This article is an on-site version of our Moral Money newsletter. Sign up here to get the newsletter sent straight to your inbox.
Visit our Moral Money hub for all the latest ESG news, opinion and analysis from around the FT
Welcome back to our on-ground coverage of COP27 in Sharm el-Sheikh, with a special edition of Moral Money in your inbox every weekday for the duration of the conference.
Some attention was diverted from proceedings here yesterday by the first presidential meeting between Xi Jinping and Joe Biden. The White House said the leaders had agreed to “maintain communication” on issues including climate change, economic stability and food security — a somewhat encouraging sign, after China suspended bilateral climate talks following US house speaker Nancy Pelosi’s August visit to Taiwan.
Here in Sharm, US climate envoy John Kerry delivered a message that may have been intended to sound reassuring, but didn’t feel that way to me — telling a panel that he put the chances of nuclear war in Ukraine in the “low single digits” per cent.
The wider geopolitical and economic situation is firmly hanging over COP27 as national negotiators get down to the real meat of the event, with just three full days now remaining in the official programme. The focus is on the language of the declaration that is expected to emerge with unanimous support from participating governments at the end of the COP.
A big part of the debate surrounds the explicit treatment of fossil fuels. In an intriguing move, India has suggested an agreement to “phase down” all fossil fuels — not just coal, as was agreed at last year’s COP26. This would ease the focus on heavy coal producers like India — but the idea is likely to face strong resistance from big oil and gas producers like the US and Saudi Arabia.
The hottest issue of all, as we flagged at the start of the conference, is a “loss and damage” financing facility to channel funds from richer countries to poorer ones. Yesterday, that debate intensified with the formal launch of the Global Shield, a separate initiative to support countries hit by climate disasters.
Global Shield’s advocates say it is an important step in the right direction. Its critics perceive an effort by rich countries to distract attention from a serious loss and damage facility that would cost them for more. The stakes could not be higher. Read on for more.
Also today, Kenza looks at some of the most exciting energy investment opportunities emerging in Africa.
See you tomorrow. (Simon Mundy)
COP27 day 8 in brief:
The US and China will restart stalled climate negotiations following the meeting of Joe Biden and Xi Jinping, bringing relief to the diplomats and climate experts gathered in Sharm el-Sheikh.
Russia’s invasion of Ukraine has led to the release of 33mn tonnes of greenhouse gases, said Ruslan Strilets, Ukraine’s environmental protection minister. “Russia has turned our natural reserves into a military base,” Strilets said, reports the BBC.
Climate negotiators and COP27 observers have warned that a no-deal on “loss and damage” funding could thwart other agreements, Reuters reports. The issue has leapt to the top of the COP27 agenda after more than 130 developing countries successfully demanded it be added to the agenda for the first time.
Global Shield: Not perfect, but is it good?
There’s a phrase that I’ve heard more times than I can count since starting this job 14 months ago: “Don’t let the perfect be the enemy of the good.”
The saying is often used to support arguments along the following lines: something that has a positive impact, however limited or imperfect, is better than nothing.
The counterargument, of course, is that flawed initiatives can suck momentum and attention from other efforts that could yield much more serious results. That is precisely the concern raised by critics of the Global Shield against Climate Risks, which was formally launched at COP27 yesterday.
Spearheaded by Germany in its current role as president of the G7 countries, and launched in partnership with the V20 group of climate-vulnerable countries, the Global Shield is intended as a new mechanism to provide poor and vulnerable people with “substantially more and better pre-arranged finance against disasters”.
Funding pledges have already started rolling in. Germany has committed €172mn ($170mn). France will kick in €20mn ($21mn) next year. Ireland has promised $10mn and Canada $7mn. The total promised so far stands at about $210mn.
The trouble is that these sums are tiny compared with the vast costs of climate disasters that are already happening. In Pakistan alone, this year’s catastrophic floods created loss and damage amounting to $30bn.
The support of the V20, which includes 20 of the developing nations most exposed to climate impacts, is important to note here. At a press conference yesterday, Ghanaian finance minister Ken Ofori-Atta called it a “path-breaking” effort that was “long overdue”.
But others have been far less enthusiastic. The main fear is that the Global Shield could distract from the push for a formal loss and damage facility, constituted under the United Nations Framework Convention on Climate Change, which could impose much more demanding requirements on rich countries, and deliver far more support to poorer ones.
“The Global Shield CAN’T be the alternative to #LossAndDamage finance facility,” tweeted Hindou Oumarou Ibrahim, a prominent Chadian activist.
While many details of the Global Shield are not yet confirmed, it seems that it is shaping to be a sort of insurance facility, with premiums from developing countries subsidised by voluntary contributions from richer ones.
Expanded insurance coverage clearly has an important role to play in this space. But if this approach shunts out the “polluter pays” compensation paradigm, then many will have a serious problem with it. As Barbadian climate envoy Avinash Persaud put it, an insurance-focused model could mean that “the victim pays, just in instalments”.
A detailed paper by researchers Julie-Ann Richards and Eva Peace Mukayiranga sets out other concerns — notably the fact that the Global Shield, which is being built outside the UNFCCC framework, could look to rich nations like a softer, more malleable option.
