What happened during COP27’s finance day?

Wednesday was designated COP27’s ‘finance day.’ The mood music from the first full day of negotiation was largely positive, with the launch of several economic initiatives and the first countries of the global north moving towards loss and damage funding.

These are the main topics of discussion coming from yesterday’s talks.

Reducing the cost of green and sustainable borrowing

Egypt used its position as host and its incoming COP27 presidency to announce the Reducing the Cost of Green and Sustainable Borrowing initiative alongside the United Nations Economic Commission for Africa.

It aims to help countries vulnerable to the impact of climate change by supporting economies that would otherwise suffer. The African Development Bank has estimated the continent will lose $1.3 tn in lost economic potential due to the climate crisis. Worldwide, $4 – 7 tn is thought to be required to move to sustainability and meet the targets set by the Paris Accords.

Several proposals were put forward as part of the initiative, including lowering government borrowing rates by making their bond sales more attractive to international capital markets. Another tenet suggested was a sustainable sovereign debt hub, which would support loans for projects linked to the climate and nature.

The Egyptian team pointed out that ‘liquidity constraints remain some of the foremost barriers to allow African countries to invest towards climate resilience and the [UN’s] Sustainable Development Goals.’ They went on: ‘This initiative will strengthen the ability of African states to borrow at an affordable rate, mobilize more green funding, and attract private capital.’

Carbon credit trading initiative launch

Meanwhile, the US Special Presidential Envoy for Climate, John Kerry, launched a voluntary global carbon credit trading initiative, the Energy Transition Accelerator. It aims to improve private financing of green projects, such as renewable energy schemes in the developing world through the sale of carbon credits.

Kerry acknowledged the failure of similar carbon credit schemes in the past to limit greenhouse gas emissions and pointed out that the fossil fuel industry would be barred from participating. ‘If we don’t come up with creative ways to mobilise money, we are going to blow through 1.5C [as the cap for global temperature increases],’ he added.

However, the initiative was met with some criticism, as environmental groups say carbon credits do little to improve the environment and are only useful to boost an organisation’s green credentials. ‘While creative and innovative solutions to the biggest crisis of our time are always welcome, carbon markets have, at best, a fraught record of delivering real carbon reductions, and there are a number of ways that this program could go wrong,’ said Cherelle Blazer, policy campaign director at the Sierra Club.

Talks on loss and damage continue

Smaller nations in the global north led the way with commitments to loss and damage funding yesterday. The funding is intended to compensate countries suffering from events linked to the climate crisis for their physical and economic losses.

Austria committed to $50 m of new funding, while New Zealand put $20 m on the table. They join Germany, Denmark, Scotland and Belgium’s Wallonia region in promising to fund loss and damage in affected counties. Scotland’s First Minister, Nicola Sturgeon, said ‘the [$7 m] funding Scotland has announced today is a small sum in terms of the overall scale of the loss and damage that developing countries face, but I hope that it sends an important message.’

Conversely, there was disappointment when new UK Prime Minister Rishi Sunak failed to mention loss and damage in his speech to assembled world leaders at COP27 on Monday. Recommitting instead to pledges first made in 2020, Sunak also tripled the UK’s funding for climate resilience to $1.7 bn.

Later it was announced that the UK’s export credit agency will introduce climate resilience debt clauses into its lending agreements. If a country suffers from a climate disaster their debt repayments are suspended for two years, allowing them to use the money for reconstruction instead. It’s a move supported by Mia Amor Mottley, Prime Minister of Barbados, who has been one of the most vocal backers of reforming international institutions like the World Bank to allow for just such actions.

Prime Minister Mottley’s suggested reforms, known as the Bridgetown Agenda after the capital of Barbados, has been backed by France, the first G7 nation to support financial reform.

Photos by Alexander Grey and Alexey Demidov