COP27: Key Outcomes and Implications for Thailand
Dr Bordin Vongvitayapirom, Senior Manager - Sustainability & Climate Centre of Excellence (S&C COE) at Deloitte Thailand, shares his insights regarding the latest climate change conference.
At the 27th session of the Conference of the Parties of the UNFCCC (COP27) held last month in Egypt, many expected to see the development of mechanisms under the Paris Agreement in continuation of COP26, and the progress of countries against their climate commitments. Meanwhile, severe climate impacts around the world in the past year, such as the major flood in Pakistan and devastating wildfires in many countries, heightened the focus of world leaders on damage and loss recovery. These climate crises highlighted the increased pressure for governments to act on their prior commitments in keeping a 1.5°C scenario alive and the urgency to unlock financial support to address its major impacts on developing economies.
Key developments at COP27 can be summed up in 3 main areas: (1) climate finance, which centered around the creation of a “Loss and Damage Fund” and continuing discussions on climate financing under the Paris Agreement; (2) increased emphasis on private actors, especially in the Energy and Carbon Market and; (3) the critical role of new and emerging technologies in green transitions.
Climate Finance as key support for developing countries
The Loss and Damage Fund, with the objective to aid vulnerable countries facing severe climate related impacts, took center stage of COP27. The Loss and Damage finance mechanism will be discussed at the new transitional committee meeting by March 2023. As a developing country, Thailand agrees with the establishment of the fund but still expects to see progress on the previous financial commitment of US$100 billion mobilized by developed countries for climate action in developing countries.
As one of the ten most flood-affected countries in the world, Thailand will need to rely on global funding to absorb the high economic impacts of climate change and to develop infrastructure for climate mitigation and adaptation. Meanwhile, we see a growing domestic ecosystem of private sustainable financing which will be strengthened once the Bank of Thailand’s Green Taxonomy is enforced next year. This will support financial institutions to embed sustainability and encourage the distribution of funds and financial products for energy transition, climate actions, and sustainability-linked projects. The use of these sustainable finance products and loans is an opportunity for private sector to fund their transition to low carbon organization.
Carbon Market Mechanism may become more stringent in the future
COP27 saw some developments in carbon markets, such as on the governing the use of Internationally Transferred Mitigation Outcomes (ITMOs) with Article 6.2, and clarifications on trading of carbon credits under Article 6.4. At the conference, Thailand highlighted that it is among the first countries to tackle climate change under Article 6.2, through cooperation with Switzerland.
Thailand recently launched its first carbon credit exchange operated by the Federation of Thai Industries with the aim to accelerate the adoption of carbon credits, encourage innovation in emission reduction initiatives and enhance the quality of carbon credits to meet international standards. Companies will need to pay greater attention to the carbon market as the pressure and regulations around carbon neutrality has tightened significantly in the recent years, particularly among buyer countries such as Europe (e.g., CBAM) and other countries with mandatory carbon markets.
Phasing down of all fossil fuels may come sooner than expected
In the past year, unpredictable events such as the Russia-Ukraine war has led to fluctuations in commodity prices and fueled energy crises globally. As an impact of this uncertainty, countries attempted to prioritize their economic and energy security, which stagnated the phasing down of fossil fuels. At COP27, the UN Chief highlighted the need for just energy transition partnerships to accelerate the phasing out of coal and scaling up renewables (UN News, 2022). The proposal for a full phase down of all fossil fuel was not adopted at COP27; however, we can expect further and deeper discussions on this topic in the next COPs. Shifting from fossil fuels to renewables are key solution today; however, the lack of stability and efficiency of renewable resources compared to fossil fuels is the main hindrance for many countries to increase renewable energy production.
Thailand continues to maintain reliance on fossil fuels in power generation to ensure its energy security. However, transition to renewable resources is necessary in the near future as Thailand is depleting its oil and gas reserves and aiming to achieve the Net Zero target. The Alternative Energy Development Plan (AEDP) 2015-2036 expects to see an increase in renewable energy share, with a target to increase the proportion of renewable energy to 30% of total energy consumption by 2036. Many companies that invest in power utilities are aiming to be part of this energy transition, which will see significant business opportunities in the years to come.
Green technology solution breakthroughs are vital to achieve Net Zero
Scaling up technology solutions for decarbonization and energy transition also took central stage at COP27. It was agreed that actualization of green technology will require components vital to unlock climate finance, stakeholders and partners in green technology development, and pathways for sectoral transformation (Deloitte, 2022).
To achieve carbon neutrality by 2050, Thailand needs new decarbonization technology. Climate technology solutions such as green hydrogen and Carbon Capture, Utilization, and Storage (CCUS) which developed significantly over the past years. There are now several key developments in Thailand. For example, EGCO has recently signed an MoU on clean energy with Saudi Arabia’s Ministry of Investment and PTTEP has initiated the country’s first CCS project which is expected to commence operations by 2026.
Currently, Thailand has progress in its climate change efforts, but we need more cooperation across sectors, with support from the government on policies and regulatory framework. Meanwhile, Thailand will need to increase its technical capability to unlock climate financing, enhance its market mechanism to match international standards, and develop green solution technologies. The roles of the private sector are more crucial than ever in this transition. Companies should start today by taking actions to understanding their footprint, plan to decarbonize, and explore sustainable finance products to fund the transition. All have a part to play in achieving our climate ambition, and the time to start is now.
UN News (2022). COP27 closes with deal on loss and damage: ‘A step towards justice’, says UN chief | UN News
Deloitte (2022). What you need to know about COP27