As we’ve written previously, it is hard to imagine rich nations coughing up in full the enormous costs that their pollution has imposed on poorer ones. The US, in particular, seems allergic to the idea of formal liability. “It’s a well-known fact that the United States and many other countries will not establish . . . some sort of legal structure that is tied to compensation or liability. That’s just not happening,” climate envoy John Kerry said on Saturday.
And it’s true that there is nothing in the Global Shield that would technically block progress on other loss and damage facilities. One could view it as part of a “mosaic” of approaches in this space, to borrow a term from former Irish president Mary Robinson.
For now, however, there is conspicuous distrust towards the Global Shield initiative from many here in Sharm el-Sheikh. And if this week ends without serious progress towards a formal loss and damage finance facility, the backlash may well grow stronger. (Simon Mundy)
Quote of the day
“Providing such a high-profile platform for corporate actors to ‘greenwash’ their reputation is incompatible with the aims of climate change negotiations.”
Tough words in an open letter from 60 health organisations, including the World Obesity Foundation, objecting to Coca-Cola’s sponsorship of COP27. The letter to Simon Stiell, executive secretary of the United Nations Framework Convention on Climate Change, on Friday described the soft drinks company as “the world’s leading plastic polluter”.
Beyond COP27: Sunny investment opportunities
Africa receives 60 per cent more sunlight a year than the global average, according to a report released yesterday by the independent financial think-tank Carbon Tracker. What’s more: by the end of the decade, the cost of solar on the continent could be $40 per MWh — cheaper than the projected local cost of running coal and gas plants, it said. So why does the continent still only account for about 2 per cent of global solar electricity generation?
Clues lie in the debate about whether African countries should exploit their oil and gas reserves, for which Putin’s war in Ukraine has created immediate demand. For example, Germany, which has been one of the worst hit by the energy crisis, has said it wants to pursue gas partnerships in Senegal.
Former US vice-president Al Gore said the “dash to gas” in Africa was building a “bridge to nowhere” at the opening ceremony of COP27, highlighting the risk of stranded assets when European countries transition away from gas in future. Mohamed Adow, head of the Nairobi-based think-tank Power Shift Africa, later accused Europe of using the continent as its “gas station” and overlooking the potential of renewable energy.
Gas export revenues for African countries could halve by 2040, Carbon Tracker estimates, potentially locking in an unsustainable growth path for the nations that prioritise building gas infrastructure now.
But some African leaders have welcomed the idea. Speaking at a COP27 side event, Maggy Shino, petroleum commissioner at Namibia’s Ministry of Mines and Energy reportedly said Namibia would seek to attract investment to exploit its fossil fuel resources. “We have energy poverty and it’s our aim that we are going to end this poverty by using [our] gas,” she said.
This echoes the tone of what the hydrocarbons minister for the Democratic Republic of Congo told me over the summer regarding the government’s decision to auction off the rights to oil and gas exploration in some protected rainforest areas. “We have the right to benefit from our natural wealth”, Didier Budimbu told me, emphasising the opportunities presented by the energy crisis. “We are a free, sovereign nation, so we will exploit it.”
The International Energy Agency’s 2022 Africa Energy Outlook backs up the optimistic case for natural gas exploitation, at least in the short term. At least 5,000bn cubic meters of natural gas resources have been discovered in Africa but not yet approved for development; these could be used to boost its fertiliser, steel, cement and water desalination industries, it found. Exploiting this gas fully over the next three decades would emit 10 gigatonnes of CO₂ emissions — which would still bring Africa’s share of global emissions to just 3.5 per cent, it estimates.
Plans to build or expand oil, gas or coal projects are already under way in 48 out of 55 African countries, according to a report out today from environmental non-profits including Urgewald and Oil Change Africa, using data analysis from the Dutch analysts Profundo. Capital expenditure for oil and gas exploration in Africa rose from $3.4bn in 2020 to $5.1bn in 2022, it says.
Beyond the obvious impact on emissions, planned projects may not guarantee energy security for the average person, the report argues. Half of the 70 new coal mine and expansion projects in Africa are located in Zimbabwe, where nearly half of the population has no access to electricity. Most of this power could go to mining projects near the plants. Leanne Govindsamy from South Africa’s Life After Coal Campaign, describes the coal plants as “expensive stranded assets in waiting with immense environmental and social impacts.”
Cleaner investment opportunities abound. A few small projects by companies with big ideas have been highlighted at COP27 by the African campaign PowerUp, focused on five African countries it thinks could be trailblazers in growing access to energy — Kenya, Rwanda, Sierra Leone, South Africa and Tanzania.
It picks out Zonke Energy — which is bringing clean energy to off-grid township communities in South Africa, with mini-grids designed for urban settings — and Ignite Power, an infrastructure company selling solar-powered irrigation to Rwandan farmers.
On a bigger scale, Kenya, Egypt, Mauritania, South Africa and Namibia have launched the so-called Green Hydrogen Alliance, which is looking for funds to become frontrunners in developing this technology. (Kenza Bryan)
The FT Money pages, in print every Saturday, have relaunched — watch out for regular columns from us at Moral Money and from Stuart Kirk, former head of responsible investment at HSBC Asset Management. Kirk’s first column is a hot topic for us: why bank net zero targets are “hokum”. Let us know if you agree.
Recommended newsletters for you
Due Diligence — Top stories from the world of corporate finance. Sign up here
Energy Source — Essential energy news, analysis and insider intelligence. Sign up here