Will COP29 deliver a fair climate finance deal?

All eyes are on the global climate change negotiations starting in Baku, Azerbaijan, next week as it will lay the foundation for more ambitious climate pledges from countries, especially developing, based on the climate finance commitments to walk the path to save the planet from global warming.

The United Nations Conference of Parties (COP29) starting Nov 11-22 in Baku is seen as a finance COP because global leaders are supposed to agree on what is called the ‘New Collective Quantified Goal’ (NCQG) on climate finance.

The NCQG is set to replace the commitments made by developed countries in 2009 to support climate action in developing countries, by providing them $100 billion per year by 2020 – a target that has been met only once in 2022.

“COP29 has the potential to become the most important climate conference since Paris – given how crucial financial support is for developing countries to reach their climate goals,” said Centre for Science and Environment (CSE) director general Sunita Narain.

India has suggested that the quantitative target should be no less than $1 trillion, from developed countries’ public sources. Differences have already emerged among the developing and developed countries on the contours of the NCQG.

Council on Foreign Relations (CFR) says the most contentious issues that remain are how much money developed nations will provide, and who should provide climate finance.

“The United States and other major economies want to expand the contributor base, but developing nations argue that this is outside the NCQG’s mandate. Other areas of conflict include the question of who should receive monies — all developing countries or just the most vulnerable — and what type, with developing countries seeking to avoid debt financing,” said the CRF in its latest expert analysis.

Climate finance

The focus on climate finance could affect the level of ambition reflected in nationally determined contributions (NDC) commitments due early next year, particularly for developing countries. Those nations are hesitant to commit to more ambitious targets without first securing clear financial support through the NCQG.

The first Global Stocktake (GST) acknowledged the cost of implementing current nationally determined contributions (NDCs) at $5.8-5.9 trillion in the pre-2030 period. As parties submit new and more ambitious NDCs in the first quarter of 2025, the need to mobilize greater financial flows towards climate action will increase.

While a joint initiative from Azerbaijan, Brazil, and the UAE seeks to acknowledge this link between finance and ambition, both the United States and the EU remain opposed to such explicit conditioning. Consequently, developing countries have expressed skepticism that their needs and challenges will be adequately addressed.

The latest report by co-chairs on the status of New Climate Finance Goal negotiations released last month clearly shows that it will be a treacherous path for negotiators at Baku.   

"COP29 faces an uphill battle, risking the breakdown of climate talks if wealthy nations continue to dodge their climate finance responsibilities. Despite three years of technical sessions and high-level meetings, key finance issues — such as scale, quality, sources, and fairness of contributions — remain unresolved,” says Harjeet Singh, Climate Activist and Global Engagement Director for the Fossil Fuel Non-Proliferation Treaty Initiative.  

Structure

Developing nations have raised concern about the form of climate finance provided to developing and vulnerable countries as it has come in the form of loans on high interest rates.

A position paper on climate finance released by CSE last month shows that developed countries have abstained from any engagement on the quantum or amount of finance to be provided under the goal. Additionally, they are also pushing for an expansion of the contributor base, and the inclusion of private finance. 

In contrast, developing countries have emphasised that international public finance must be the core component of the NCQG, and that historical responsibilities must be adhered to when deciding the contributor base.

Vibhuti Garg, Director, South Asia, Institute for Energy Economics and Financial Analysis (IEEFA), says the NCQG should be based on scientific targets and futuristic as the previous $100 billion goal fell short of the targets and the new goal should be moving and have a 5 and 10-year time horizon, with a review of the annual targets every 5 years to reflect the new realities.

“The new goal should provide more grants and concessional finance and not only majorly be in the form of loans, or else the purpose is defeated. The emerging economies need the capital but not at market rates but at concessional rates,” she tells Business Today.

Stressing that the volume of financial needs is huge, Dr Manish Kumar Shrivastava, Associate Director, TERI says in addition to the quantum of finance committed at the Baku COP, its disbursement is aligned with the just transition needs of developing countries.

“It is important to ensure that these financial flows do not add to developing countries' debt burdens. It would be ideal for the NCQG to become an enabler to unlock private capital and strengthen domestic financial markets. So a robust and climate-oriented financial ecosystem is in place compared to the current one which puts a cautious and low premium on green investments. It all depends on the willingness and seriousness of the developed countries to address the climate crisis. Going by the experience, we are skeptical,” he tells BT.

Amidst growing skepticism about the Baku talks, there is hope among negotiators that countries would walk the extra mile to make it a success for saving the planet.