COP28 Update

Tennant Reed, Ai Group's representative on the ground at COP28 in Dubai, reflects on the progress made across the two-week United Nations Climate Change Conference.

Summary

The 28^th Conference of the Parties (COP) to the UN Framework Convention on Climate Change was held in Dubai, United Arab Emirates, from 30 November to 13 December 2023. Negotiations arrived at a significant package of decisions dubbed the UAE Consensus addressing the state of progress towards the goals of the Paris Agreement; new goals for adaptation to climate change; addressing loss and damage experienced by vulnerable developing countries; and more. The outcome delivers a significant push forward to the work Australia and other nations will do over 2024 to prepare new national targets, strategies and sector plans, which will in turn lead to new and strengthened implementing policies. Ai Group observed negotiations closely and participated in a range of side events and discussions among some of the 100,000+ participants in the COP.

Negotiations

Dynamics

No COP is easy, as outcomes require consensus among nearly 200 Parties. COP28 Dubai shaped up as particularly difficult, with deep differences between major blocs over the core topics under negotiation and a President – Dr Sultan Al-Jaber of the UAE – suffering doubts and controversy over his day job as head of the Abu Dhabi National Oil Company (ADNOC). In the end, Al-Jaber proved a potent and astute conciliator and the final outcome was, while imperfect and less than fully satisfactory to many Parties for different reasons, quite strong, balanced and functional.

Key blocs in these negotiations, and their broad stances and circumstances, included:

• United States of America – very engaged and supportive of high ambition in the reduction of emissions, and represented by the high-profile and respected John Kerry. Key doubts or controversies about the US included its ability to contribute to climate finance, given attitudes in its Congress (some significant commitments were made nonetheless); durability of its commitments given the potential for a second Trump Administration (Kerry insisted the US’ word was good); disagreements with the EU over detail of Article 6.2 (see below); and US green industrial policy, seen by some Parties as damaging to developing economies.
• The Umbrella Group – this represents the non-EU advanced economies and is chaired by Australia. It has recently shed Russia (over Ukraine) and gained the UK (because of Brexit). While the Group contains several major fossil energy exporters, it has become quite supportive of fossil phase out substance, with flexibility over specific language. It was pro-ambition. The Group was criticised by some for several members’ strong recent expansions of fossil fuel exports.
• The EU – strongly pro-ambition and keen to demonstrate its own internal ambition and leadership on emissions reductions. The EU faced criticism from many developing countries for ‘unilateral trade measures’, especially the EU Carbon Border Adjustment Mechanism. All developed countries were criticized for slow progress on meeting their previous financial support commitments (though the famous USD$100b/yr 2020 goal was said, by the OECD and others, to have been met in 2022 and 2023).
• The Group of 77 plus China (G77), a very large and inclusive grouping of developing countries. G77 takes a broad stance in favour of the principle of Common But Differentiated Responsibilities (CBDR), under which developed countries should take the lead on emissions reductions and provide financial and technical support to developing countries to enable mitigation, adaptation and response to loss and damage. G77 was very critical of Unilateral Trade Measures but split on many substantive issues given different views on ambition and equity among its members.
• The Like Minded Developing Countries (LMDC), a grouping whose most influential and vocal members include China, India, Saudi Arabia and (oddly to many) Bolivia. LMDC took a much more hard-edged position than G77, resisting any Global Stock Take outcome that called on Parties to do anything; objecting to any language singling out particular sources of emissions (like fossil fuels) or emissions reductions (like renewables); pushing back on or caveating references to the 1.5C temperature goal or science on the scale of global emissions reductions needed to achieve it; and insisting that developed countries should take the lead, to the extent of immediate fossil fuel phaseout and near-term net negative emissions so as to make space for developing countries to emit more. Key sensitivities for this bloc included China’s emissions – it is now by far the largest current global emitter (though still catching up to the US on historic emissions) and global emissions cannot peak in 2025 without faster action than China has committed to so far. China is working towards formally updating its commitments in 2025, but was not ready to do so at COP28. Broadly Bolivia presented the most hostile face of LMDC, denouncing developed countries for hypocrisy and lies; China and India voiced calmer obstructionism; and Saudi Arabia played the role of relatively constructive dealmaker.
• The African Group – Similar to G77 on most topics, softer edged than LMDC, but with significant emphasis on the need for room for African countries to develop gas production and exports to assist their economic development.
• BASIC – the Brazil South Africa India and China grouping was deeply split at this COP, with Brazil and South Africa echoing G77 concerns about equity and the need for financial support to developing countries, but much more enthusiastic about ambitious emissions reductions than LMDC. Brazil and South Africa were influential in pairing ambition and equity and supporting a strong outcome to the Global Stock Take.
• AILAC, AOSIS and LDCs – the Independent Association of Latin America and the Caribbean; the Alliance Of Small Island States; and the Least Developed Countries are three quite distinct blocs, but at this COP they played similar roles in strongly supporting higher ambition on mitigation (as their members include many of those most vulnerable to climate change) but pairing this with calls for strong financial support for developing countries. Colombia’s Minister Susana Muhamad was a potent voice for this view, while AOSIS members played a very strong role in insisting on 1.5C as a matter of survival.

