal jet fuel emissions. To accelerate the adoption of SAF, countries such as the EU and US have created Sustainable Aviation Fuel credits (SAFc).

    The Global Sustainable Aviation Forum, held during COP28, saw the launch of the SAFc Registry, designed to bring consistency, transparency and auditability to SAF credit transactions.
  • Coal-to-Clean Credits launch
    Transition credits were one of the highlights of COP28 after the Singaporean Government announced the launch of their Coal-to-Clean credits (CCC).

    CCCs are carbon credits with a specific co-benefit attached. They each represent one tonne of carbon emission avoided due to the retirement of a coal-fired power plant (CFPP), stapled with a direct equivalent investment in renewable energy.

    This type of specific co-benefit stapling defines these credits as transition credits and is meant to help accelerate the phasing out of CFPPs.
  • Collaboration across carbon market frameworks
    In a landmark collaboration, the Voluntary Carbon Market Integrity Initiative (VCMI), Integrity Council for the Voluntary Carbon Market (ICVCM), We Mean Business Coalition, CDP, Science Based Targets initiative (SBTi) and Green House Gas Protocol are joining forces to support corporates on the journey to net zero.

    The organisations will create an end-to-end integrity framework, offering comprehensive and consistent guidance on decarbonisation, including the use of carbon credits for residual emissions.

    In a separate announcement, 6 independent crediting standards announced they are joining forces to amplify the impact of carbon markets.

    They are: American Carbon Registry (ACR), Architecture for REDD+ Transactions (ART), Climate Action Reserve (CAR), Global Carbon Council (GCC), Gold Standard (GS), and Verra/Verified Carbon Standard (VCS) Program.

    These organisations will put in place a framework to increase the impact of activities under their standards. This includes learning from each other’s best practices, supporting independent assurance programmes, and aligning standards to common accounting and quantification principles.

Progress on fossil-fuel phase out and other notable highlights  

While the focus of this article has been on climate finance, we can’t complete a COP28 wrap up without the mention of several other wins that will be able to benefit greater society.

From recognition of underrepresented voices and policy improvements to unlocking more contribution from the private sector, these include:

Progress on fossil fuel phase-out

COP28 was attended by a record number of 2,400 fossil fuel representatives – this number is 4 times greater than at the previous COP.

Before COP28 even started, climate advocates were demanding a clear due date for the phase-out of fossil fuels as an unavoidable requirement to maintain our 1.5 degrees hopes.

This ambition seemed impossible until it was proposed in the first drafted text of the Global Stocktake, Point 35/ Option 1 (c):

Option 1: An orderly and just phase out of fossil fuels;

Option 2: Accelerating efforts towards phasing out unabated fossil fuels and to rapidly reducing their use so as to achieve net-zero CO2 in energy systems by or around mid-century;

Option 3: no text

Following the argument that these lines were unfair and unclear for the fossil fuel producers, the lines were widely debated. This led to the suggestion to change the words to “phase down” or merely to “phase out inefficient fossil fuel subsidies”.

The final agreed text reads:

Transitioning away from fossil fuels in energy systems, in a just, orderly and equitable manner, accelerating action in this critical decade, so as to achieve net zero by 2050 in keeping with the science;

AND

Phasing out inefficient fossil fuel subsidies that do not address energy poverty or just transitions, as soon as possible.

This was deemed a success.

In the words of Mohamed Adow, Director of Power Shift Africa:

“This is the first COP where the word ‘fossil fuels’ are actually included in the draft decision. This is the beginning of the end of the fossil fuel era.”

In addition to the text, an Oil and Gas Decarbonisation Charter (OGDC) was signed by over 50 companies representing 40% of global oil production, committing to zero methane emissions and ending routine flaring by 2030 and to total net-zero operations by 2050.


Acceleration of zero and low emission technologies

The Global Stocktake has further called on countries to accelerate adoption of zero and low emission technologies such as renewable and nuclear power, and abatement and removal technologies such as carbon capture and utilisation storage (CCUS).

