As COP27 drew to a close in the Egyptian resort of Sharm El-Sheikh, this blog post intends to reflect on what happened over the past few weeks, take stock of recent progress and setbacks, and extrapolate the potential implications of international climate change discussions for global supply chains.
What is COP27?
COP is the UN Climate Change Conference assembling all signatories of the United Nations Framework Convention on Climate Change (UNFCCC), the international environmental treaty agreed at the outset of its first summit in Berlin in 1996.
All UN member states are signatories to the UNFCCC, and their representatives – including heads of state, meet annually during a two-week conference addressing climate change related issues.
The 27th Conference of the Parties (COP) took place in Egypt from November 6th to November 20th, 2022.
What was expected from COP27?
After 26 conferences, observers have learned to manage their expectations. While COP3 in Kyoto in 1997, set the required methodology to measure emissions, and COP21 in Paris in 2015 culminated with a significant agreement to limit the rise in global temperature. While these would likely be considered milestone summits, expectations ahead of COP27 were somewhat limited.
However, with COP returning to Africa in 2022, there was a palpable shift in focus. Previous COPs have typically focused on mitigation (i.e. limiting the extent to which the climate changes and, in particular, limiting emissions). However, because the region is one of the most directly affected by the effects of climate change – and, unfortunately, perhaps indicating a new phase in the fight against climate change – the Egyptian presidency was eager to focus on the adaptation agenda (i.e., adjusting to the effects of climate change), particularly on water scarcity and food security.
In that context, among the 20+ official agenda topics driving 90+ separate texts, the following intentions drew specific attention:
- Transitioning to climate resilient, sustainable agriculture
- Addressing the issue of loss and damage
- Protecting and restoring an estimated 400 million hectares in critical areas
- Mobilising USD 140 to USD 300 billion needed across both public and private sources for adaptation and resilience
- Providing safe, resilient homes and infrastructure for 1 billion people
7 years on from Paris… where are we?
The Paris Agreement is a legally binding international treaty aiming to limit the rise in global average temperature to ‘well below’ 2°C, or ideally 1.5°C, above pre-industrial levels.
Its Mitigation agenda requires countries to decide and communicate their own emissions reduction targets, and specific decarbonisation plans to achieve them, with Nationally Determined Contributions (a.k.a. NDCs). These are required to be improved every five years.
Unfortunately, while most countries submitted their initial NDCs over five years ago, only a handful of countries had submitted an improved plan by the time COP27 started (according to Climate Action Tracker, these were Australia, Norway, Singapore, UAE and Thailand—but all were considered to fall short of the 1.5C ambition!). The most recent projections from Climate Action Tracker, summarised in the graph below, show that current policies and actions are on track for +2.6C to +2.9C by the end of the century, with even the most optimistic scenario – beyond current pledges and targets breaking the upper 2C limit of the Paris Agreement!
Climate Action Tracker (2022). 2100 Warming Projections: Emissions and expected warming based on pledges and current policies. November 2022. Available at: https://climateactiontracker.org/global/temperatures/ . Copyright ©2022 by Climate Analytics and NewClimate Institute. All rights reserved.
Beyond these stark projections, there are regrettably many more reasons to be concerned:
- The latest IPCC report (IPCC is the International Panel on Climate Change, the international scientific panel advising the UN) published ahead of COP27 makes for an increasingly dire read. It highlighted that temperatures are rapidly increasing partly due to record consumption of fossil fuel. At this accelerated rate, the world has a 50% chance that global warming will exceed 1.5C in the next nine years, with devastating, possibly irreversible consequences.
- The IMF estimates that developing countries will need “$2.5 trillion of external financing annually until 2030 to meet the Paris Agreement and Sustainable Development Goals”. It also highlights that, given that the impacts of climate change know no borders, global financing is in the best interest of all nations. Not a great timing when most countries are facing inflation and the potential prospect of economic recession.
- Significant geopolitical interference is distracting top emitters from environmental priorities. Besides the war in Ukraine, which represents a major preoccupation for Russia, and the US/EU by proxy, rising tensions over Taiwan have had the unfortunate consequence of suspending China-US environmental cooperation.
