With the deadline for the New Collective Quantified Goal on Climate Finance rapidly approaching in November, COP29 is widely seen as the “finance COP.” In fact, the conference in Azerbaijan will provide the opportunity to discuss arguably the most critical enabler to climate action: economic resources.
Climate finance is a crucial tool for the world to fulfil its global responsibility of keeping the planet’s overall temperature increase to at least below 2 degrees celsius above pre-industrial levels, if not 1.5 degrees. The consequences of climate change are not a future risk that should be avoided, but a present reality whose consequences are hitting the most vulnerable – economically and otherwise.
In this regard, the COP29 President-Designate outlined in his Letter to Parties and Constituencies that climate finance is “our top priority.” But what tools will drive negotiations in Baku?
Climate Finance
Climate Finance refers to the economic funding of actions to address, mitigate and adapt to climate change. In other words, investments, grants, loans and more from private, public, national and international financial institutions for climate actions that support reducing greenhouse gasses, transitioning to green energy, lowering carbon dependence and building resilience, among others.
About a decade ago, the Paris Agreement defined various initiatives to define, guide and track climate actions, including climate finance. These initiatives also take into account the fact that developed countries have greater capacity for financial and administrative operations than developing nations.
And while some climate actions have been called upon for years, Azerbaijan hopes that Parties will enable their full operationalisation, especially in regards to the climate finance front.
New Collective Quantified Goal on Climate Finance
In 2009, developed countries agreed to pool together $100 billion per year to support developing countries’ efforts in the face of climate change, starting in 2020. Though this sum was only achieved in 2022, the Paris Agreement then committed to increasing the target, called the New Collective Quantified Goal on climate finance (NCQG), in 2024, and adopting it at COP29.
“This will be the first major finance goal after the Paris Agreement and we are sparing no effort to support the Parties to reach consensus,” the COP29 Presidency wrote in his Letter to Parties and Constituencies earlier this year.
The deadline for the NCQG is now bearing down on us, and Parties are still negotiating with key aspects, starting with the quantity itself.
“I think it’s going to have to be something that's 100 billion plus,” Marcos Neto, Assistant Secretary-General and Director of UNDP’s Bureau of Policy and Programme Support, tells The Brussels Times. “But that's not enough. The challenge is a much bigger than that,” he adds.
While the $100 billion agreed upon in 2009 was symbolic and did not cover the financial need of developing countries, the NCQG is meant to be calculated on the practical sum required by developing countries to combat climate change and its environmental effects.
“Climate finance flows in reality have been unsteady and insufficient for types of needs that are out there,” Tim Reutemann, COO of climate fintech company ClimateCains, tells The Brussels Times.
Reports outline the necessity of different dollar amounts, but they all agree one thing: developed countries need to ramp up their contributions significantly. The World Resources Institute reports that $7.8-$13.6 trillion will be needed cumulatively by 2030. The UN Conference on Trade and Development has put the number at $1.55 trillion a year by 2030.
Another key element that is still under discussion is that of contributors. In other words who, exactly, is liable for raising the funds for the NCQG. Generally speaking, developed countries are widely accepted to be the responsible actors. More specifically, developed countries are the 24 members of the OECD when the United Nations Framework Contention on Climate Change was signed in 1992, per the World Resources Institute. Now, however, some are claiming that nations that were at developing stages three decades ago are now capable of contributing as fully developed nations, and should be called on to support the NCGQ.
China, for example, still classifies itself as a developing country in the World Trade Organization.
“They send people to the moon,” Emma Wiesner, MEP for the Renew Europe Group, argues with The Brussels Times. “To call them a developing country is a little absurd.”
The matter of how to determine the sum that individual countries are expected to contribute is also consequential. For example, should Parties contribute based on their cumulative emissions of greenhouse gasses, or their per capita emission of greenhouse gasses? These are matters that will have to be negotiated leading up to and during COP29.
The 2009 fund supported climate mitigation and adaptation, but not loss and damage. That might change for the NCQG, but it is also something that Parties will have to come to an agreement on.
Article 6
Article 6 of the Paris Agreement is a creative way to enable climate finance to achieve short and medium term goals. By reducing their greenhouse gas emissions, countries earn carbon credits. Because some countries have a greater capacity for this and thus accumulate more carbon credits, Article 6 allows them to voluntarily transfer their carbon credits to other countries. This provides support for all nations’ climate goals.
Article 6 has great climate finance potential. The World Bank estimates that carbon trading in this manner could decrease the cost of implementing countries’ Nationally Determined Contributions (in short, climate action plans) by as much as $250 billion in 2030.
Wiesner, who will be focusing her efforts on Article 6 while attending COP29, says there are still details to finalize since the Paris Agreement that should be hammered out before COP30, including transparency and additionality.
“I think this is the perfect timing to finalize the negotiations on Article 6,” she argues. “because the next COP in Brazil will be about climate targets and the NDCs so there will be less focus and less pressure to finalize the quite technical details that needs to be finalized in Article 6.”
Fund for responding to Loss and Damage
As the name suggests, the Fund for responding to Loss and Damage is a fund established in 2022 to support developing countries respond to the losses and damage experienced by climate change events.
The most obvious damage comes in the wake of extreme weather events such as hurricanes, flooding or wildfires. According to the 2021 Intergovernmental Panel on Climate Change (IPCC)’s Sixth Assessment Report, extreme weather events have increased in intensity and frequency because of man-made greenhouse gasses. The fund, however, also supports recovery efforts from non-economic impacts, including death, emotional distress, physical injuries, and cultural losses.
As the most vulnerable countries, developing nations bear a disproportionate amount of the consequences of climate change. In fact, the UNDP reports that according to the Intergovernmental Panel on Climage Change, developing countries lose 15 times more people to natural disasters than their developed counterparts. The Funds for responding to Loss and Damage attempts to mitigate this.
The most recent meeting of the Board of the Fund held in Baku, Azerbaijan, laid the essential groundwork for initiating funding disbursements. This pivotal milestone achieved in Baku represents a significant advancement toward actionable climate solutions..
With nearly $800 million already pledged, the COP29 Presidency will work to convert these pledges into actionable funding, supporting communities in need. The Presidency will also call for further contributions to the Fund, advancing one of its key objectives as outlined in its first Letter to Parties.
Climate Finance as a critical enabler
Climate finance is the critical enabler for facing, mitigating and responding to climate change. Previous conferences have set the stage for this year’s summit, which represents deadlines on various climate fronts, including the NCQG. COP29 has the opportunity to bring together various stakeholders from across the economic spectrum to further the vision of the Paris Agreement, and accelerate our efforts towards the 1.5 degree goal.