Given these contrasting positions and the need for consensus, it is remarkable that any agreement was reached (and indeed it looked at times like it would not be). However the occasionally-messy-looking but substantively adroit diplomacy of the Presidency, and the strong messages on ambition from most parties including many developing countries, enabled a meaningful deal. A flavour of the negotiations can be found in Ai Group’s detailed notes of the Majlis and Heads of Delegation discussions of the Global Stock Take.

GST

The Global Stock Take (GST) is a five-yearly process required by the Paris Agreement to assess progress towards the global goals for mitigation, adaptation and finance, as a basis for countries to reassess and strengthen their commitments and implementation. This was the first GST. Technical consultations over two years had confirmed that while significant progress had been made, the world was not on track to its goals (especially that of keeping warming to no more than 1.5C). The big question was how the world would choose to respond, and what messages it would send to all nations as they prepare their next round of Nationally Determined Contributions (national targets) to be submitted before COP30 in 2025. These NDCs are the main avenue for impact – no other mechanisms for mitigation ambition were under consideration.

The final GST outcome was an extensive decision, given the need to cover all goals and note important findings on many topics. Key elements included:

• Continuing the trend since COP26 Glasgow of centering the 1.5C temperature goal over the original broader Paris goal of well below 2C with efforts pursued towards 1.5C;
• Recognizing scientific advice that staying to 1.5C will require global greenhouse gas emissions to peak by 2025; GHG emissions to decline 43% below 2019 levels by 2030 and 60% by 2035; and global CO2 emissions to reach net zero by 2050.
• Encouraging all Parties to submit next NDCs that are economy wide, cover all GHGs, and are aligned with 1.5C.
• Energy text that calls on Parties to contribute in light of their own circumstances to global efforts including:
  • The Triple-Double: tripling renewable energy capacity and doubling the rate of energy efficiency improvement by 2030;
  • Transitioning away from fossil fuels in energy systems (in an equitable way, and so as to achieve net zero by 2050)
  • Accelerating a broad set of cleantechs including renewables, nuclear, carbon capture (especially in hard to abate sectors) and low-carbon hydrogen
  • Substantial reductions in non-CO2 emissions, especially methane, by 2030
• Adaptation text that:
  • Asks all Parties to develop National Adaptation Plans by end 2025;
  • Urges increased action by Parties (and invites non-Parties) towards adaptation targets addressing by 2030 and progressing beyond:
    • Reducing climate-induced water scarcity and lifting resilience to water hazards;
    • Climate-resilient agriculture and food supply;
    • Resilience of people and health systems to climate-related health impacts, significantly reducing climate related mortality and morbidity;
    • Reducing ecosystem impacts through management and protection;
    • Hardening infrastructure and settlements to climate impacts;
    • Reducing adverse effects on poverty and livelihoods;
    • Protecting heritage and culture.
  • Targets improvements in all Parties’ adaptation approaches by 2030 to improve risk assessment; planning; implementation; and monitoring.
• Finance text that:
  • Highlights developing country adaptation finance needs of USD$215-387b/yr to 2030 and total world clean energy investment needs of USD$4.3t/yr to 2030;
  • Acknowledges progress on meeting the goal of scaling climate finance to developing countries to USD$100b by 2020, expresses concern that this was not met in 2020 or 2021 though may have been in 2022 and 2023, and urges it be met through 2025;
  • Makes progress towards the expected conclusion of a New Collective Quantified Global Goal for long term climate finance at COP29. The NCQG will be much larger than $100b/yr but the absolute level and the relative contributions of public versus private, national versus multilateral, loans versus equity versus grants, and concessionality versus commerciality remain to be determined.
• A holding response on complaints about Unilateral Trade Measures.
  • Developing countries insisted on discussing this issue and an agenda fight was avoided by parking it in the GST, on the basis that similar complaints had been heard in the technical work of the GST and so could be mentioned without developed countries conceding anything.
  • The final text mirrors existing commitments in the UN Framework Convention on Climate Change and the General Agreement on Tariffs and Trade by noting that “measures taken to combat climate change, including unilateral ones, should not constitute a means of arbitrary or unjustifiable discrimination or a disguised restriction on international trade.”
  • This concedes nothing and resolves nothing, given that such commitments already exist; that it is the position of the EU and others that actions including CBAM are consistent with those commitments; and that many developing countries feel otherwise.
  • It will be important for substantive dialogue about trade and climate to take place, whether in future COPs, at the WTO or elsewhere, to calm all Parties. CBAM related fears are almost certainly misplaced and will be assuaged by better understanding of the clean economic development opportunities they create for many developing countries.

