After Egypt: bold cooperation to mainstream climate-resilient development
Non-market approaches under Article 6.8 of the Paris Agreement can create vast new opportunity for mobilizing climate action; this is CCI's post-COP27 report on the most promising ways.
The COP27 was the first round of annual U.N. Climate Change negotiations tasked with moving forward on the operationalization of non-market cooperative arrangements between nations. (The process was agreed in Glasgow last year, and the Glasgow Committee started work this year.) ‘Cooperation’ means two or more nations agree to work together on set terms to accelerate decarbonization (overall mitigation of global emissions) and mainstream climate-resilient development. ‘Non-market’ means no emissions trading.
There is always the question of whether new areas of work will entail an overall expansion of financial delivery to countries in need. With non-market approaches, this will depend on the overall level of ambition inherent in the scope of work. The range of potential action spans from creating a website on the low end to mobilizing trillions of dollars in trade and finance to effectively mainstream climate-smart transformation on the high end.
The three big concerns around shaping this ambition were:
What digital infrastructure will be used to enable information sharing and to invite new cooperative arrangements?
Around which focus areas will the Glasgow Committee be tasked with facilitating information-sharing and progress toward enhanced cooperation?
How can performance tracking be standardized across such a diverse landscape of policy and investment action?
Two important developments point to higher ambition:
We know the information-sharing portal will not be the whole story; it will be designed to allow all nations to understand what kind of policies might be in effect elsewhere, and to think about how they can be mobilized domestically and in partnership with other nations.
The list of focus areas expanded, with an invitation to stakeholders to help design and implement NMAs—a sign that negotiators understand there is potential across a diverse array of policy actions (really everything governments do that is not emissions trading), and cooperation to drive climate-smart transformation should benefit from all relevant perspectives and cooperative arrangements.
Menu of options linked to Article 6.8
Earlier this year, we submitted a brief outlining a minimum number of areas we felt should be included. We re-sequence them here into three broad areas, recognizing that each of these 12 points is in itself a suite of strategies, policies, and instruments that can enhance overall mitigation of global emissions, foster sustainable development, and improve verifiability and accountability in carbon pricing, green labeling, and sustainable finance.
1) Policy, Pricing & Incentives
Standards and regulations – Financial regulations, trade-related conditionalities, and border adjustments and related negotiations, that allow nations to cooperate to secure a faster pace of decarbonization;
Climate income policies, which create an economically efficient, fast-moving decarbonization pathway, and foster green recovery by setting strong, steadily rising carbon prices, with revenues returned to households and communities, to ensure price pressures fall on polluters;
Carbon-related border adjustments – Domestic and cooperative mechanisms that support carbon border adjustments, to ensure climate leaders don’t lose trade to pollution offshoring;
‘Floor price’ measures – Diplomatic, fiscal, and policy action toward an effective international “floor price” for carbon pollution.
2) Prioritization & Performance
Accounting and avoidance – Regulatory measures that mandate accounting, disclosure, and avoidance of carbon-related liabilities;
‘Labeling’ and tracking – Labeling, accounting, data-sharing, impact tracking, and transparency practices that expand opportunity for mainstreaming of climate-smart finance—noting labeling of ‘green’, ‘blue’, and ‘pink’ finance (fostering human capital benefits across health and other SDGs);
Data integration – Policies, institutional arrangements, and business model innovation incentives that support integration of Earth science data platforms into financial decision-making information flows;
Multilateral coherence – Action by existing international institutions (and central banks, through cooperative frameworks) to become engines for climate action incentives and enforcement, connecting climate action aims, impacts, and metrics, to their respective decision-making, financing, and multilateral policy intervention capabilities.
3) Operational Support
Investing in nature – Enabling policies that create conditions for climate-smart, nature-positive financial instruments, support for regenerative agriculture, and other forms of green finance—not linked to emissions trading markets;
Fiscal rescue funding – Linking Special Drawing Rights (SDR) to Paris Agreement action and funding, given the urgency of scaling up mainstream finance for climate mitigation, adaptation, and resilience, from the public, private, and multilateral sectors;
Food systems innovation measures, supported by policies, financial instruments, consumer health and safety regulations, and the linking of multifocal science insights to impact investment strategies by public, private, and multilateral institutions.
Transition assistance – Direct and indirect incentives and blended financing strategies that support accelerated transition of emissions-dependent local and regional economies to climate-smart low-emissions standards and practices.
During the mid-year negotiations, we noted that addressing loss and damage will require immediate, real-world attention, as well as support for ongoing recovery and restoration, adding that:
The diverse range of uncompensated losses and damages tied to climate disruption includes degraded landscapes, reduced food security, loss of community, cultural heritage, and forced migration.
Loss and damage also lead to the depletion of national resources, the fraying of the social contract, and the weakening of national capability to act on climate.
Overcoming loss and damage is a shared global imperative.
While some argue that loss and damage should only be addressed as a separate, additional area of need and funding, it remains unclear whether such an approach would expand or narrow the overall amount of funding available. In Bonn and in Sharm el-Sheikh, we heard calls for cooperation through NMAs to address and reduce vulnerability, including by responding to loss and damage. One area where this is already happening is structured climate-responsive debt relief.
