South-east Asia heads into COP28 focused on just transition, financing

LOSS and damage funding, carbon markets and a just energy transition will be among key issues for South-east Asia as world leaders, business leaders and activists converge in Dubai on Thursday (Nov 30) to kick off this year’s edition of the annual United Nations Climate Change Conference.

Also known as COP28, the conference will conclude the first-ever global stocktake – a two-year endeavour to assess the progress governments have made in cutting emissions, and make recommendations on what more needs to be done.

The Business Times looks at the unresolved issues from the previous COP and what is at stake this year, especially for South-east Asia.

Loss and damage fund

The big triumph at last year’s COP was the creation of the loss and damage fund, which would channel funding from developed countries responsible for most emissions to developing countries that are typically hit the hardest by climate disasters.

Over the past year, the transitional committee has met five times to work out how to operationalise the fund. The draft proposal will be decided at COP28. There has, however, been contention over the World Bank’s proposed role as host, and over the lack of specifics on the fund’s size and who must contribute.

While most South-east Asian states were relatively quiet on this issue last year, Nithi Nesadurai, director and regional coordinator at environmental non-profit Climate Action Network Southeast Asia, said the region’s representatives are starting to get behind it given that the region is one of the most vulnerable to climate change.

Carbon markets

While progress was made at COP27 on the Article 6 rulebook addressing double counting in carbon markets, other issues remain unresolved. These include the treatment of legacy credits from the clean development mechanism under the Kyoto Protocol – the predecessor to the current Paris Agreement.

Frederick Teo, chief executive of decarbonisation investment platform GenZero, said private sector investors are seeking clarity around both the demand of carbon credits – what the credits can be used for – and supply – what are accepted as high-quality credits.

“If you look at the recent turbulence in the carbon markets, it is all about people questioning whether or not this has impact or no impact, right? Now, (investors) are just allocating capital and investing into things. So actually, it is up to some of these multilateral organisations and governments to tell us what are the rules,” Teo said.

Echoing similar sentiments, Anjali Viswamohanan, director of policy at the Asia Investor Group on Climate Change, said investors are looking forward to the resolution of global carbon market rules, which will further accelerate the shift in global capital towards zero-carbon projects and provide developing economies in Asia with potential revenue opportunities in green industries and infrastructure.

Mitigation and just transition

Having a clear mitigation target will help catalyse private sector investments, said Sandeep Chamling Rai, senior adviser for global climate adaptation policy at environmental non-profit WWF International, although he acknowledged politics often get in the way.

The outcome from the global stocktake will inform how much countries have to accelerate climate action when they submit their new climate plans – called nationally determined contributions – by 2025. If countries raise their ambitions, it would provide a signal to private investors.

Central to the issue of mitigation is the use of fossil fuels. A longstanding sticking point in the final decision text of previous COPs has been whether the use of fossil fuel would be “phased down” versus the more ambitious “phased out”, and it looks like this will continue at COP28.

Investors are keen to see more resolve from governments on tackling the issue of fossil fuel dependence, said Viswamohanan. Expectations are slim that “phasing out” will take hold this year, though, especially considering COP is hosted and led this year by an oil-rich nation.

COP28 president-designate Sultan Al Jaber had previously called for a “responsible phase-down of fossil fuels”.

While the phasing out of fossil fuels is not likely, the COP28 presidency’s earlier call for governments to treble renewables capacity and double the rate of energy efficiency improvements by 2030 is gaining momentum among many governments. Al Jaber has set a target of installing 11,000 gigawatts of renewable capacity by 2030, which would mean a trebling of the 3,629 GW installed by the end of 2022.

There is also greater recognition of the need for a “just transition”, which refers to minimising the economic and social fallout arising from a country’s energy transition.

The just transition work programme was established at COP27 and it will have its first high-level ministerial roundtable at COP28.

All eyes will also be on the Just Energy Transition Partnership (JETP) inked between Indonesia and a group of developed countries comprising mostly the Group of Seven countries almost a year ago. The investment plan for the US$20 billion climate deal was just released a week before COP28 and updates to the first transactions under the JETP may be announced at the event.

Scaling climate finance

Discussions are ongoing to increase the amount of money developed countries have to provide to developing countries to address their climate needs. Currently set at US$100 billion per year, it is set to increase after 2025 and COP28 will lay the groundwork for establishing a new climate finance goal.

Beyond government-to-government financing, an increasing focus is the mobilisation of private-sector capital for climate transition projects.

Viswamohanan said investors are looking for government climate commitments that are more robust and more ambitious.

“These high-level commitments on targets would be integral to unlock the capital that Asean requires to facilitate energy transition,” she added.

GenZero’s Teo added that there is a need to shift away from viewing developed countries’ financing towards developing countries as donor aid.

Instead, these funds could be provided to impact-investment managers to generate commercial returns beyond merely environmental and social impact. The economic returns can then be recycled and channelled to another country.

Nesadurai said South-east Asian countries should organise a high-level ministers meeting after each COP to discuss the outcome’s implications on the region, and the positive actions they can take as a whole to facilitate investment flows. Decisions made at COP can then be sent directly to the Asean secretariat for implementation.

This is because Asean is not represented as a bloc at COP, with the region broken up into several other negotiating blocs. Singapore, for example, is part of the Alliance of Small Island States, while Indonesia and Malaysia are part of the Group of 77 countries.

Said Nesadurai: “We have the infrastructure. Yet we are all in different blocks being dictated to by the priorities of other countries, some very large, some very small. So, we don’t have an identity of our own.”

Follow The Business Times’ coverage of COP28 at bt.sg/cop28