- Fresh challenges to the 1.5C target. Numerous countries including China and India have been challenging the credibility and practicality of the Paris Agreement target, prompting fear of a potential watering down of related actions.
Some positive elements
There were however a few elements of progress and hope:
- Agreement on Loss and Damage. Agreed after extended negotiations, this initiative is aimed at establishing a fund available to climate-hit countries to help them rebuild climate resilient infrastructure (1). It should however not be misinterpreted for establishing any international liability or compensation mechanism…
- Progress on deforestation. The Brazilian president-elect, Luiz Inacio Lula da Silva, pledged at COP27 to reverse some of the policies of his predecessor regarding the lungs of the world, the Amazon Forest. Together with Indonesia and the DRC, what could also have the early traits of a rainforest cartel could potentially become a critical turning point should it offer these nations the right balance of bargaining power to fund an end to deforestation.
- Progress update on Breakthrough agenda. Born out of COP26, the Breakthrough Agenda (which “covers more than two-thirds of the global economy, with endorsement from 45 world leaders, including those of the G7, China, and India”) focusing on technology to mitigate climate change published its first report this month. Possibly influenced by the negative effects of the Ukraine conflict and associated increase in fossil fuel costs, the report shows an acceleration of the transition for the Breakthrough Power and Breakthrough Transport sectors.
- Launch of Climate TRACE: My personal highlight was perhaps the launch of Climate TRACE, backed by Al Gore, the former US vice president. Climate TRACE (Tracking Real-Time Atmospheric Carbon Emissions) uses a mix of satellite imagery, sensors, and AI technology to determine the amount and pinpoint the origin and location of carbon emissions. This is the first data-driven, independent, and up-to-date (1 month to 1 year) mechanism to directly observe and track global emission levels. A page has turned on the sole reliance on disclosures. The tool offers full global transparency, and emitters have nowhere to hide.
What is the relevance for global supply chains?
Global leaders have met and spoken about climate change once again, but what could you – as a supply chain practitioner – take away from COP27?
- Expect more climate related disruptions: The latest IPCC report is very clear: the mitigation efforts to date have been greatly insufficient (they would need to increase 7-fold!), and perhaps more critically, it states that “reaching a tipping point cannot be ruled out”. In no uncertain terms, climate related disruptions to supply chains are set to become both more serious and more frequent. Sense and response agility is a must.
- Climate Change adaptation is now of the essence: Just as countries, cities, and communities are now required to take steps to become more resilient, so must companies and their extended supply chains. How will rising temperatures, sea level rise, water scarcity, and climate-related migrations affect your supply base and supply chain operations in the long run? What questions do you need to ask, and what new data points do you need now to assess risks, build scenarios, and take action?
- We are reaching peak fossil fuel: Long anticipated as an impending supply-driven situation (i.e. where we would have consumed more than half of the accessible stock of fossil fuels), the latest projections from the IEA (2) (The International Energy Agency) point to a plateauing or decline of fossil fuel consumption in the next decade due to an accelerated transition towards renewables. A combination of carbon taxes, regulations, and increasingly more cost-effective production of renewables is set to dramatically shift demand. Is your supply chain ready for this change that will impact production and transportation capital investment quite dramatically?
- You’ve got the power (pressure?): Information is power, and independent datasets like Climate TRACE are probably the closest thing in emissions terms to the hypothetical perfect information that Adam Smith would have regarded as a key pillar of free markets. If you find yourself in the spotlight, like Dublin Airport did last week by coming on top of Ireland’s largest carbon emitters’ list, there will no doubt be added pressure on your organisation to act. As you also plan to tackle your own supply chain emissions, this sort of data can greatly help in your understanding, assessment, choice, and monitoring of partners. Why not integrate this into your procurement toolkit?
COP27, set against a challenging geopolitical backdrop, is unlikely to have made history. Looking ahead to COP28, due to be held next year in the UAE, one of the world’s largest oil producers. Let’s just hope the words of Al Gore will resonate with most parties present when he summed it up last week: “We need to obey the first law of holes: when you are in one, stop digging!”.
Supply Chain Enabled