What is COP27? Key questions for markets to watch as UN climate talks kick off in Egypt

By Rachel Koning Beals

The United Nations Conference of the Parties, or COP27, takes place as the world grapples with food and energy shortages, inflation and a Russian-induced war in Ukraine

Dozens of senior government officials, corporate interests and protesters are passing through Egypt’s Red Sea over the next two weeks tasked with accelerating progress in the fight against costly and deadly global warming.

And they find themselves, under the banner of another Conference of the Parties of the United Nations, this COP27, faced with the pressing crises of food and energy shortages and a world war in Ukraine.

Efforts at subsequent COP summits remain focused on meeting the pivotal gathering, in 2015 in Paris, when countries voluntarily agreed that warming must be kept to 1.5 degrees Celsius above pre-industrial times.

How best and how quickly to achieve that goal — and adapt to the higher-intensity storms and rising seas that have already gripped the world — remains up for debate.

In an opening speech, Hoesung Lee, chair of the UN’s main environmental arm, the Intergovernmental Panel on Climate Change (IPCC), said countries have “a unique opportunity to save our planet and our livelihoods”.

What’s happening at COP27 and key figures to watch

COP27 is the next meeting of the group of 198 signatory countries to the United Nations Framework Convention on Climate Change. The World Economic Forum monitors milestones in five categories: nature, food, water, decarbonization of industry and climate adaptation.

More than 40,000 participants have registered for this year’s talks, a number up from other recent COP summits and likely reflecting the growing sense of urgency as major weather events around the world affect many people and cost billions of dollars in economic loss and replacement.

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Discussions will focus on how rich countries can financially address the additional burden they place on developing countries in terms of resource use, deforestation, and the health and economic costs of pollution. Suppliers and contractors are also exhibiting technologies and other solutions to convert energy from fossil fuels to alternatives such as solar, wind, nuclear, hydrogen and more (ICLN). Or how industry could capture and, in some cases, reuse its carbon emissions for energy or other products.

Organizers say around 110 world leaders will attend, many of whom will speak at a high-level event on November 7-8.

But the leaders are coming together in a year that has been marked by war, economic upheaval and major elections that have led to big shifts in political trends.

“The Russian invasion of Ukraine, and [trade and security] tensions between the United States and China could hamper collaboration at COP27,” said Ruth Townend, researcher in the Climate Risk and Diplomacy, Environment and Society program at Chatham House, based in the United Kingdom, in a commentary. .

“Success will depend heavily on goodwill between all parties, which is currently under increasing pressure,” she said.

US President Joe Biden will address the summit on Friday. Biden faces world leaders the same week as the U.S. midterm elections, a major test of his party’s tiny advantage in Congress and the landmark climate change spending bill he just signed into law. a few months ago.

The United States, as the world’s largest economy, is always expected to advance the efforts of developed countries. Eyes will be on those responsible for making meaningful progress on climate finance, including delivering the promised $100 billion a year to help developing countries.

Chinese President Xi Jinping and Indian Prime Minister Narendra Modi had no intention of coming in person, instead sending delegations and casting doubt on whether the talks in Egypt could lead to major agreements to reduce the broadcasts without the main leaders of two of the countries of the world. biggest polluters. The United States rounds out the top three nations that emit the most greenhouse gases.

It was a pact between China and India, and their subsequent refusal, at COP26 in Glasgow last year, that softened the summit’s communiqué on the rapid phase-out of dirty coal as a source of energy.

British Prime Minister Rishi Sunak, who changed his mind after initially saying he would not attend the climate summit, in a speech at the venue promoted the UK’s efforts to decarbonise its economy and spending £11.6 billion to help the poorest countries meet global challenges. warming up.

Sunak adopted a much more optimistic tone than the other leaders.

“We can turn our fight against climate change into a global mission for new jobs and new growth and we can leave a greener planet for our children,” Sunak said, according to The Associated Press. “There really is room for hope. Let’s make it happen.”