Loss and Damage

At COP27 Parties agreed to the idea of a new Fund to respond to climate-related Loss and Damage in vulnerable developing countries. An early achievement of COP28 was to conclude a decision on operationalizing the Fund, and attract nearly USD$800b in initial pledges to capitalize it. The Fund will be housed in the World Bank and both provide help directly and help mobilise further external finance. Given the scale of losses that extreme events and slow onset events like sea level rise can cause, much more capital will be needed over time and debate over sources will be intense.

Article 6

Article 6 of the Paris Agreement covers cooperative approaches including accounting for bilateral exchanges (A6.2), establishment of a new global market mechanism for carbon units (A6.4), and providing for non-market cooperation (A6.8). Negotiations on A6.2 and A6.4 ran aground at COP28 and all related issues were forwarded for resolution at the next COP.

A6.2 work was scuppered by disagreement between the EU, which wanted tighter international supervision of bilateral exchanges, and the USA, which felt the existing arrangements were adequate and did not wish to renegotiate. A6.2 bilateral exchanges – such as nations linking emissions trading schemes, or agreeing to sell abatement to each other – can still go ahead under rules already agreed.

Full operation of the A6.4 mechanism, however, has now been delayed by at least a further year. Parties could not agree to accept a package of recommendations from the A6.4 Supervisory Body they had set up, and reopened debates on multiple issues including the approach to crediting methodologies, including whether to credit avoided emissions. Prices, volumes and quality of potential A6.4 carbon units remain quite unclear, unhelpfully as nations consider their next NDCs and how much reliance to place on the ability to buy or sell such units.

Meanwhile A6.8, while progressing, remains very vague and it is unclear why any rules are needed for nonmarket arrangements in which one nation financially supports another’s mitigation efforts in return for no consideration. The item is largely the baby of Bolivarian nations from South America who are suspicious of market approaches.

Australia at the COP and beyond

Australia was prominent at COP28, will be significantly affected by the outcome, and has excellent prospects of hosting COP31.

As Umbrella Group chair and in its national capacity, Australia was vocal and proactive in the negotiations. Climate and Energy Minister Chris Bowen spoke forcefully and effectively in key meetings in speaking up for strong ambition on mitigation and clear intent (though wording flexibility) on moving away from fossil fuels, and was widely endorsed by other ambitious Parties. Assistant Minister Jenny McAllister led consultations on behalf of the Presidency on resolving the Global Goal on Adaptation. There was a strong Australian public and private contingent at COP and our national pavilion was widely attended, including for its famously high quality coffee.

The implications of the COP28 outcome for Australia are substantial. The Government is developing a new long term emissions strategy, sectoral plans and a 2035 emissions target over the course of 2024. This process will now be guided by the strong call at COP28 for 1.5C-aligned targets, the science on what such targets look like including the global reduction of -60% off 2019 by 2035, and the energy initiatives including the triple-double.

