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- At COP29, leaders will negotiate the target of financial contributions to support developing countries to tackle climate change.
- Developing countries seek predictable and adequate funding to address their climate needs, while developed countries advocate for broadening the pool of financial contributors.
- Trust issues persist due to unmet commitments, such as developed countries’ failure to mobilise the $100 billion annual climate finance goal by 2020—a commitment made at COP15. The claim of achieving this goal in 2022 remains in question.
Climate finance will be on top of the agenda when world leaders gather in Baku, Azerbaijan this November for the 29th Conference of Parties (COP29) to discuss future climate action. At the climate conference, they will negotiate the New Collective Quantified Goal (NCQG) on Climate Finance, an upcoming target to support developing countries with financial contributions to tackle climate change.
The NCQG was introduced at COP21 in Paris in 2015 where countries agreed to set a new goal for climate finance. The three-year process to deliberate the NCQG on Climate Finance was agreed upon at COP26 in Glasgow in 2021, and negotiations are expected to conclude at the end of 2024, at the upcoming COP29.
However, closer to the event, there is a difference in the points presented by developed and developing countries, as visible in the last round of the climate finance-related talks organised in Baku on the sidelines of the United Nations General Assembly meeting in the second week of October. One such diverging point was with regards to the quantity and quality of climate finance, says Abhishek Acharya, Director, Climate Change Finance Unit at the Ministry of Environment, Forest and Climate Change (MoEF&CC), while speaking at an event organised by the International Institute for Sustainable Development (IISD) and Indian Institute of Management, Kolkata on October 24. Acharya , who has represented India at a previous COP, says that after COP 26 in 2021, there have been around eight technical expert dialogues under the United Nations Framework Convention on Climate Change (UNFCCC).
The proposed finance goal, which is supposed to be agreed at COP29, is important as it will directly affect the third round of nationally determined contributions (NDCs), which are country plans to reduce greenhouse gas emissions and adapt to climate impacts, that countries have to submit by February 10, 2025. The new NDCs will set a goal for 2035 and must be ambitious enough to keep the 1.5 degree target within reach. On November 28, the UN Environment Programme released its Emissions Gap Report 2024, stating that continuing with existing policies will lead to a global temperature increase of up to 3.1 degrees Celsius this century.
Deadlock over quantity and contributor base
Statements on the climate finance goals, by countries and blocs, underline conflicting positions on finance among negotiators.
On October 26, Ali Mohamed, the Special Climate Envoy for Kenya, wrote on X, formerly Twitter, “The NCQG must ensure burden-sharing among developed countries, providing transparency, predictability, and accountability. The finance goal should also respond to and address the global economic challenges, high capital costs, the unsustainable debt burden, and the unfair global financial system.” His statement reflects the stance of developing countries that are expecting a deal that meets their needs and is transparent and predictable.
Meanwhile, the Council of the European Union (EU) released a statement on October 14, that says, “The new goal should be designed on the basis of a broad, transformative and multi-layered approach, including various flows of finance and a broader group of contributors.” The EU statement indicates the expectation to expand the group of contributors to the climate finance goal.
The divergence in these statements indicates that primarily, consensus needs to be built on the issues related to the quantity of finance, quality of finance, and contributor base.
Several developing countries have estimated the amount of funds required to finance climate goals. For example, India and like-minded developing countries have asked for $1 trillion per year until 2030, while the Arab group has estimated climate finance requirement to be $1.1 trillion per year. The African group has estimated a $1.3 trillion per year requirement, and recently, Pakistan put out a standalone written submission in which it has estimated $2 trillion per year until 2030.
Developed countries, in contrast, have not given any estimate regarding the quantum of finance required. They have, instead, been pushing to expand the pool of contributors or the countries that will provide the finance. Switzerland and Canada have even specified criteria for reassessing the donor countries.
“These proposals (by Switzerland and Canada) do not account for cumulative emissions, erasing historical responsibility from the equation completely,” says a paper published by the Centre for Science and Environment (CSE), a New Delhi based not-for-profit public interest research and advocacy organisation, on November 28.
Switzerland proposed a criterion to expand the donor base, targeting countries among the top ten current emitters with a per capita gross national income (GNI), adjusted for purchasing power parity, exceeding $22,000. Using publicly available data, the CSE compiled a list of countries meeting this criterion. This list for potential donor countries included China, United States of America (USA), Russia, Japan, Germany, Saudi Arabia and South Korea. While India, Indonesia and Iran are also among the top ten current emitters, they are not considered in the list of contributors because of low GNI per capita.
