Stalemate in Climate Finance Talks Ahead of COP29 in Baku

It has been an interesting two weeks at the UNFCCC SB60 climate conference in Bonn observing the slow grind of international climate diplomacy.

Leading up to COP29 in Baku, all attention is now on how to finance the energy transition and pay for the necessary climate adaptation efforts that are so sorely needed especially in developing countries.

It is indeed bold to so explicitly brand the COP in Baku as the “Finance COP” since questions pertaining to finance and who should ultimately pay for climate measures have always been amongst the most contentious questions within the UNFCCC framework.

However, since the current state of technology already allows for decarbonisation to take place on a technical level, solving the challenge of climate change largely boils down to mobilising the financial resources to scale up already existing technical solutions. Hence, there is no way around getting down to discussing concrete financial pathways to decarbonisation. COP29 thus offers a unique opportunity to make progress where it is most needed, and I am excited that this vital topic is taking center stage in the negotiations leading up to COP in Azerbaijan this year.

There are nevertheless major obstacles standing in the way of successfully tackling the issue of climate finance. For instance, the positions of developing and developed countries are still miles apart as was illustrated by the negotiations in Bonn.

In effect, there was little movement in the negotiations pertaining to the New Collective Quantified Goal on Climate Finance (NCQG) which aims to outline the obligations that developed countries have towards helping to finance climate mitigation and adaptation in developing countries.

Developing countries repeatedly highlighted the disappointing experience they had made with the previous finance goal set in 2009 where developed countries had pledged to mobilize at least $100 billion per year to support developing countries’ climate action by 2020. Even though the OECD reported that this goal was met in 2022, there remain many unanswered questions pertaining to what should count as climate finance.

The amount of climate finance that developed countries should commit to provide remains a central point of contention in the negotiations for the new NCQG. Various target amounts have been floated by numerous coalitions of developing countries.

India and the Arab Group have demanded a commitment of at least $1 trillion annually. This stands in stark contrast to the position of the United States which entails that the negotiations should begin from a floor of $100 billion annually for the NCQG.

Another question that remains disputed is who should participate in providing climate finance. Under the current framework, the obligation to provide climate finance rests with the 24 developed countries that were OECD members in 1992 when the United Nations Framework Convention on Climate Change (UNFCCC) was signed.

It has however been pointed out that the world has changed considerably in the past 30 years, and today more countries have the capacity to contribute in accordance with the principle of “common but differentiated responsibility.”

Developed countries have proposed various metrics for determining who should have an obligation to contribute to the NCQG. For instance, the obligation to contribute could be made dependent on the ability to pay (income) and responsibility for climate change as expressed by total historical emissions.

In particular, the responsibility of China as the world’s second largest economy, second largest historical emitter, and largest contemporary emitter of greenhouse gases is highlighted by some countries. Furthermore, if one looks at the largest per capita emitters today, they are all wealthy oil producing countries in the Middle East and Southeast Asia. However, under the current framework, they are not obligated to contribute to the financing of climate action in the developing world even if they have considerable financial resources and share in the responsibility for causing climate change.

Some developing countries are, however, maintaining that there is no legal mandate under the Paris Agreement to discuss expanding the list of countries that are obligated to help finance the decarbonization efforts in the developing world.

Further points of contention pertain to the nature and definition of what should count as climate finance. Developing countries are generally pushing for a larger share of the financial flows to be grants instead of loans. They also vehemently reject the idea that loans offered under non-concessionary market condition should be classified as climate finance, and they prefer a longer timeframe for the financial commitments.

In light of the stalemate on all these issues, there exists a real danger that nothing substantial emerges from the negotiations in Baku in November. A member of a delegation who was negotiating on behalf of an African country explained that he feared that the decision to focus so explicitly on questions relating to finance during COP29 might lead to a loss of momentum in the negotiations as developed countries would be cautious to make any commitments and enter the negotiations with their guard up.

Failure to make progress in Baku would constitute a major setback for the world’s efforts to combat climate change. However, the right compromise can still be found where developed countries accept demands for a more ambitious commitment to provide climate finance in return for a broader sharing of the costs and obligations which better reflect today’s world economy and the actual responsibility that different countries bear for causing climate change.