The positions advocated by Australia at the COP will also likely guide, and constrain, target development. Minister Bowen, along with other major developed country fossil exporters, directly called for phase out of or transition away from fossil fuels. He specifically endorsed the 43/30, 60/35 global formulation. He elevated the need to do right by Australia’s vulnerable Pacific Islands neighbours.

Other nations’ responses to COP28 will be at least as important as our own. Strong national 2035 commitments in line with 1.5C, or anything close to it, would substantially accelerate the growth of markets for the clean economy activities Australia hopes to thrive in, including transition mineral extraction and processing; clean hydrogen and ammonia; green iron, steel, alumina and aluminium; and clean economy componentry. The flipside of that is that demand, and likely prices, for important current exports – thermal coal, coking coal and natural gas – would fall much faster than previously expected. That prospect should be a major motivator to ensure that imminent clean industry development policies are effective and that Australia achieves competitiveness and scale in these activities.

Australia is bidding to host COP31 in 2026, and while Türkiye is also bidding our prospects are very strong. The matter will be decided in 2024, with hosting decisions this year focused on sorting COP29 (after much doubt, it will be at Baku in Azerbaijan) and COP30 (as expected, Brazil will host at the midsize Amazonian city of Belem). Should we win, hosting COP31 will be a massive exercise. COP28 hosted more than a hundred world leaders and more than 100,000 accredited delegates (twice as many as any previous COP). Delicate diplomacy and logistical mastery will be essential for success.

Tennant Reed, Ai Group Director – Climate Change and Energy, holds the floor in a panel discussion at COP28 with Daniel Sherrell, Senior Adviser – Climate & Energy, ACTU (far right); Richie Merzian, International Director, Smart Energy Council (far left); and Pia Bjorkbacka, Senior Adviser, Climate & Sustainable Development, Central Organization of Finnish Trade Unions

Side events, observers and business

Global business response to COP28

The global Business and Industry Non Government Organisation (BINGO) constituency made a statement at the closing plenary, delivered by the International Chamber of Commerce and contributed to by Ai Group, welcoming the outcome, urging nations to fully include civil society including business in development of their next NDCs, and noting that “a 1.5 degree world is not achieved just by stopping things. It also requires building things, putting in place reliable processes and systems, and business knows how to do it.”

Carbon leakage

There was extensive discussion of carbon leakage risks and Carbon Border Adjustment Mechanisms outside the formal negotiations, with a strong program of relevant events put on by the World Trade Organization, the European Union and others. Criticism of CBAM continues from many developing economies, with many citing London School of Economics modelling that appears to indicate significant negative impacts but which is deeply flawed.

There were also important signs of positive interest from many quarters. Officials and stakeholders from some African economies saw the potential for their clean economy ambitions – comparable to Australia’s Renewable Superpower vision – to be enabled by exports to CBAM economies where cleaner products will be more profitable. United States congresspeople from both the Republican and Democratic parties described their different but comparable proposals for carbon border adjustments, and Senator Sheldon Whitehouse (D-RI) opined that fear of EU CBAM and interest in a US CBAM would unblock the domestic politics of carbon pricing.

Australia’s ongoing consideration of carbon leakage solutions, including a potential CBAM, was of interest to many but Australian officials and Carbon Leakage Review lead adviser Frank Jotzo were careful not to prejudge the outcome.

Shortly after COP the United Kingdom confirmed that it would follow the EU and introduce a CBAM of its own in 2027, covering aluminium, cement, ceramics, fertilizer, glass, hydrogen, and iron and steel.

Green steel

There was extensive interest in green steel at COP28 and many related side events. At an informal briefing Ai Group heard about German steelmaker ThyssenKrupp’s decision to convert one of its blast furnaces to hydrogen-based green steelmaking, expected to produce 2.5 million tonnes per year from the end of 2027. The project is enabled by a substantial financial guarantee from the European Union to bridge operating cost gaps with conventional steel production over 25 years. It is exciting both because it can re-use existing capital (adding a direct reduction stage and a melter stage onto the existing basic oxygen furnace) and because it can potentially work with a much wider range of iron ores and ore qualities than existing modest-scale magnetite-based demonstration projects. With most of Australia’s iron ore output being lower-quality hematite, proving up this kind of development is crucial to the future of our existing exports and to potential onshore green iron and steel production.