All eyes are on finance at this year’s COP29 climate talks in Baku, Azerbaijan.
Finance is always high on the agenda at UN climate talks, but this year the pressure is especially high. Following elections last week in the United States, both allies and adversaries are feverishly preparing for the return of Donald Trump and his famously dismissive approach to climate change. In Baku, that will bring particular urgency to the question of using increasingly limited public funds to address climate change and catalyse private sector investments, especially in developing countries. COP29 marks the deadline for agreeing a new target to succeed the $100bn annual commitment that developed countries made in 2009 to help poorer nations deal with climate change. It was a commitment they previously failed to meet every year, until 2022.
The money is urgently needed to pay for solutions to decarbonise energy, agriculture and transport, as well as for making infrastructure more resilient to increasingly frequent and extreme rainfall, storms and heatwaves. With a renewed focus on innovative financial models, such as blended finance and public-private partnerships, the broader goal is to mobilise trillions in investments that will be needed to close the climate funding gap.
Agreement of the new target for developing countries—known in UN jargon as the New Collective Quantified Goal (NCQG)—is seen as vital for enabling developing countries to step up their climate ambitions in the next round of national climate plans (Nationally Determined Contributions, or NDCs), which are due to be submitted in February 2025.
Though the $100bn promised annually starting in 2009 was finally achieved once 13 years later, this was past the 2020 deadline and led to significant mistrust from developing nations. Concerns have arisen around the financing mechanisms. A large share of the funding has come in the form of loans, which increases debt burdens on countries already vulnerable to climate impacts. Securing direct access to funds remains challenging, with time-consuming processes that limit the ability of the most affected nations to scale climate projects swiftly.
“COP29 must be the stand-and-deliver COP, recognising that climate finance is core business to save the global economy and billions of lives and livelihoods from rampaging climate impacts,” according to Simon Stiell, executive secretary of the United Nations Framework Convention on Climate Change (UNFCCC). Stiell also emphasised that public finance should be “at the core” of the new goal, advocating for grants or concessional loans wherever possible, and streamlined access to ensure the funds reach those who need them most.
Sticking-points
Negotiations on the NCQG began at COP26 in Glasgow in 2021. Countries have agreed to base the overall level of finance on the needs of developing countries, though there is no exact sum under discussion so far. A few countries such as India have called for developed countries to provide around $1trn per year. Meanwhile, a report produced for the UN talks by economic experts in the Independent High-Level Expert Group on climate finance (IHLEG) concluded that developing countries outside China would need $2.4trn a year by 2030—a four-fold increase in total global climate investments. The IHLEG recommends that public finance commitments be coupled with private-sector capital through blended finance mechanisms to achieve these targets, a strategy that is gaining traction but requires clear frameworks and risk-sharing agreements. The report proposed that around $1trn per year would come from domestic budgets, with the rest raised by a combination of public and private finance. This could include novel global forms of taxation, such as on financial transactions, extreme wealth and frequent flying.
But following last week’s US elections, it seems unlikely that Washington would support meaningful action at the UN after January, let alone an international agreement on taxation.
That would complicate efforts to meet the estimated $2.4 trillion needed by developing nations by 2030, particularly as countries disagree about who should even pay. While developed countries believe the donor base should expand beyond the 24 countries who were members of the OECD in 1992, many developing countries claim that the donor countries should remain the same. Some non-donor countries argue they already provide money to developing countries for climate-change mitigation. The World Resources Institute estimates that China provided or mobilised $45bn between 2013 and 2022, equivalent to roughly 6% of the total climate finance from developed countries over the same period. The scope of the NCQG is also under discussion. Developed nations prefer flexibility in the use of funds, and have resisted specific targets that some developing countries prefer for adaptation or loss-and-damage.
With the prospect of a major US disengagement after January, there will be significant incentive to compromise on many of these points at Baku before the landscape shifts.
Looking forward
The success of the NCQG is seen as vital for accelerating climate action globally. Many developing countries have made actions in their current plans conditional on receiving support to pay for them, and so providing those funds becomes significant. The UN’s latest assessment found that if all current NDCs were fully implemented, temperatures would rise by 2.9°C compared with pre-industrial levels. However, if developing countries are able to implement all their proposed climate action, this could be limited to 2.5°C.
Rob Moore, associate director at E3G, says that an ambitious new goal would build global trust and help ensure all countries see the economic benefits of the transition. For COP29 to be regarded as a success, countries need to leave it feeling that they will be able to finance increased climate ambition, with a step change in international climate finance and a lower risk of debt. “Without that, it’s really hard to see how the year ahead is going to be a success,” he says.
An agreement in Baku can provide for international climate finance and alleviate the debt burden on developing countries before both fall down the American list of priorities in January. That has put pressure on closing negotiations rather than letting them drag on to next year’s COP30 in Brazil, which will now look much different than some had expected.
