Huge climate finance divide to bridge ahead of Cop 29

Parties have hit a wall in final technical discussions on a new climate finance goal — the "centrepiece" of the UN Cop 29 climate summit in Baku — and ministers have a large gulf to bridge, just two months before the summit.

Technical talks took place last week in Baku on the new collective quantified goal (NCQG). The NCQG is the next stage of the $100bn/yr target that developed countries agreed to deliver to developing countries over 2020-25. They missed the goal in 2020-21 but met it in 2022. The Paris climate agreement stipulates that developed countries shall provide financial resources to assist developing countries.

"Sticking to set positions and failing to move towards each other will leave too much ground to be covered at Cop 29," the summit's president-designate, Mukhtar Babayev, warned. Azerbaijan's lead negotiator, Yalchin Rafiyev, had asked participants at the meeting's outset to "advance, streamline and narrow options" including for the formulation of the goal — how much should be provided, who should contribute, what type of finance, and what role should private finance play.

But despite being told repeatedly to avoid reiterating previous positions, countries and voting blocs did just that, while complaining that ministers need clearer options ahead of Baku. Countries made submissions outlining their NCQG preferences, presented in seven packages and discussed at the meeting. Developing countries have for some time called for a floor of at least $1 trillion/yr for the new goal, but no developed country has committed to a number. Developing countries have also called for finance — mostly public — to be delivered through grants and concessional loans.

Developed countries are instead pushing for a "multi-layered goal". They noted the need for global climate-related investment to reach trillions of dollars, but have suggested support levels — the climate finance to developing countries — in the billions, potentially not moving the new goal much further forward. Contributor countries do not want to talk about numbers until other elements that would influence the amount, such as the timeline of the goal or the contributor base, are closer to an agreement, according to non-profit WRI's director for climate finance access, Gaia Larsen.

Developed countries leaving negotiations on the amount until the last minute will jeopardise the finance goal, non-governmental organisation Climate Action Network (CAN) global lead on multilateral processes Rebecca Thissen tells Argus.

UN voting bloc the Arab Group acknowledged some similarities between the seven packages. But "there are bridges we will never cross", it said.

Investing in the energy transition

The final figure agreed will have to do some heavy lifting. There is no real definition of climate finance, and finance flows that fall under the NCQG are likely to fund a broad spectrum of energy transition technologies, as well as adaptation projects — adjusting to the effects of climate change — and possibly loss and damage, tackling the unavoidable and irreversible effects of it.

"Developed countries refused to include financing for loss and damage within the scope of the new finance goal during the talks [last] week," CAN says. "This puts the loss and damage fund at risk of becoming an empty shell."

Guinea pointed out the danger of focusing on investments, as proposed by developed countries, especially for adaptation and loss and damage. "Adaptation is not a strategic option but an imperative to development," Guinea said. UN voting bloc the African Group wants grants and highly concessional loans for loss and damage issues, but developing countries mostly only mentioned mitigation and adaptation in their interventions. South Africa noted that only 2pc of current global financing for the energy transition is reaching the African continent, and that the NCQG would be a "failed process" if it did not help lift this to at least 30pc. And while developed countries are keen to involve the private sector, the Maldives said it does not "see the private sector coming".

Developed countries recognised that trillions of dollars are necessary to meet the needs of developing countries and that the previous $100bn/yr goal is not enough, but they called for a "realistic step up" set "within current economic realities". "We need to look beyond public finance because of the limitations on what those numbers can be," according to Australia.

And developed countries would prefer a ramp-up period for the goal. "As much as we would like to see [the goal] go in the trillions, there is a political reality there," the EU said. "It must be a stretched goal, an uncomfortable goal, but something pragmatic and that can be met." The new goal must reflect modern economic realities, the US negotiator reiterated last week.

Widening the donor base is another contentious topic in the NCQG discussions that did not progress last week. Developed countries have broadly coalesced, calling to expand the contributor base in order to increase the amount of finance for the new goal. But they did not provide any clarity on their exact demands, Thissen said, apart from Switzerland and Canada, which proposed that countries with both emissions and national incomes above certain levels should contribute to climate finance. But the proposals are not likely to "move the conversation forward or get much traction", non-profit Germanwatch's senior adviser on climate finance and development, Bertha Argueta, tells Argus.

Party like its 1992

The long-running issue around contributors partly stems from the list of developed and developing countries used by UN climate body the UNFCCC. It dates back to 1992, when the body was established, and has been a bone of contention for some time for many developed countries, which argue that economic circumstances have changed in that time frame, and that several countries classed as developing — and typically heavy emitters — should now contribute to climate funds. But developing countries are digging their heels in, and any changes to the official designations are unlikely.

Despite the red lines, and reiteration of previous positions, countries last week managed to find some areas where consensus looks likely — particularly on access to finance and transparency. There is also a broad agreement among developed and developing countries that public finance is at the core of the NCQG. "But different groups have different ideas about what that actually means in terms of its overall role in the NCQG," Argueta says. "The question then is how to build on the points of convergence to reach an agreement."

The debates should result in a framework for a draft negotiating text, to be released no later than four weeks before Cop 29. But progress was insufficient to allow negotiators to dive straight into final negotiations in Baku. "Discussions are not exhausted," WRI manager for sustainable finance Natalia Alayza says. Another meeting is planned in Baku and there are still opportunities for parties to have informal consultations, Alayza says.

The Cop 29 presidency is also convening ministerial dialogues on the sidelines of the UN general assembly, ongoing in New York, and in Baku in October, in an attempt to break the deadlock. Reaching agreement on the NCQG is an opportunity to rebuild confidence in the Paris Agreement and offer reinsurance to developing countries, Cop 29's Rafiyev reminded parties. "It is a moment of truth for the climate community."

By Caroline Varin and Georgia Gratton

Public climate finance provided

Climate finance provided ($100bn/yr)