COP29 is the ‘finance COP.’ Here's what that means

Delegates, media, and civil society arrived this week in the coastal capital of Baku, Azerbaijan, for the 29th Conference of the Parties to the United Nations Framework Convention on Climate Change, or COP29. At the top of the agenda is the new collective quantified goal, or NCQG — an updated climate finance goal to accelerate the implementation of the Paris Agreement’s aim of keeping Earth below 1.5 degrees Celsius of warming. This year’s COP is expected to be just a glimmer of the spectacle it has been in other years — hosting a lower attendance than last year’s COP28 in Dubai, United Arab Emirates. Many officials chose to skip this meeting due to its remote location, the nearby conflict in Ukraine that made travel arrangements more difficult, and Azerbaijan’s poor human rights record and reliance on fossil fuels. But COP29 could be the most important for climate finance since countries agreed to a goal of $100 billion in contributions annually at COP15 in 2009. The NCQG will establish the new amount that wealthy countries will collectively dedicate toward combating climate change in lower-income countries each year. Countries are also expected to announce new pledges to the loss and damage fund — a yet-to-be-mobilized pot of money to help low-income countries pay for the destruction wrought by climate-related disasters. Experts also hope for more details on the financing mechanism for the Adaptation Fund, dedicated to projects that help low- and middle-income countries build resilient infrastructure. “The NCQG is the biggest negotiating track at COP and in my view the most important,” Debbie Hillier, UNFCCC policy lead at Mercy Corps, told Devex. “What will be agreed at this COP will lock in that target for 10 years, and possibly 15.” The recent U.S. election is likely to play a significant role in negotiations, as President-elect Donald Trump had promised in June that he would once again exit the Paris Agreement. He is also rumored to be considering withdrawal from the UNFCCC, which runs the COPs. This would require approval from the newly Republican-led U.S. Senate. A U.S. exit could be catastrophic since it would take its budget contributions with it. Worse, it could spook other major donors, such as the United Kingdom and the European Union, from committing to large contributions. “It could lead them to being even less flexible in the negotiations,” said Ana Mulio Alvarez, a UNFCCC, loss and damage, and adaptation researcher at E3G. The acronym on everyone’s mind: NCQG Countries are expected to debate over essentially every aspect of the NCQG: how much, how it will be spent, who will pay it, and how it will be counted. The goal has been negotiated over the last three years, yet much is still unclear about the final picture. “Despite the fact that we’ve had three years of discussions, pretty much everything is still to be agreed,” said Hillier. How much will be allocated to the NCQG? The NCQG is meant to replace the current annual climate finance goal of $100 billion per year, with low-income countries expected to request at least $1 trillion this time. Donor nations have stayed tight-lipped about how much they are likely to offer, but it’s expected to be far lower. “We believe the number being considered by developed countries is probably in the lower hundreds of billions,” said Mulio Alvarez. “There is no actual official number on the table for now. The truth is that this will be a highly political decision.” A 2021 report showed that nearly $6 trillion is needed by 2030 to implement developing countries’ climate action, and that doesn’t include the $187 billion-$359 billion needed for adaptation. But developed countries barely reached the existing annual $100 billion goal in 2022 — two years later than hoped — and even that funding is contentious because 69% of it took the form of loans. “That’s arguably not climate finance because you’re giving it to a country who has to then pay it back,” Hillier said. Developing countries want climate finance to be counted in terms of “grant equivalence,” which refers to the percentage of a loan that wealthy countries or institutions subsidize for developing countries. Most development funding only counts that percentage toward goals, but climate finance does not. Even if the NCQG target were to stay at $100 billion, but countries were to count the finance in terms of “grant equivalence,” developing countries would be receiving more aid than they are today, Charlene Watson, senior research associate on climate and sustainability at ODI Global, explained. “There is no real indication from developed countries that they can or want to scale grant-based finance,” said Mulio Alvarez. “I think they are hoping they can further attract the private sector and unlock innovative solutions to make up for the finance gap.” Where will the NCQG money go? The Paris Agreement stipulates that annual funding must go to mitigation, meant to reduce emissions and avoid climate change; and adaptation, meant to improve countries’ resilience in the face of a warming climate. Historically, more financing has gone toward mitigation because it has more investment potential. In 2022, the Organisation for Economic Co-operation and Development found that mitigation accounted for 60% of climate finance. “I think there really is a mitigation bias,” said Vijaya Ramachandran, director for energy and development at the Breakthrough Institute, which recently published an in-depth report on adaptation financing. This year, low-income countries and civil society are advocating that NCQG targets be divided into mitigation, adaptation, and loss and damage. High-income countries say that this could cause inflexibility and limit what countries can invest in. Developed countries are more focused on structuring the funds based on the type of financing, rather than what it is spent on. They want it to work more like an onion, explained Mulio Alvarez, with a center layer that is publicly provided finance and mobilized finance — this includes a mix of loans at a concessional rate and grants as well as guarantees or philanthropy that can de-risk and unlock private finance. The outer layer would include private sector investment. “The NCQG by mandate must provide finance for adaptation. However, how this shows up in the agreement is still a subject of debate,” said Mulio Alvarez. “We can expect the structure to be a major part of the discussions at Baku.” She added that she thinks developed countries “recognize that they need to step up on their adaptation finance and are open to ideas on how to do this.” Civil society groups also want to see money going towards loss and damage — but since that wasn’t