With a framework in place, global carbon markets can help mobilise substantial investments to fight emissions. The way forward is to tap new innovative sources of finance and a more ambitious role for multilateral development banks in meeting the climate finance needs of developing countries
After two weeks of fraught deliberation and negotiation, the 29th Conference of Parties (COP29) ended on November 24 in what could be fairly described as a stalemate on its core agenda: Climate finance. With the outcome falling far short of what is needed to achieve critical climate priorities, Baku has been widely dubbed as a failure or a missed opportunity. The Global North and South remain divided, their relationship marked by a conspicuous lack of trust that will take time to build.
Developed countries committed to mobilising $100 billion a year by 2020 at Copenhagen during COP15 in 2009 to support the climate needs of developing countries. Fifteen years later, they have pledged to increase their target to a meagre $300 billion against an annual need of $1.3 trillion. Even this ‘largesse’ is to be delivered as part of a contentious New Collective Quantified Goal (NCQG) only by 2035, leaving questions about how it will be delivered.
(NCQG is the new climate finance goal, considering the needs and priorities of the developing countries.)
While the COP Presidency hailed the agreement among the richest countries, Emerging Market and Developing Economies (EMDEs) left the conference bitterly disappointed, alleging that their voices have been ignored.
EMDEs are projected to need between $5.8-5.9 trillion to implement their stated Nationally Determined Contributions (NDCs), while adaptation finance needs were estimated to be $215-387 billion per year until 2030. (NDCs are the commitments made by countries to reduce their greenhouse gas emissions.)
G77 countries and China called for an NCQG mobilisation of $1.3 trillion, $600 billion of it as grants and grant-equivalent resources by 2030. They also demanded most of these funds to come in the form of grants. Nearly 70 percent of the earlier commitment came in the form of loans.
The Baku declaration does mention $1.3 trillion, but it calls on “all actors”, including public and private, to “work together” to reach this level by 2035. Thus, developed countries have no obligation or moral responsibility in terms of concrete, actionable steps, while developing countries are left to fend for themselves.
The key question is whether this is fair and just as developing countries are not responsible for the current crisis and yet bear the brunt of climate change’s devastating effects such as increased incidences of floods, heatwaves, and other extreme weather events. The declaration lacks the principle of Common But Differentiated Responsibility (CBDR) thereby disregarding the justified demand of the Global South that the countries historically responsible for emissions must contribute the most to the climate cause.
(The CBDR principle, established in 1992 at the United Nations Framework Convention for Climate Change, acknowledges that countries have different levels of responsibility because of their varying levels of contribution to climate change and economic capabilities.)
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While the mood at the end of COP29 was not ideal, some key decisions were announced that point to a brighter future. Nations reached a pivotal agreement to establish a global carbon market under Article 6.4 of the Paris Agreement. This framework sets standardised rules for creating, trading and registering carbon credits, aiming to enhance international cooperation in reducing greenhouse gas emissions. This will boost climate finance by mobilising substantial investments into emission reduction projects worldwide.
Further, the United Kingdom, Brazil and the United Arab Emirates announced ambitious Nationally Determined Contributions (NDCs) targets, setting themselves up on an accelerated path to net zero. However, with the failure to mobilise funds for developing countries, there is a big question of whether they will submit more ambitious NDCs next year.
All eyes are already on COP30 in Brazil to decide on the mechanics of the flow of these funds to developing countries. There is also a need to discuss and include new innovative sources of finance from global solidarity levies, more ambition from multilateral development banks, financial transaction taxes and taxes on the wealthiest fortunes, as mentioned by the G20.
Further, agreement on activities eligible for climate finance needs to be prioritised, and legitimate institutions for climate finance data collection, formed to build more transparency. Finally, cumbersome bureaucratic processes, often in the guise of borrowers not following certain governance practices, need to be abandoned to accelerate the disbursement of climate finance to developing countries.
Developed nations must deliver on their promises, and the timelines need to shift. Further, the concessional finance element is critical; without it the EMDEs could slide further into a debt trap.
The world cannot afford another missed opportunity. It took almost three years for countries to come up with what is required to achieve the climate target in the Global South, but the outcome feels like a betrayal to many. However, time is of the essence here, and we hope for more collaboration globally in the sharing of technology and provision of concessional capital for enhanced ambition to limit global temperature to 1.5°C.
(Vibhuti Garg is Director South Asia, at the Institute for Energy Economics and Financial Analysis. The views expressed are personal)