At the time of our last COP28 update, we were still waiting to hear what the outcomes would be from several key discussion areas that remained open, including the results of the first Global Stocktake ("GST").
After almost two weeks of fractious negotiations, an eleventh-hour agreement known as the UAE Consensus (the "Consensus") was signed by the almost 200 attending government representatives at COP28. As has become something of a recent tradition, COP28 ran almost 24 hours over as the parties urgently sought to come to an agreement on how best to support the global fight against climate change.
The Consensus, which represents the formal outcome of the first GST on the implementation of the Paris Agreement, is the first of any COP agreement to recognise the "transition away from fossil fuels in energy systems" as a means of achieving "net zero by 2050".
- GST and the 'transition away from fossil fuels'
- Funding agreements on climate finance
- What's next?
1. GST and the 'transition away from fossil fuels'
Intended to take place every five years, the GST is designed to track global progress towards achieving the aims of the Paris Agreement, with the first assessment concluding at COP28. The first GST technical report, published in September 2023 stated that "the world is not on track to meet the long-term goals of the Paris Agreement" and made particular reference to the importance of systems transformations to bring climate resilience and low greenhouse gas ("GHG") emissions developments into the mainstream. Importantly, the GST will also inform the next round of 'Nationally Determined Contributions' ("NDCs"), which are due to be re-submitted in 2025.
NDCs are the national action plans for individual countries which relate to tackling climate change, including policy measures to mitigate and prevent global warming. While NDCs are determined at a national level, they are set within the framework of the UNCCC (including agreements flowing therefrom, like the Paris Agreement and the Consensus).
While the Consensus does not create legally binding obligations for the signatories, it encourages countries to reduce their reliance on fossil fuels and ramp up their renewable energy generation capacity. In particular, it restates the Paris Agreement's goal of pursuing efforts to limit the global temperature increase to 1.5°C and cites the need for "deep, rapid and sustained reductions" in overall GHG emissions to achieve this – 43% by 2030 and 60% by 2035.
The Consensus also recommends accelerating zero and low-emission technologies, including carbon capture, utilisation and storage and low-carbon hydrogen production, which have become increasingly important to the UK's own climate strategy (see our briefing on the UK's Energy Act 2023 here).
Sultan al-Jaber, COP28's president, said the deal was a " comprehensive response" to the GST, hailing the deal as an "historic package to accelerate climate action". Some, however, have criticised the Consensus as being insufficient. Anne Rasmussen, lead negotiator for the Alliance of Small Island States (a group of around 39 countries who are particularly vulnerable to the physical impacts of climate change) said the Consensus contained a "litany of loopholes". Rasmussen was likely referencing the absence of a definition of a "transition away from fossil fuels", the reliance on transition fuels (such as natural gas), and the lack of concrete timings against which to benchmark progress.
2. Funding agreements on climate finance
The Consensus put into effect a number of funding arrangements which had been agreed earlier in the conference, including a $725 million contribution to the Loss and Damage Fund, up from the initial funding pledge of $429 million (which we reporting on here and here). Elsewhere, the Green Climate Fund, which was created to improve access to sustainable finance, received renewed support with the total sums pledged now amounting to over $12.8 billion. The Least Developed Countries Fund and the Special Climate Change Fund also saw more support in the immediate wake of the Consensus being agreed, with pledges amounting to $174 million and $188 million, respectively.
However, even the Consensus itself realises that these sums fall short of the trillions of dollars potentially required to meaningfully combat the climate crisis. On that basis, the Consensus has identified the need to reform "multilateral financial architecture" and establish "new and innovative sources of finance, including taxation" if such significant monetary obligations are to be met.
While the Consensus does not go into any detail as to the nature and scope of these financial and taxation mechanisms, it is clear that there has been an increasing emphasis, particularly within the EU, on the establishment of a regulatory and legislative framework designed to mobilise public and private capital (most notably, the EU's SFDR and EU Taxonomy and the UK's Green Finance Strategy). Whilst the long-term effectiveness of these policies on tackling climate change has not yet been assessed, the support for the mobilisation of private capital is largely unanimous.
From a taxation perspective, it is reasonable to suggest that inspiration has been drawn from the relative success of domestic carbon taxes and their related carbon border adjustment mechanisms, which have become an increasingly effective tool at minimising carbon emissions, at relatively low costs (see our legal briefings on the EU's Emissions Trading System and Carbon Border Adjustment Mechanism here and here, respectively).
3. What's next?
COP29 is scheduled to take place next year in Baku, Azerbaijan, and COP30 will be held in Belém, Brazil in 2025 and both will be of particular interest to those calling to phase-out or phase-down fossil fuels.
There will likely be significant commentary in the coming weeks and months as signatories to the Consensus decide how to best reflect the Consensus as part of their revised NDCs, especially after the GST found that many nations were not taking sufficient steps to achieve Paris Agreement alignment.
As we commented after COP27, it remains the case that ambitious funding goals are unlikely to be achieved by the public sector alone. As such, the ability of countries to mobilise private capital towards sustainable development is undoubtedly going to remain a key determining factor in the success of the global fight against the climate crisis. With that in mind, it remains to be seen what financial and taxation measures will be implemented in the coming years to facilitate this mobilisation, and whether the recent global trends in sustainable finance regulation will continue to expand.
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