It has also acknowledged the economies of scale impact on solar and wind power and storage adoption that has brought the price down to enable wider accessibility of renewable energy sources.

In support of this text, 25 countries launched the Declaration to Triple Nuclear Energy Capacity by 2050, recognizing nuclear energy’s role in limiting global warming to 1.5 degrees Celsius.

From the buildings sector, a Global Cooling Pledge was signed by 65 countries. It aims to reduce the climate impact of cooling systems and increase access to sustainable cooling, targeting a 68% reduction in cooling-related emissions by 2050.

Zero-Emission Vehicles (ZEVs) have also been called to scale as an advancement from today’s existing electric vehicle solutions. Countries have started making pledges around their targets on EV adoption. For example, Canada has just announced that all new cars must be 20% ZEVs by 2026, 60% by 2030 and 100% by 2035.

Digital transformation

The role of digital transformation has been acknowledged in the Global Stocktake text as an enabler for reaching targets set across the key themes.

A Technology Mechanism initiative on artificial intelligence (AI) for climate action has been established to explore the role of AI to scale up financial and technological solutions in developing countries, especially those imposed by high challenges and risks.

In support of this digital enablement, Climate Action Data (CAD) Trust, an initiative founded by the World Bank, IETA and the government of Singapore has launched its Public Data Dashboard.

This tool displays project data from Verra, Global Carbon Council, EcoRegistry, BioCarbon Registry and the Clean Development Mechanism (CDM), as well as the national registry of Bhutan. It aims to be the global single source of truth for carbon project listings.

Rise in participation from Indigenous peoples and local communities (IPLC)

Indigenous peoples and local communities have long fought to be included in decision making forums globally.

Research has proven that many of the solutions we need today to protect nature, lie in the practices that IPLC groups have been implementing for many generations.

One of the highlights in this COP and Global Stocktake, is the rise in participation from IPLC groups. They have also been recognised in the text as key solution contributor, equivalent to science-based research.

Acknowledgement of the importance of biodiversity and nature

Risks around biodiversity loss and the importance of protecting nature were acknowledged in the final text of the COP28 Global Stocktake. This includes the outcome of COP15: Kunming-Montreal Biodiversity Framework. In doing so, the parties have recognised that there is no net zero with outnature. And progress towards reaching Nature Positive 2050 will continue to be apriority.

Progress in health, agriculture and food security

A total of 143 countries signed the Declaration on Climate and Health, which aims to develop climate resilient, sustainable and equitable health systems in extreme climate conditions such as extreme heat and air pollution.

A total of 159 countries collectively signed a declaration on sustainable agriculture, resilient food systems and climate action. They also announced the mobilization of more than US$2.5 billion in funding for food security while addressing climate change.

Next steps on the ‘Road map to Mission 1.5’

COP28 was an important moment for climate finance.

It demonstrated the growing recognition and commitment of countries and the private sector to mobilise and deliver funds for climate action.

However, it also highlighted the persistent gaps and challenges that need to be addressed, such as the imbalance between mitigation and adaptation finance, the ongoing need for transparency and accountability, as well as more innovation and collaboration.

While there is a lot resting on the COP process, the real work happens in between the global summits. Through international collaboration, country level policy work, non-profit initiatives and compliance and voluntary efforts from the private sector.

In the words of COP28 President, Dr. Sultan Al Jaber:

“An agreement is only as good as its implementation. We are what we do, not what we say. We must take the steps necessary to turn this agreement into tangible action. If we unite in action, we can have a profoundly positive effect on all our futures.”

So, what happens from here in terms of the COP process?

  • Countries must submit and update on their NDCs within the next 9-12 months
  • By the end of 2024, countries are also expected to submit their first bi-annual transparency and national inventory report
  • By 2025 the countries must produce another update on their NDCs to include targets up to 2035
  • The IPCC is invited to provide guidance on the next Global Stocktake, due in 2028, with preparations beginning in 2026
  • COP29 will be held in Baku, Azerbaijan
  • COP30 will be held in Belem, Brazil
  • Australia is hoping to host COP31 in 2026.

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