Climate Finance has been a contentious discussion by the conference of parties and as the world gears for COP 29 in Baku Azerbaijan, negotiators are working to develop a new financial goal. In 2009, developed countries agreed that by 2020, they would collectively mobilize $100 billion per year to support developing countries’ climate action. According to the OECD, this goal was met for the first time in 2022 — two years after the initial deadline.
When countries agreed to the Paris Agreement in 2015, they committed to establishing a “new collective quantified goal on climate finance” (NCQG) to succeed the previous target of $100 billion annually. This new goal is set to be adopted this year at COP29 in Azerbaijan.
Leading up to the conference, negotiators, policy makers, and climate vulnerable communities hope that the new financial goal will channel greater funds towards urgently needed climate action in developing countries to support implementation of low carbon, climate resilient solutions in energy, transport, agriculture and other vital systems. This will enable developing countries to step up their climate ambitions in the next round of national climate plans (NDCs), due in 2025.
Less than a month away, here are the seven elements of the NCQG that negotiators have been grappling with leading up to and at COP29:
- Establishing a Bold Goal to Address the Climate Finance Needs of Developing Nations.
According to expert views, the $100 billion climate finance target was not based on actual needs but rather a political commitment acknowledging the responsibility of developed nations to support developing countries. In contrast, the new collective quantified goal (NCQG) will consider the specific needs and priorities of these countries in addressing climate change, though negotiators have yet to define its structure.
Research shows that developing nations require trillions of dollars annually for climate action. Estimates suggest their financial needs, as outlined in their Nationally Determined Contributions (NDCs), could total around $5.8-$5.9 trillion by 2030, while other projections range from $7.8 to $13.6 trillion. This translates to at least $1 trillion annually. The UN Conference on Trade and Development estimates that necessary annual finance flows will reach $1.55 trillion by 2030, with variations depending on the sectors and models considered.
The Independent High-Level Expert Group on Climate Finance (IHLEG) indicates that emerging markets and developing countries (excluding China) need nearly $2.4 trillion per year by 2030—four times current investments. They estimate that about $1 trillion of this should come from international finance sources, with half from public funding and the other half from private investments.
Some countries, like India and the Arab Group, have suggested that developed nations should provide around $1 trillion annually to support developing countries. The final structure of the NCQG, including its timeframe, contributors, and covered activities, will influence its overall size.
- Determining Contributor Countries
The responsibility for the $100 billion climate finance goal lies with developed countries, specifically the 24 OECD members from 1992 when the UNFCCC was signed. However, some developed nations argue that more countries should contribute based on their greenhouse gas emissions. In contrast, many developing countries assert that the Paris Agreement and UNFCCC already define contributors as developed nations.
Developed countries propose various indicators for determining potential contributors, such as income levels and historical emissions. The ranking of countries varies significantly depending on the metrics used. For example, while China is the largest emitter in total, it ranks lower per capita. Middle Eastern countries have high per capita emissions but smaller total emissions.
Developed nations also debate who should receive funds, focusing on the most vulnerable countries or those with ambitious climate goals, while developing countries assert that all should be eligible to receive finance to implement their NDCs.
- Choosing an Appropriate Time Frame
The time frame for the new climate finance goal is under discussion, with proposals ranging from five to 20 years. A five-year period aligns well with the Paris Agreement’s NDC cycles, while a longer timeframe may offer stability but complicates financial projections due to inflation and changing technology costs. A potential solution could involve interim reviews every five years within a longer timeframe, balancing predictability with flexibility.
- Addressing All Three Pillars of Climate Action: Adaptation, Mitigation, and Loss and Damage
The $100 billion goal primarily covers mitigation and adaptation efforts. However, many developing countries argue that loss and damage—impacts beyond adaptation capabilities—should also be included in the NCQG. The first Global Stocktake indicated that loss and damage could cost developing countries $447-$894 billion annually by 2030. Developed nations maintain that loss and damage funding is voluntary and outside current negotiations.
- Defining the Scope of the NCQG and Its Relationship to Article 2.1(c) of the Paris Agreement
Article 9 of the Paris Agreement holds developed countries responsible for climate finance, while Article 2.1(c) calls for consistent finance flows toward low-emission and climate-resilient development. There’s an ongoing debate about how the NCQG should contribute to this broader goal. Developed countries suggest integrating the NCQG into a wider commitment to align financial flows with the Paris Agreement while developing nations prefer to keep these discussions separate.
- Designing the NCQG to Support High-Quality Climate Finance
The NCQG’s effectiveness also hinges on the quality of finance, which should prioritize:
– Concessionality: More favorable financial terms, especially for vulnerable nations at risk of debt distress.
– Accessibility: Simplifying access to funds, particularly from multilateral institutions.
– Predictability: Clear financial targets and timelines to aid planning.
– Effectiveness: Ensuring funds yield measurable climate impacts, although this can be difficult to assess.
- Implementing Transparent Processes to Track Progress
The previous $100 billion goal lacked accountability, causing frustration among developing nations. The new NCQG aims to incorporate tracking mechanisms from the start, likely using the Enhanced Transparency Framework (ETF) of the Paris Agreement. This would allow for better monitoring of financial flows and accountability for contributors. To be effective, a mandate must be adopted to monitor these flows under the ETF, and progress reports could be developed by the Standing Committee on Finance (SCF). Developing countries also seek clarity on what qualifies as climate finance under the NCQG.
By addressing the diverse aspects of climate action—mitigation, adaptation, and loss and damage— in COP29, negotiators can create a comprehensive financial strategy that empowers vulnerable communities and drives meaningful progress in the fight against climate change.