In multiple fora, developing countries have been arguing that it is against previous commitments. Article 9.1 of the Paris Agreement clearly says that developed countries under the UNFCCC will provide financial resources to assist developing countries in mitigating and adapting to climate change. The UNFCCC’s Article 4.3 specifically talks about the obligations of providing financial assistance. Developing countries also argue that any negotiation regarding the contributors (Annex II) means reinterpretation of the UNFCCC and Paris Agreement. Given the timeline to decide on NCQG, opening the new discussion may derail the whole process, they argue.
One of the authors of the CSE report, Sehr Raja, Programme Officer, Climate Change, CSE, says that developed countries are responsible for almost all the carbon dioxide emitted until the 1980s. While the less industrialised or developing country emissions are growing now, they have stated in climate negotiations that industrialised or developed countries cannot hold developing countries responsible after already getting the gains.
Lessons from past negotiations will play a role in Baku
The NCQG will replace the $100 billion annual target set in 2009 at COP15, organised in Copenhagen. The goal was formalised one year later at COP16 in Cancun.
As per the previous target set in Copenhagen, developed countries or Annex II countries to the UNFCCC had to mobilise $100 billion of climate finance annually between 2020 and 2025, but they fell short of this target for the first two years and claims of meeting the goal in 2022, have also been questioned by several organisations.
The Organisation for Economic Co-operation and Development (OECD), an intergovernmental organisation has been tracking the progress towards the goal since 2015. In its latest report released in May 2024, it claimed that developed countries, for the first time in 2022, provided and mobilised $115.9 billion, exceeding the annual $100 billion goal.
However, the OECD methodology has been under question. Greenpeace, an independent global campaigning network, estimated that developed countries provided only one-third of the total claim of $83.3 billion in 2020 as genuine climate finance. “There are too many loans, too much debt, too few grants, too little for adaptation, and too much dishonest and misleading accounting,” it says. Loans made up 71% of public climate finance in 2020 – a significant share of which was non-concessional finance, putting many countries in debt crisis, the report said.
Developing countries at the NCQG talks have been emphasing public funds and grants to support country-driven strategies.
Tarun Gopalakrishnan, a research fellow at Climate Policy Lab, Tufts University, says it is important to learn from previous failures or setbacks. The unravelling of the Glasgow Financial Alliance for Net Zero and the limited progress on Just Energy Transition Partnerships (JETP) indicate that credible commitment from private finance is strongly dependent on government/public sector commitments.
The original agreement on climate finance talked about how it should be ‘new and additional.’ However, there are estimates by policy organisations that at least one-third of the target ($100 billion) has been achieved by rebadging or refocusing existing development finance. Developed countries dedicate a certain percentage of gross national income (GNI) to official development assistance (ODA) for economic development and the welfare of developing countries. The amount has largely remained 0.3% of developed countries’ GNI in the last fifty years, according to World Bank estimates. Experts that Mongabay India spoke to say that developed countries have used their ODA to show climate finance goals.
About the OECD claim, Gopalakrishnan says, “Unfortunately, this is likely an overestimate of actual finance available because the OECD methodology does not distinguish between loans and grants, and includes the full value of climate-related expenditure instead of estimating a climate-specific component. This underlines why it is important for the Baku COP to make progress on how to count climate finance.”
This contention over what constitutes climate finance arises from the lack of clarity, so far, on the definition of climate finance which is expected to be part of negotiation at COP29. UNFCCC’s standing committee on finance is in the process of defining climate finance, and until 2023, it has received 26 submissions from parties and non-party stakeholders since 2020.
Raheja from CSE says that, without a clear definition, reporting and accounting vary widely, leading to discrepancies across different claims. India, along with other countries, has been quite vocal about the need for a clear definition of climate finance.
Neha Khanna, a senior manager at Climate Policy Initiative (CPI), highlights another important issue by saying that negotiations in the past have been lopsided, with host countries not always getting fair terms or those that would work best for them. Going forward, we believe the negotiations should take into account the local factors in the host countries, and solutions should be contextualised to ensure that they are both effective and efficient.
Developing countries are also calling for thematic sub-goals such as mitigation, adaptation, and loss and damage to be included in the climate finance goal, as the majority (60% in 2022) of funds have been allocated to mitigation only.
Several factors will influence the outcome of COP29, including the U.S. election results set to be announced a week before the conference. However, the Azerbaijan Presidency is expected to focus on advancing a climate finance deal. Key elements include identifying who will contribute, determining priority recipients, ensuring finance is “new and additional,” establishing how to count different types of funding (grants, loans, etc.), and aligning global finance flows—such as private finance and institutional investments—with Paris Agreement goals, says Gopalakrishnan.
Banner image: Demonstration in Bonn at the start of a previous COP. In November, world leaders will gather in Baku, Azerbaijan, to negotiate future climate action. Image by Spielvogel via Wikimedia Commons (CC-BY-SA-3.0).
