COP28 can deliver progress on climate change, but will it?

MILAN — This year’s United Nations Climate Change Conference (COP28) has begun in Dubai. Depending on whom you ask, the outlook ranges from deeply pessimistic to cautiously optimistic. But there is one thing on which almost everyone agrees: effective climate action is more urgent than ever.

This shared sense of urgency at COP28 is crucial. Some 70,000 delegates, including representatives of all parties to the UN Framework Convention on Climate Change, and a range of other stakeholders, from business leaders to climate scientists, are expected to participate. Such a vast and varied group might be unwieldy, but broad engagement, which has been on the rise in recent years, is vital to progress. Committed global action at every level of government, the economy, and society is needed to tackle such a complex, multifaceted challenge, and a growing awareness that time is running out should help to foster it.

While broad-based action is critical, however, the fact is that just a few key actors have the power to bring about a radical reduction in global emissions. More than 60 per cent of all greenhouse-gas emissions are produced by just six economies: China, the United States, India, the European Union, Russia, and Brazil (in order of total emissions). They must take the lead not only on reducing their own emissions, but also on advancing the development and diffusion of renewables and other technologies needed for the global energy transition.

It is worth highlighting some notable achievements. The high-income economies on the list have already achieved peak emissions. While they still have a long way to go to reach their net-zero goals, and political will often appears to be lacking, they also have considerable resources to invest in the needed structural transformations.

For its part, China is expected to reach peak emissions by 2030. Moreover, it has become an important source of relevant technologies, including solar panels, electric vehicles and batteries. If it can decarbonise without derailing its development, it will set a powerful precedent for the rest of the developing world.

That said, for a country like India, which still has a huge amount of growth in its future, the peak is probably more distant. In fact, barring some technological miracle, India’s emissions will likely grow for at least another 10-15 years. Nonetheless, they remain relatively low for now, at less than two tons per person annually, a level for which the developed economies can only strive. Annual emissions in the US, for example, stood at 13 tonnes per capita in 2020. The world’s big emitters should take COP28 as an opportunity to devise a coordinated set of policies to reduce their carbon footprints, fast.

Another promising development is that agriculture finally appears to be getting the attention it deserves. At the recent annual meetings of the International Monetary Fund and the World Bank in Marrakesh, World Bank President Ajay Banga highlighted one important innovation in this area. Rice fields are traditionally flooded to foster growth, with the fields remaining immersed from sowing until harvest. But this leads to massive methane emissions, and it is not even necessary. By draining the water after planting, and then selectively watering the fields until harvest, methane emissions drop by 60 per cent. Support for the transition toward such “climate-smart” agricultural solutions should be high on the COP28 agenda.

Yet, more promising news is that demand for carbon offsets, both voluntary and mandated, is stronger than ever. If done right, a carbon-offset marketplace would bolster financing for climate-change mitigation, particularly in the places where such investment would be the most cost-effective, that is, developing economies that lack the resources to finance mitigation themselves.

The development of effective carbon-offset markets must overcome at least two key challenges. First, devising and enforcing a reliable certification process is essential to ensure that carbon-offset purchases finance projects that actually lower global emissions or reduce the amount of carbon in the atmosphere. This is harder than it sounds: many actors are more concerned with optics than impact, and will seize any opportunity to game the system. According to one recent study, 39 of the top 50 emissions-offset projects are probably “worthless”, owing to “one or more fundamental failing that undermines its promised emission cuts”.

To bolster the effectiveness and credibility of carbon-offset markets, COP28 must produce a set of eligibility standards. This effort should draw lessons from the UN Clean Development Mechanism, which has, over the course of many years, refined certification procedures for projects in developing countries. Several independent third-party institutions also certify investments eligible for offset financing, though this is still a work in process. In the end, there is no substitute for auditing.

But standards are just the beginning. Globally, governments do not have the fiscal capacity to finance the investments required to reach net-zero emissions. So, there is a need to unlock large amounts of private and sovereign capital. (Think of this as the supply side of the carbon-offsets market.)

To this end, we must ensure that the risk-adjusted returns on investment in climate-mitigation projects are competitive with alternative investment options. The problem is that in many developing countries, country-specific risks, such as vulnerability to external shocks, including climate shocks, drive up the cost of capital. That is why multilateral development institutions like the World Bank must act as knowledgeable co-investors, sharing the risks with private investors. Increasing the capitalisation of these institutions would bolster their capacity to perform this critical function.

A final priority for COP28 is to operationalise the recently agreed Loss and Damage Fund, intended to compensate vulnerable countries for the impacts of climate-related disasters. There is good reason to believe that COP28 can deliver progress on this front, and in all the aforementioned areas. The real test will come after, when actors have to follow through on their commitments.

Michael Spence, a Nobel laureate in economics, is emeritus professor of Economics and a former dean of the Graduate School of Business at Stanford University. Copyright: Project Syndicate, 2023. www.project-syndicate.org