Another COP, another mixed bag for climate policy

So another year, another COP. This time, COP29 in Baku, Azerbaijan. Fair to say, it hasn’t gone down as one of the more memorable COPs, nor did it come up with anything particularly innovative or far-reaching.

In the words of Ottmar Edenhofer, climate economist and co-director of the Potsdam Institute for Climate Impact Research: “The climate summit in Baku was not a success, but at best the avoidance of a diplomatic disaster.”

Of course, much was made of the headline agreement, known formally as the New Collective Quantified Goal on Climate Finance, that will:

• Triple finance to developing countries, from the previous goal of $100bn annually, to $300bn annually by 2035.
• Secure efforts of all actors to work together to scale up finance to developing countries, from public and private sources, to the amount of $1.3trn per year by 2035.

Simon Stiell, executive secretary of UN Climate Change called it an insurance policy for humanity. “But like any insurance policy, it only works if premiums are paid in full, and on time. Promises must be kept, to protect billions of lives. It will keep the clean energy boom growing, helping all countries to share in its huge benefits: more jobs, stronger growth, cheaper and cleaner energy for all,” he said.

However, the deal didn’t go down well with the Global South and many smaller nations. Johan Rockström, Earth system scientist and co-director of the Potsdam Institute for Climate Impact Research, said: “The Baku agreement of raising $300bn of public money annually from multiple sources by 2035 fails on several accounts. Too little, too late, from too many sources. Global emissions must be reduced by 7.5% per year to avoid unmanageable global outcomes as the world breaches the 1.5°C limit.”

But there were some positive moves. As Allister Furey, CEO and co-founder at carbon data platform Sylvera, explained: “While much criticism has been levelled at the talks and the final agreement on climate finance falls below the amount developing countries sought, Baku will be remembered as a milestone moment for creating a high-integrity global carbon market.”

He added: “We must now turn to delivering a successful market that is rooted in transparency, rigorous standards, reliable data and high-quality credits to ensure that every credit traded represents a real, measurable reduction in emissions… The breakthroughs we saw in global carbon trading at COP29 were encouraging. The task now is to ensure nations and companies can invest confidently moving forward in a market grounded in integrity and data transparency.”

And the first-ever global guide on transition plans for insurance companies was launched by the UN-convened Forum for Insurance Transition to Net Zero (FIT) at COP29. The FIT’s inaugural report, Closing the Gap: The emerging global agenda of transition plans and the need for insurance-specific guidance, stresses the insurance industry’s triple role as risk manager, risk carrier and institutional investor “in accelerating and scaling up a just transition to a resilient net-zero economy, including addressing the interconnected, climate-related sustainability issues of protecting nature and biodiversity and preventing pollution via a circular economy”.

Also launched at COP29, a new financing concept for carbon removals from the Potsdam Institute for Climate Impact Research (PIK) and development bank KfW. The discussion paper written by PIK and KfW Research outlines the option of integrating carbon removals into the existing emissions trading system, which will require a rapid expansion of the market.

“Promotional banks like KfW could play a crucial role in advancing market development by launching early purchase programmes and assuming risk,” said PIK. “For example, ‘clean-up certificates’ can create incentives for private-sector demand in the early stages of the new market. Instead of paying money up front for a conventional emission allowance, companies would use this new instrument to commit to having the CO2 removed from the atmosphere at a later date – preferably using new, high-quality processes such as air filter systems or artificially accelerated weathering of rock.”

The discussion paper classifies the retrieval and storage of CO2 as the third pillar of climate policy, alongside rapid emission reduction towards zero, and adaptation to climate change.

And on the issue of adaptation, at the conclusion of COP29, Swenja Surminski, managing director climate and sustainability at Marsh McLennan, said: “The global protection gap is vast, especially in developing and emerging economies. To address this issue, increased investment in adaptation and resilience is crucial. Our analysis shows that for insurers, investing in adaptation can unlock $71bn in new opportunities while also improving community recovery from adverse events.”

She added that new insurance solutions are emerging such as parametric insurance, which aims to mitigate risks such as too much or too little rain – “an example of how the insurance industry is playing its role in responding to the changing climate. We need to see even more innovation, and more urgency, as we grapple with the climate challenges,” she said.