Systemica is present at the conference, which takes place in the United Arab Emirates
The 2023 United Nations Climate Change Conference, known as COP28, began on November 30. The meeting brings together 197 countries, international leaders, businesspeople and players in the environmental asset markets to discuss and develop concrete solutions to combat the increasingly serious effects of global warming.
The event takes place at a historic moment for the climate scenario: for the first time, on November 20, 2023, the global average temperature exceeded the 2°C anomaly and reached exactly 2.07°C above pre-industrial levels (1850-1900). Around the world, heat waves, with the intensification of the El Niño phenomenon, show the severity of climate change caused by greenhouse gas emissions. According to data from the Copernicus Climate Change Monitoring Service, 2023 is expected to end as the hottest year in 125 thousand years.
As this scenario advances, it is questionable whether the tools we have so far can actually limit the increase in the global average temperature to the 1.5ºC determined in the creation of the Paris Agreement. According to a recent report from the United Nations, current global commitments fall short of what is necessary to maintain this goal. Unless more effective actions are taken, the increase in temperature could reach a worrying rate of 2.5°C to 2.9°C above pre-industrial levels.
The carbon and environmental assets market around the world is important in mitigating this scenario, and COP28 can bring important opportunities for the methodological definition of transactions between countries. “In relation to article 6.4 of the Paris Agreement, which provides that parties involved in transactions must promote the environmental, social and governmental integrity of these market mechanisms, we are falling short in the expectation of progress, especially due to the lack of methodological regulation. We are in a process of consolidating the carbon market, which has been growing in recent years, and this should play an important role within COP28. I also understand that environmental integrity movements, from the voluntary market, will be relevant. These are actions that began at the end of 2021 and will now have more robust results”, analyzes Munir Soares, founding partner of Systemica.
Still on the Paris Agreement, Munir explains that the event should bring other agendas that can help mitigate global warming more quickly. “In relation to the negotiations on Article 6, a conference that is less focused on this agenda is expected, despite the expectation of advancing the adoption of the recommendations of the Supervisory Body (SB) on Articles 6.2 and 6.4 of the Paris Agreement”.
Another issue is the assessment of the Global Stocktaking (GST), which consists of an assessment every 5 years of Nationally Determined Contributions (NDCs). “Although the results have not yet been officially released, it is expected that the current NDCs are not sufficient to achieve the objectives of the Paris Agreement”, adds Munir.
Climate Loss and Damage Fund may gain evidence and definition within COP28
An issue that should be defined more precisely during COP28 is the Climate Loss and Damage Fund (Loss & Damage), which was first announced at COP27, in Egypt. The fund was designed after decades of pressure from countries vulnerable to climate urgency, providing financial assistance to nations that are directly impacted by global warming.
The term “loss and damage” refers to all the consequences of climate change: rising sea levels, storms, heat waves, desertification, ocean acidification, earthquakes and other extreme events. Although climate change is something that affects the whole world, there is a clear social and economic disparity: although developed countries are largely responsible for the emission of greenhouse gases, those who suffer most from the consequences are countries in climate vulnerability that are not on the list of major polluters. According to the UN, G20 countries account for around 75% of greenhouse gas emissions. Pakistan, which generates less than 1% of global emissions, has already recorded US$ 30 billion in losses from severe floods.
According to Munir Soares, COP28 must finally define how the Loss and Damage fund can help these countries that are suffering disproportionately. “A series of recommendations on the functioning of this fund were recently concluded on the eve of COP28, so we should have feedback on how it will be defined”, he explains.
The initial decision is that the fund will be allocated to the World Bank, with certain conditions so that it can be accessed easily. Developing countries are asking for an independent fund, under the Climate Convention, avoiding the bureaucracy of the World Bank and fearing possible US interventions. Another issue that still causes controversy is who will allocate the resources. The G77 Group plus China advocate that it be financed by countries considered richer, but the text that must reach the COP also places responsibility on developing countries that can contribute on a voluntary basis.
Voluntary Market gains momentum and could be one of the highlights of the conference
According to Munir Soares, COP28 should have other focuses besides the political agenda, such as the Voluntary Carbon Market (VCM) and environmental integrity. A greater movement is also expected in relation to the expansion in the use of renewable sources by the end of 2030.
“The voluntary market grew very quickly until 2022, when it reached a historic volume of transactions, and many questions began to arise regarding the integrity of this market and which methodologies could help regulate it. From this, several response movements emerged, talking about environmental integrity, ethical principles and governance of traditional communities. This discussion should advance at COP28, with an important role for the private sector acting in this context.”
Recently, the Senate Environment Committee approved the bill that regulates the carbon market in Brazil. The text was approved on a final basis, eliminating the need for a plenary vote, and should go directly to the Chamber for analysis. This decision should impact the national and international market and be a point of discussion within COP28. “Brazil is discussing its regulation law, and this law is important for Articles 6.2 and 6.4 of the Paris Agreement, as it can help control Brazilian emissions and, eventually, generate assets that can be traded in the international community”, adds Tiago Ricci, specialist in environmental law and partner at Systemica.
