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Risks and Rewards for Egypt's Role as COP Host

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Egypt is hoping to leverage its hosting of the upcoming COP27 climate conference to showcase its leadership in the energy transition and act as a voice for both developing and producer nations. The summit will likely give more airtime to producer narratives than past gatherings, but one shouldn't expect a reversal on Glasgow climate commitments. The event is scheduled for Nov. 7-18 in the Egyptian resort town of Sharm el-Sheikh, located between the desert of the Sinai Peninsula and the Red Sea.

Cairo will be acutely aware that its best-laid plans could unravel. At last year’s Glasgow climate summit, the UK focused relentlessly on global action against coal use, only for spiraling gas prices to trigger a surge in coal-burning, even among rich OECD nations. At Sharm el-Sheikh, a key indicator of success will be progress on climate finance to help developing nations adapt to climate change. But slowing global economic growth could well undercut the global community’s ability to hit existing financing commitments, let alone meet the targeted $100 billion per year climate adaptation war chest for developing nations. As a leader of the African group within the COP, failure here will be keenly felt by Cairo.

Risk at the Red Sea

Egypt itself is in need of assistance. It has been battered by rising food prices, especially wheat, triggered by Russia’s invasion of Ukraine. Paying for the increase in foreign debt is “expected to consume almost 45% of total revenues in the new FY2022/23 budget,” according to Egypt’s updated nationally determined contributions (NDC) report, presented to the UN last month. The new economic stresses “limit Egypt’s ambition on allocating future climate investments,” this latest climate transition plan added. While an improvement on the last NDC, Egypt’s new plan does not embrace net zero and sees overall emissions rising, albeit at a far slower rate.

Producers were unhappy at Glasgow and felt ignored. Egypt, itself an LNG exporter, is certainly sensitive to producer concerns, and as conference president, Cairo can set the agenda for important side events that take place alongside the more formal UN negotiations and craft a final COP declaration. Producer arguments are also feeding into the Katowice process looking into the impacts of climate responses, which was set up after COP24 in Poland. Opec has contributed to the process, advocating strongly for wider backing for carbon capture and storage (CCS) and the circular carbon economy. These arguments may become more prominent at Sharm el-Sheikh.

Debate Drivers

The climate debate, ultimately, will be driven by real-world events — both at COP27 and outside it. Certainly, producer arguments blaming the lack of investment in oil and gas capacity for high prices are hard to refute. But countering this will be an enhanced OECD sensitivity to overreliance on external energy supplies. And this Ukraine conflict-driven tilt toward self-sufficiency will have been intensified by perceived Opec-plus inaction over high prices.

All in all, Ukraine has intensified the paradox in which producers are being actively courted for supplies in the short term, while longer term the energy transition could be accelerating. Egypt, for one, is looking to establish itself as a gas and LNG hub and take advantage of the loss of Russian gas supplies to Europe. But it is also acutely aware of its own vulnerabilities to climate change: More than 30% of the Nile Delta, home to around 60% of Egypt’s food production, is in low-lying areas vulnerable to the impacts of sea level rises, the NDC notes. The memory of this summer’s record temperatures and wildfires in many parts of the globe will also still be raw for many when delegates meet on the Red Sea in November.

Transition Pioneer

Cairo now aims to generate 42% of its electricity from renewables by 2035, and while not mentioned in the NDC, it is hoping to boost this to 60% by 2045. Overall, Cairo is targeting emissions reductions of 33% for electricity, 65% for oil and gas, and 7% for transportation by 2030 compared to a business-as-usual trajectory. In many ways Egypt has been a transition pioneer. In 2020, it became the first country in the region to issue a green bond. A lot of the transition building blocks are in the process of being put in place: Italy’s Eni is looking at CCS possibilities in the country, and local behemoth Orascom is investing in green hydrogen in-country, and there is a strategic cooperation deal on hydrogen with Siemens.

Last month, Saudi renewables developer Acwa Power signed a deal in Egypt for the largest onshore wind project in the Middle East. Suez Wind will generate 1.1 gigawatts at a cost of around $1.5 billion, reducing CO2 emissions by some 2.4 million tons per year. This is Acwa Power’s third project in Egypt, after the 120 megawatt Ben Ban solar independent power project and the 200 MW Kom Ombo solar plant. “It is full speed ahead. They are trying to get as many green projects formalized in time for the conference as possible,” notes one Cairo-based consultant. 

Oil and gas sector emissions reductions get less press, but are also significant. In addition to an active flare-reduction program, Cairo last October signed a deal with local firm SMA to undertake a two-year country-wide inspection of all facilities for gas leaks, notes another source. Some 25 teams, using infrared Flir cameras, have started on downstream facilities in the Alexandria area, and should begin surveying upstream operations toward the end of the year. This project alone is targeting a 30% cut in oil and gas sector emissions.

Influence Game

For Cairo, however, energy is increasingly a vehicle through which it projects influence — and its hosting of COP27 should also be seen through this lens. Egypt's gas hub and green hydrogen plans could see it emerge as a significant supplier to Europe. Egypt could also be the savior of Lebanon's power sector, via a US-promoted scheme to pump gas via Jordan and Syria. If Sharm el-Sheikh can shift the climate debate even slightly in favor of producer arguments, Cairo will have won some valuable brownie points with allies in the Mideast Gulf. Keen to see the region's biggest have-not succeed, Gulf governments earlier this year pledged some $22 billion in investments and deposits, including in the country's downstream, to help Egypt avoid financial crisis.

Egypt, by officially sharply hiking hotel prices in Sharm el-Sheikh, has probably already lost one battle for hearts and minds among the cash-strapped Western environmental press and NGO community. They also fear Egypt will impose restrictions on the protests that generally accompany COP, which would likely weaken the traditional role climate activism plays at COP and potentially erode the event's legitimacy in the view of some.

This story first ran in sister publication Energy Compass.

Topics:
Policy and Regulation, Low-Carbon Policy, CO2 Emissions, Carbon Capture (CCS), Methane Emissions
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