The U.S. and China hold the world's climate future in their hands

Driving the news: U.S. climate envoy John Kerry and his Chinese counterpart Xie Zhenhua held "very candid" discussions at the UN climate summit in Egypt that concluded over the weekend, Xie said. They didn't reach a new bilateral agreement, but Xie and Kerry made it clear talks would continue.

• For the U.S., COP27 was a chance to demonstrate the actions the Biden administration is taking at home, after passing the most far-reaching climate bill in U.S. history.
• The U.S. also sought to encourage other nations to commit to making more ambitious emissions cuts.
• The U.S. and China still have work to do together on a cooperative agreement they signed during COP26 in Glasgow last year, particularly when it comes to reducing methane emissions and being more transparent about them.

Between the lines: The summit resulted in a historic agreement among nearly 200 nations to provide funds for countries that did not contribute much to climate change but are suffering much of the damage, such as Pacific island nations.

• But gathered nations failed to agree to phase out the use of all fossil fuels, instead focusing only on limits to coal use. They also did not include an emissions peaking year of 2025, which studies show would be needed to reach the 1.5-degree Paris target.

The backstory: President Biden and Chinese leader Xi Jinping agreed just a week ago during their meeting on the sidelines of the G20 in Bali to resume climate cooperation, which Beijing had cut off after House Speaker Nancy Pelosi visited Taiwan over the summer.

• Prior to that, Xie and Kerry had been speaking and gathering negotiating teams together to work on areas of agreement, and some had expected another document to be signed at COP27.
• The resumption of climate cooperation raised hopes the climate summit might yield a significant deal, as U.S.-China climate talks helped pave the way for the Paris Agreement in 2015.

Yes, but: A new report from a think tank in Finland has found that though China's overall carbon emissions are falling, rising energy demand is likely to slow the rate at which China achieves its decarbonization goals.

• At the summit, Biden said the U.S. is on track to meet its climate targets. However, this will require spending from a divided Congress and the use of executive actions that could be thwarted by the courts.

What to watch: The agreement on climate damages, which China supported, is short on details and does not specifically include China among the countries that would need to pay into the fund.

• The “who pays” question remains unsettled. “The decision made it clear that this is something to be sorted out next year," Li Shuo of Greenpeace East Asia told Axios via email.
• In the lead-up to the summit, Xie said countries should receive compensation, but "it is not the obligation of China to provide financial support."
• Negotiations on how the fund will work are likely to revisit this topic starting at COP28 next year.