Given this, we now add a fourth broad category, under which all named activities can potentially connect to existing source mobilization under the Transitional Commitee for Loss and Damage, in 2023:
4) Vulnerability-Responsive Measures
Vulnerability response resourcing, linked to Loss and Damage, but applying to a broader range of climate resilient development imperatives, including adaptation, nature-restoration, and sustainable economic transformation;
Climate-responsive debt relief – Leveraging more integrated, just, and inclusive value accounting, in line with the Bridgetown Initiative, to structurally reduce sovereign debt burdens, recalculate interest rates, and deliver targeted assistance;
Early warning-related co-investment strategies, facilitating wider flows of finance—across public, private, multilateral, and philanthropic sources of capital—to support countries’ expansion of early warning systems and integration of relevant planning and response at local and provincial levels;
Insurance for livability – Expanding on the work of InsuResilience, the Global Shield, and the Resilience and Sustainability Trust, to provide targeted expanded flows of capital to support ongoing livability before, during, and after major climate-related shocks.
On the question of how insurance systems can be used to deliver assistance and reduce overall risk, harm, and cost, it is imperative that such systems not be used as a way to transfer responsibility from polluting countries to vulnerable countries. It is a direct benefit to donor countries to see effective intermediary financial systems, including insurance, reducing overall cost of climate vulnerability response. Such systems should receive additional investment from donors to expand overall delivery of needed assistance and reduce their overall costs.
We cited above strong positive signs on points 1 and 2 on the Article 6.8 table at COP27. We are still working toward clear standards on overall performance tracking for NMAs. There is good reason to see performance tracking as something that needs to continually evolve, to ensure standards, practices, and systems, are all attuned to the best available knowledge emerging from experience.
Each of the items listed under 2) Prioritization and Performance, above, provides meaningful opportunities for allowing this adaptive management approach, while setting high standards and seeing clearly where there is greater or lower value from a particular non-market cooperative arrangement:
Accounting and avoidance – Mainstream accounting standards can help to reveal carbon intensiveness and related liabilities. Such improved practice, whether mandated or voluntary, would make it easier to link incentives to business activities, and to reward real-world avoidance of emissions and of climate risk more broadly.
‘Labeling’ and tracking – Whether green, blue, or pink-labeled finance—or some combination of these—properly designating, verifying, and tracking sustainable financial interventions can allow mainstream finance to work across borders, through international trade, to support the mainstreaming of climate resilient development.
Data integration – Climate-responsive integration of data systems is critical for improved assessment of converging and compounding risks and new modes of value creation; while all data systems carry structural limitations, the most effective integration approaches will support mainstreaming of multidimensional performance metrics.
Multilateral coherence – Coherence is critical, because we cannot afford to be prioritizing decarbonization in one country or region while actively supporting expanded pollution elsewhere; cooperative arrangements to intelligently align investment and development priorities across borders are indispensable.
Hypothetical multilateral NMA packages
The following is a short, non-exhaustive list of sample NMA packages, to get a sense of what it might look like for real-world mobilization of cooperative mainstreaming:
A Climate Income Cooperative – In this example, 10 nations—8 low and middle income countries (LMIC) in one region, plus two high-income countries—agree to establish national carbon pricing plans, using a climate income system, in which revenues are assessed on the carbon emissions potential of extracted fuel stock (coal, oil, or gas) and revenues are returned to households and vulnerable communities. Border adjustments are put in place for non-compliant nations, but waived for the 10 members of the cooperative. The two wealthy country partners provide targeted conditional finance, vulnerability-responsive debt relief, and other measures to support cooperative expansion of overall climate resilient development.
A Green Nutrition Security Pact – In this example, one large high-income food importer establishes a food and agriculture-focused trade agreement with 5 low- and middle-income countries (LMIC) that export food, from their neighboring region. One goal for the wealth country is to expand flows of healthy, sustainably produced food (green, blue, and/or pink-labeled), to improve health and environmental sustainability for its population. The Pact includes provisions to diversify and expand rural community economies in the LMIC, and to provide similar environment, health and wellbeing benefits to people in those countries. Enabling policies, including transparency incentives investment in relevant data systems and services, and climate resilience measures, are implemented in a cooperative fashion to ensure coherence across the participating countries.
A Climate Banking Partnership – In this example, 30 countries, including all eurozone countries and 10 or more climate vulnerable countries, agree to align banking industry standards to enhance the climate resilience of front-line communities across the 30 countries, to significantly reduce costs of climate shocks to coastal regions and food growing regions, and to provide measurable and specially funded guarantees to keep the trade in goods and services for basic needs moving, even amid extreme events or times of ongoing crisis. The banking sector improves its accounting standards to clearly show the difference in long-term development value for destructive/polluting activities as compared to sustainable/resilience-building activities, unlocking major new flows of finance that attract more countries to join.
In each of these cases, the countries in question are not limited to or entirely defined by the activities linked to these non-market cooperative arrangements. They instead use these strategies to enhance and accelerate climate resilient development within their borders, and across the participating countries. This allows for cooperative expansion of overall opportunity for return on investment from green, blue, and pink-labeled finance.
What to watch in 2023
In short, 2023 should see climate action accelerate through a number of catalytic innovations:
Reform of multilateral development banks and other international financial institutions;
Mobilization of resources from existing institutions through the Transitional Committee for Loss and Damage;
Significant expansion of climate-responsive debt relief;
Emergence of voluntary bilateral and multilateral non-market cooperative arrangements to mainstream climate-resilient development.
CCI and Resilience Intel will be tracking progress, and reporting on emerging breakthroughs, as we move forward with monthly coordinating calls to share notes on developments around Article 6.8 activities and non-market approaches.
Explore a longer list of background reference materials relating to ambitious implementation of Article 6.8 non-market approaches, updated regularly: