Will COP29 deliver a fair deal on climate finance?

All eyes are on the global climate change negotiations starting in Baku, Azerbaijan next week as they lay the groundwork for more ambitious climate commitments from countries, especially developing countries, building on climate finance commitments to move towards saving the planet from global warming.

The United Nations Conference of the Parties (COP29), which begins November 11-22 in Baku, is being seen as a finance conference as world leaders must agree on a so-called New Collective Quantitative Goal (NCQG) for climate finance.

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

“COP29 has the potential to be the most important climate conference since Paris – given how important financial support is for developing countries to achieve their climate goals,” said Center for Science and Environment (CSE) Director General Sunita Narain.

India has proposed that the quantitative target should be at least US$1 trillion from government sources of developed countries. There has already been disagreement between developing and developed countries over the contours of the NCQG.

The Council on Foreign Relations (CFR) says the most controversial issues remain how much money developed countries will provide and who should provide climate finance.

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

Climate finance

The focus on climate finance could impact the level of ambition reflected in Nationally Determined Contribution (NDC) commitments due early next year, particularly for developing countries. These countries are hesitant to commit to more ambitious goals without first securing clear financial support through the NCQG.

The first Global Analysis (GST) recognized the implementation cost of current Nationally Determined Contributions (NDC) at US$5.8-5.9 trillion between now and 2030. As parties present new and more ambitious NDCs in the first quarter of 2025, the need to mobilize greater financial flows to combat climate change will increase.

Although the joint initiative between Azerbaijan, Brazil and the UAE aims to recognize this link between finance and ambition, both the United States and the EU remain opposed to such explicit conditions. Consequently, developing countries have expressed skepticism that their needs and problems will be adequately addressed.

The co-chairs’ latest report on the progress of negotiations on the New Climate Finance Goals, published last month, makes clear that this will be a dangerous path for negotiators in Baku.

“COP29 faces an uphill battle, risking derailment of climate negotiations if rich countries continue to shirk their climate finance commitments. Despite three years of technical sessions and high-level meetings, key funding issues—such as scale, quality, sourcing and equity of contributions—remain unresolved,” says Harjeet Singh, climate activist and director of global engagement at the Fossil Fuel Non-Proliferation Treaty Initiative .

Structure

Developing countries have expressed concerns about the form of climate finance provided to developing and vulnerable countries, as it comes in the form of loans at high interest rates.

A position paper on climate finance published by the CSE last month shows developed countries are refraining from making any commitments on the amount of finance that will be provided under the target. In addition, they are also pushing to expand the depositor base and include private financing.

In contrast, developing countries emphasized that international public finance should be a core component of the NCQG and that historical commitments should be taken into account when determining the depositor base.

Vibhuti Garg, Director, Institute of Energy Economics and Financial Analysis of South Asia (IEEFA), says the NCQG should be based on scientific goals and be futuristic as the previous target of $100 billion was not on target and the new target should move forward and have 5 – and a 10-year time horizon with annual goals revised every 5 years to reflect new realities.

“The new target must include more grants and concessional financing, and not just mainly in the form of loans, otherwise the target will fail. Developing economies need capital, not at market rates, but at concessional rates,” she told Business Today.

Stressing that the volume of funding needs is enormous, Dr. Manish Kumar Srivastava, Deputy Director, TERI, says that in addition to the volume of funding allocated at the Baku COP, its allocation is in line with the equitable transition needs of developing countries.

“It is important to ensure that these financial flows do not increase the debt burden of developing countries. It would be ideal if NCQG became a tool to help attract private capital and strengthen domestic financial markets. This creates a robust and climate-friendly financial ecosystem compared to the current one, which provides a prudent and low premium for green investments. It all depends on the willingness and seriousness of developed countries to address the climate crisis. Based on experience, we are skeptical,” he told BT.

Amid growing skepticism about the Baku talks, there is hope among negotiators that countries will make every effort to succeed in saving the planet.