mentioned in the Paris Agreement, countries aren’t legally obliged to send money in that direction. “What developing countries actually need, which is what this is all supposed to be focused on, is $1 trillion per year with $300 billion for mitigation, $300 billion for mitigation, and $400 billion for loss and damage,” said Hillier. However, she added, “it suits developed countries to just kind of keep it all a little bit ambiguous. That means that they can play the system a little bit and make their numbers look good.” Who pays? The climate finance goal decided in the NCGQ will flow from what the United Nations defines as developed countries to those still developing, but some are critical of this wording, arguing that some of the largest emitting developing countries, like China and Brazil, need to contribute as well. They also argue that what counts as “developed” and “developing” has changed and thus some countries are unjustly getting out of paying. China is at the heart of this debate. The country is considered developing by U.N. standards but was found to have contributed more than $3 billion annually in climate finance during recent years, according to a report by the Center for Global Development — surpassing bilateral finance from the United States. Part of the original rationale for cash flowing from wealthy countries is that they’re also responsible for the vast majority of emissions. But China is currently the world’s largest emitter of greenhouse gasses. Still, civil society is worried that the conversation on rethinking such U.N. designations will distract from setting the new climate finance goal and figuring out how to meet it. “Both sides of the argument are quite entrenched and have signaled that this is a red line for them,” said Mulio Alvarez. “Re-opening the convention or the Paris Agreement to reclassify parties is a redline for everyone, I believe.” How will the NCQG funding be counted? While the amount of money is the top-line topic of the debate, how this money is counted will also be discussed. Grant equivalency is a big part of this conversation. Another element is the enhanced transparency framework, or ETF, which is meant to improve accountability for finance commitments and effectiveness. ETF was established with the Paris Agreement but has yet to be fully mobilized as part of the NCGQ. The framework will help countries report on their greenhouse gas emissions and progress toward their climate goals and adaptation efforts. It will also provide processes for technical experts to review the reports. The new framework will include a common set of guidelines and the same technical expert review with flexibility depending on the capacity and donor or recipient status of each country. All countries will have to submit a biennial transparency report, or BTR, by Dec. 31, 2024 — this year it will have to include voluntary investment information like for loss and damage. They are also expected to have a plan for improvement. Experts are optimistic this will be one success of COP29, but they also say our horizons have to be wider. “It’s not the only thing we need to care about when it comes to transparency,” said Watson. “You could potentially add up all the bilateral contributions and multilateral climate funds and then synthesize them, but then who is going to say we are making it to the goal or not?” Could this be the year we fund adaptation? Adaptation finance is an ongoing issue at climate negotiations. Funding often takes a back seat to mitigation and many negotiators say it is also harder to track its progress. The Adaptation Fund was established in 2001. It can receive money directly from donor countries or from the NCQG, but the investment opportunities from mitigation and the recent focus on the loss and damage fund has made it a less popular option for countries. “I think temporarily at least, the emergence of loss and damage as a new theme had an impact on adaptation,” said Mikko Ollikainen, head of the Adaptation Fund and member of the Finnish Parliament. “Some of the funders who might have funded adaptation decided to pledge to loss and damage.” It not only didn’t reach its fundraising goal of $300 million last year, it actually lost ground. It is not expected to reach it this year either, but Ollikainen said that they will once again try to reach this goal for 2025. The Adaptation Fund has been criticized at times for making slow progress and experts say this could disincentivize donor countries from giving more this year. “The fund has become quite contentious over the years with a lot of adaptation champions such as the Netherlands refusing to give money to it because of disagreements around the board and the allocation of funds,” said Mulio Alvarez. However, in the lead-up to this COP, organizations are talking a lot more actively about adaptation. The World Bank published a report in late October about the need for targeted adaptation interventions. The Breakthrough Institute published a report on the same day arguing that a “major misallocation of climate finance” by the World Bank has caused adaptation to be “significantly underfunded.” Ollikainen said that this could help boost the topic in debates. “Our hopes are quite high this year,” said Ollikainen. “The political momentum seems to be right. This is the finance COP, there are all these reports saying that adaptation is underfunded and that the adaptation gap is growing and it’s critical that parties address adaptation finance.” It’s time to put some money where our mouths are on loss and damage Baku negotiations are expected to bring the loss and damage fund, established at COP27 and officially launched at COP28, into operation. The fund is meant to help low-income countries pay for the damage caused by climate-related disasters. Loss and damage funds are voluntary, but the key argument from lower-income countries will be to bring the loss and damage into the NCQG, making it a legal obligation alongside mitigation and adaptation. They’re expected to get pushback from developed countries who don’t want to be liable for so-called climate reparations. “Loss and damage is going to be a tricky one,” said Watson. “It could be a key area of political compromise because developing countries want to recognize loss and damage as the third pillar of finance. However, there’s big pushback to that saying we already have other processes, we don’t need to drag it in there.” While many countries previously pledged money for the fund, the commitments are barely a sliver of what’s needed. A 2022 U.N.-led report found that as much as $300 billion could be needed every year by 2030. Update, Nov. 13, 2024: This article has been updated to clarify the attendance number at COP29.