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Low expectations for COP29

Economic opinion

Cora Vandamme
2504432657

The expectations for the upcoming COP29 UN climate conference, which is scheduled to take place next week, are low. The contrast with the previous climate conference in Dubai, which some in the international community (including the chair of the EU delegation) called historical, will likely be sizeable. The COP28 was praised for including fossil fuels in the (non-binding) closing agreement for the first time in UN climate conference history and for some sizeable side-agreements that were made during the conference. Some critics were still disappointed by the outcome, however, citing the vague wording and the many loopholes in the agreement.

This year’s conference, which will be held in Azerbaijan, risks being an even bigger letdown for these critics. Some first signs are emerging that the climate conference this year will likely focus strongly on the technical conversations about climate finance and that little room will intentionally be left for further work on the transition away from fossil fuels. The fact that the energy transition is absent from the conference agenda speaks volumes. There is one small consolation: next year’s conference could again be more influential, as the participating countries are expected to share their new 1.5°C-aligned NDC’s (Nationally Determined Contributions) in the months running up to the conference. The NDC’s must include absolute emissions reduction targets for 2030 and 2035 and the planned climate actions to reach these goals.

COP28: an important agreement

Even before the COP28 started, there were some suggestions that the conference had the potential to be more influential than the previous edition. One of the reasons was the widely anticipated conclusion of the first Global Stocktake (GST), a 5-yearly exercise to assess the progress made by each nation towards their NDCs set in Paris and to inform the next round of climate action plans. The GST concluded that, despite overall progress being made, the world is not on track to achieve the goals of the Paris Agreement. The report also included a call to action, with suggested measures like tripling renewable energy and doubling energy efficiency, reducing non-CO2 emissions and transitioning away from fossil fuels in energy systems. The report put pressure on countries to re-evaluate their climate efforts leading up to the conference and it laid the ground-work for some of the side agreements that were signed during the conference.

The COP28 not only promised but also delivered on several fronts (see Economic Opinion of 18 December 2023). For one, the conference concluded with an agreement that included a call on all countries to contribute to global efforts to transition away from fossil fuels. This marks the COP28 as the first UN climate conference that has language on fossil fuel in the final agreement. While critics emphasized the many loopholes in the final text and the lack of an explicit commitment to phase out or even phase down fossil fuels, there was a broad acknowledgment that the agreement was important. Other important accomplishments of the COP28 include the operationalisation of a Loss and Damage Fund and the Global Renewables And Energy Efficiency Pledge side agreement. The participating countries also reinforced the 1.5°C global warming limit set by the Paris Agreement and recognised that this goal requires stricter emission reduction targets (43% GHG emission cut by 2030 and 61% by 2035 relative to 2019 levels).

Despite these achievements, many stakeholders were still disappointed by the outcome of the conference. Based on scientific research on the current and future impact of climate change and on the additional costs linked to a delayed transition, the UN Climate conferences are indeed moving too slowly. But all progress on these climate conferences has to be put into perspective. The impressive number of participating countries (197 nations + the EU), including many fossil fuel-producing economies and countries with very different degrees of economic development, means that reaching agreements is always going to be a painstakingly slow and delicate consensus process.

COP29: low expectations

With only a few days to go, speculation on the potential outcome of the COP29 is intensifying. But unlike last year, there are very few upbeat forecasts. The choice for Azerbaijan as the host country does not bode well for the negotiations. Oil and natural gas are responsible for about 90% of export revenues in the country and finance about 60% of the budget.

On the agenda for the summit is a discussion on a new global financial target to support developing countries that are most exposed to the effects of climate change. During the COP29, a new collective quantified goal on climate finance (NCQG) needs to be set to replace the 2009 climate finance goal. The latter set a goal for rich countries to provide 100bn USD a year to the developing world by 2020, an inadequate amount that, moreover, was not met until 2022. There is also still much debate on who has to chip in. Currently, only countries that were classified as developed when the UN framework convention on climate change was signed in 1992 need to contribute to climate finance for the developing world. But the world has changed dramatically since 1992. China, for one, is now the second largest economy in the world (in nominal GDP) but it has no obligations under the UNFCCC (United Nations framework convention on climate change). South Korea and Singapore are also still qualified as developing countries and so are several countries that have gotten rich by exporting fossil fuels. Many of the current contributors to the UNFCCC are therefore calling for an expansion of the contributor base, not just to other countries but also to the private sector.

Fears are growing among advanced economies and environmental groups that the more technical talks on financial targets could be dragged out to avoid progress will be made on mitigation goals and the transition away from fossil fuels. Not only could the topic be overshadowed, it is currently not even on the shortlist. Organizer Azerbaijan set out an agenda and list of priorities for this month’s  climate gathering which does not include the energy transition. Instead, it focuses on climate finance, battery storage, expansions to electricity networks, tourism, water and cuts to methane emissions from organic waste.

Uncertainty over the outcome of the US presidential elections is another hampering factor in this year’s COP. In the talks leading up to the convention, many negotiators have taken a wait-and-see approach because they first want clarity on the stance of the US on climate in the years to come. As president, Trump withdrew the US from the Paris Agreement on global warming, an action that was rolled back by his successor Joe Biden. If Trump secures a new term as president, he is likely to again cut climate funding and roll back climate pledges. Regardless of the outcome of the election, chances of the COP29 being very influential have already declined substantially as the uncertainty surrounding the outcome of the election has made preparations for this year's conference extremely laborious and slow.

Conclusion

The COP29 will likely be less influential than the previous conference as few stars are aligned this year. The high importance of fossil fuels for the organising country, the focus on the technical finance debate and the surrounding framework of (geo)political tensions and uncertainties will likely cloud the air. As a result, some eyes are already on the COP30 that will take place in Brazil next year. There, alle participants are expected to introduce updated NDC’s with a timeframe for implementation until 2035. These NDC’s are to be informed by the outcome of last year’s GST.

In climate conference terms, where sluggish progress is the rule, delays are not unusual. In climate terms, however, this means another year is lost and a delayed transition scenario and severe climate risks increase again.  

Disclaimer:

Any opinion expressed in this KBC Economic Opinions represents the personal opinion by the author(s). Neither the degree to which the hypotheses, risks and forecasts contained in this report reflect market expectations, nor their effective chances of realisation can be guaranteed. Any forecasts are indicative. The information contained in this publication is general in nature and for information purposes only. It may not be considered as investment advice. Sustainability is part of the overall business strategy of KBC Group NV (see https://www.kbc.com/en/corporate-sustainability.html). We take this strategy into account when choosing topics for our publications, but a thorough analysis of economic and financial developments requires discussing a wider variety of topics. This publication cannot be considered as ‘investment research’ as described in the law and regulations concerning the markets for financial instruments. Any transfer, distribution or reproduction in any form or means of information is prohibited without the express prior written consent of KBC Group NV. KBC cannot be held responsible for the accuracy or completeness of this information.

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