COP27: US' renewed climate credibility scant consolation for nations in search of funds

While the historic Inflation Reduction Act provides a much-needed boost to the US' clean energy transformation, policy experts are skeptical that the wind the IRA puts in the sails of American clean energy will carry over to this year's UN Climate Change Conference.

COP27, which will be held in Sharm el-Sheikh, Egypt Nov. 6-18, has been nicknamed the African COP, not only for its location, but for its stated intent to focus on the energy and climate adaptation needs of African countries and other developing nations around the world.

Although the Inflation Reduction Act and the $370 billion it puts on tap for US climate action finally shows the US walking the walk with regard to climate action, the impact of that bill will mostly be limited to the US' domestic borders.

"Is the US back in the lead position? In a lot of ways we are," said Andrea Clabough, an associate energy and climate analyst at Goldwyn Global Strategies. "But in a lot of other ways, our global leadership on this front is still somewhat lacking when it comes to the challenges the developing world is thinking about."

The most glaring example of this, Clabough points out, is the UN's Green Climate Fund, an international fund established in 2010 to finance climate adaptation and mitigation projects in developing economies.

In 2009 wealthy nations pledged to provide $100 billion per year in climate finance by 2020 to help vulnerable nations deal with climate change. Last year, however, the OECD said the commitment was unlikely to be met until 2023.

As of Oct. 21, meanwhile, the Green Climate Fund's portfolio comprised 209 projects and programs accounting for $11.3 billion in GCF resources ($42.4 billion with co-financing).

The US has played a role in the funding shortfall. The Obama administration initially pledge to commit $3 billion toward the fund, although only $1 billion was ultimately contributed before the end of Barack Obama's presidency.

The Biden administration has also failed to materialize contributions after a proposed $8.6 billion earmarked for the fund was axed from both the IRA and the CHIPS Act, or the Creating Helpful Incentives to Produce Semiconductors for America Act.

'Where is the money?'

It's been difficult for any presidential administration or Congress to allocate money to international climate aid, Clabough said. But it's especially difficult to do so this year, as the world remains mired in a global energy crisis, a recessed economy and unrelenting inflation.

"There's going to be pressure from these countries asking, 'Where is this money?' [during COP27]," she said. "But passing that kind of financial commitment in Congress can be very difficult when there are so many major competing priorities in the US at the moment."

Adding to the tension is the fact that it's been an especially painful year for many developing nations facing the burden of climate change. India suffered its most severe heat wave on record this year, floods in Pakistan forced tens of thousands of people from their homes, while drought in eastern Ethiopia, northern Kenya and Somalia led the UN to warn millions of people could be at risk of starvation.

IRA and foreign policy

The IRA brings a host of new investments to a variety of clean energy technologies. It extends tax credits for solar and wind, increases tax credits for carbon capture and sequestration, creates new tax credits for clean hydrogen, invests in a domestic precious metals industry and, among many other items, subsidizes the adoption of electric vehicles among US consumers.

What the bill doesn't do is direct any funding towards international climate finance opportunities.

"It's not that kind of bill," said Roman Kramarchuk, head of the Future Energy Analytics team at S&P Global Commodity Insights. "It's not a climate bill -- it's an industrial policy bill. While it shows climate commitment and will reduce emissions, it doesn't directly help the broader cause of reaching a global agreement."

While the bill overall is positive for climate, it will have limited impact on the global policymaking processes that COP represents, Kramarchuk said. Yet there arguably are several indirect ways the bill could influence the global move towards net-zero, primarily the cost reductions of clean energy technologies.

For instance, the $3/kg of clean hydrogen tax credit has already caused many US and European electrolyzer builders to expand their manufacturing capacity in the US, which would help lower the overall cost of electrolyzers and green hydrogen. Those cost reductions would be enjoyed across the global clean energy market.

"It's like photovoltaics," Kramarchuk said. "Germany paid a ton for it, and now the rest of the world is paying less for it. There is that benefit. But it's a trickle-down of technology as opposed to a conscientious international agreement to do this together."

Bad timing

It's bad fortune that COP27, designed to pay special attention to the developing world, is taking place in the year of Russia's invasion of Ukraine, said Reed Blakemore, deputy director of the Atlantic Council's Global Energy Center.

"Unlucky is the reality of where we're at now," Blakemore said. "We're dealing with the really hard question of energy security, and not in an esoteric sense," he said, noting the potential for blackouts and curtailments.

To Blakemore, the IRA will have two indirect impacts on this year's COP. It will have a positive ripple effect on the global playing field for clean energy investments, and it gives the US more credibility as it urges other nations to raise their climate ambitions. But he doesn't see these factors cutting through the present geopolitical context.

"I don't think it completely overcomes the gloomy context surrounding the COP, though it positions the US to be an effective point of engagement," Blakemore said. "The symbolism matters."

"COP27 was supposed to be about getting from the ideas and goals of COP26 to the pathway where we're seeing real world change and we're getting on track to our global targets," said Clabough. "But now it's looking like there's going to be a lot of issues with achieving that."

US foreign climate aid

However, US special presidential envoy John Kerry offered a glimmer of hope that US foreign climate aid will be coming during COP27. During a press briefing in London Oct. 26, Kerry said the US is planning to be more engaged during the conference in discussions over coping with loss and damage.

"The United States is going to make a number of announcements when we get there," he said. "We want the COP to make sure that everyone understands we are doing the things necessary to keep 1.5 C alive. And we need to have the NDCs -- not just of developed countries, but developing countries around the world need to step up and put in their NDCs because everybody needs to do their part here."

Without offering specifics, Kerry said the US will be working with banks to develop guidelines designed to help enable climate-related lending, and will be supporting the deployment of early warning systems to vulnerable nations.

"We will be doing an adaptation event in Egypt with the Egyptian government where we will make announcements of our support to Africa on adaptation," he said.