Greta Thunberg is notably absent from the protesters in Egypt, according to the source itself. The young Swedish activist, who has previously addressed the UN and single-handedly launched one of the best-known climate activism campaigns, Fridays for Future, called the event “greenwashing” and said that it would “encourage progressive progress”.

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Why is COP27 important?

According to the IPCC, under all scenarios that meet warming limits of 1.5 degC or 2 degC, global emissions must fall between 2020 and 2025.

In fact, emissions continue to rise, with atmospheric levels of the three main greenhouse gases (carbon dioxide, methane and nitrous oxide) all reaching new records in 2021.

Most major industrialized countries, including the United States, have set themselves the goal of halving greenhouse gas emissions in all sectors of the economy by 50% by 2030. This is a key marker on the path to net zero emissions by 2050.

But the UN says evidence to date shows countries are not moving fast enough to meet these goals.

“Loss and damage”: a key political issue from the outset

Negotiators agreed, after two rushed days of preliminary talks, to formally discuss at COP27 the issue of vulnerable nations receiving money for the loss and damage they have suffered from climate change.

“Loss and damage” has undertones of responsibility and climate justice. The countries that have profited the most and profited most easily from the burning of fossil fuels are not the countries that are suffering the most from the impacts of climate change. Thus enters the charged term: reparations.

The issue has colored discussions for years, with wealthy countries including the United States pushing back on the idea of ​​climate reparations.

“The fight is on point, is this liability valid? How can we quantify it? Who owes what to whom?” says Lisa Dale, a lecturer at Columbia University Climate School.

The UN Secretary-General has long insisted that significant progress be made to address the loss and damage. Pressure to pay for loss and damage differs from climate finance directed towards mitigation and adaptation. “Loss and damage” is seen by most as a third pillar whenever funding is discussed.

“The fact that it has been adopted as an agenda item demonstrates progress and the parties are adopting a mature and constructive attitude towards this,” the senior UN climate official told The Associated Press. , Simon Stiel.

“It’s a tough subject. It’s been floating around for over thirty years,” he said. “I think that bodes well.”

Main topics for financial markets

Concrete, steel (SLX), aluminum and chemicals – and the ships, planes and trucks that transport them – are currently responsible for 30% of greenhouse gas emissions, and this is expected to grow to meet the needs of global goods and services. service request.

The key to the transition of these global sectors is to bring down the prices of clean methods and technologies, compared to conventional carbon-intensive techniques. That means stocks, indices, and exchange-traded funds in those areas, as well as broader industrial ETFs (XLI) and materials ETFs (IYM) could see some hard-hitting news from the conference.

In addition, Commodity Markets (DBCs) will assess not only the scorching comments from officials on the current food and energy crisis, but also the likelihood of changes in the dominance of energy production among the majors and a production increased and more efficient agriculture.

The global food, land and ocean use systems now account for over 12% of global GDP and over 40% of all jobs. The food crisis, exacerbated by the war in Ukraine, strained supply chains and energy prices have caused agricultural commodity prices to soar. This particularly affects: in 2021, more than 820 million people will suffer from hunger, the World Economic Forum (WEF) said in an overview.

Likewise, water-related events such as floods and droughts are becoming frequent and more acute due to climate change. Several water-related ETFs (AQWA) have popped up in recent years. The UN IPCC reports that 3 billion people could face physical water scarcity with a 2°C increase in global temperature. Furthermore, water security is a key priority of the Egyptian COP presidency.

Read: How to invest in water as droughts and shortages dominate the news

Egypt: An Interesting Backdrop for Climate Negotiations

Egypt’s role as host of COP27 is sparking much discussion around its unique position, stuck in the middle of a major economic downturn and facing global accusations of human rights abuses from wronged citizens .

President Abdel Fattah al-Sisi has sought to bring Egypt back onto the world stage, promising a “new economy” era for the country despite persistent headwinds, as Reuters reports. For example, its currency has lost around 35% against the US dollar since March.

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11-07-22 1417ET

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