Lessons from the $100B target can shape the next climate finance goal

In less than four months, governments will meet in Baku, Azerbaijan, for the 29th United Nations Climate Change Conference, COP 29, with the main objective of discussing, negotiating, and deciding a new goal for climate finance post-2025. The new collective quantified goal, or NCQG, on climate finance will be the second major international finance goal under the U.N. Framework Convention on Climate Change, or UNFCCC. The first one was the $100 billion annual commitment that, with its delays and difficulties, has left a trove of “do’s and don’ts” to draw on as countries set the NCQG. Currently, the differences between developed and developing countries — contributors and recipients of the money, respectively — are so marked that recent NCQG negotiations were inconclusive. “I’ve never seen an agenda item that was so behind so close to a COP where an agreement is expected,” Chiara Falduto, climate finance policy analyst at the Organisation for Economic Co-operation and Development, told Devex. “Finance was always an issue discussed at the negotiations, but right now it’s all over the place,” she added. How the $100B goal has worked out In 2009, developed countries committed to jointly providing $100 billion a year by 2020 to address the needs of developing countries. Parties to the Paris Agreement in 2015 decided that the commitment to providing that amount annually was to be continued until 2025. OECD has been tracking progress toward the goal since 2015, and its latest report shows that the target was met for the first time in 2022, with a two-year delay. “We saw an understanding that developed countries have been making arrangements in their own governments to try to increase the finance they were channeling,” Falduto explained. While the world waits to see if this trend will be repeated until 2025, countries have already started the negotiations on what will have to happen beyond 2025, i.e., the NCQG. “The $100 billion commitment was the first foundation to determine what the subsequent goals would have to look like,” Natalia Alayza, climate finance manager at the World Resources Institute’s Sustainable Finance Center, said. “It demonstrated the importance of a goal having to be informed by data. Why? So that it can finally support countries meeting their mitigation and adaptation objectives,” she added. For OECD’s Falduto, the goal made it clear that there is a huge gap that developing countries are not able to bridge to finance climate action, and that they need support from developing countries. Still, that goal nowadays is far from the need: “The $100 billion goal was agreed in 2009 when the conversations about climate and the importance given was completely different. It’s clear that $100 billion today is extremely little,” Falduto said. For Baysa Naran, manager and global climate finance tracking lead at the Climate Policy Initiative, within the overall global climate finance context, the $100 billion goal played an important role. “Sometimes this is the only source of funding for some developing countries to take climate action,” she told Devex. “It is meaningful. It’s just probably not enough.” The need to move from billions to trillions As agreed in the Paris Agreement, the next goal, the NCQG, must meet two quantitative conditions. The first is that it takes into account the needs and priorities of developing countries. As Sofia Gonzales-Zuñiga, senior climate policy analyst at Climate Analytics, explained, “There is a significant gap between the current level of climate finance available and the needs of developing countries. And that gap continues to grow every year.” For that, the NCQG will need to provide financial resources on a much larger scale than the previous commitment. “At the end of the day, climate finance sometimes is very local. … Hopefully, the NCQG decision can include some language that promotes transparency.” --— Chiara Falduto, climate finance policy analyst, OECD Agreeing on a figure based on those needs is not easy, however. A tracker by the World Resources Institute shows that, as it is not mandatory, not all countries have reported the financing they require to achieve their climate plans – known as nationally determined contributions, or NDCs. And for those who do so, there is no common methodology, so the reported figures must “be interpreted with caution,” according to WRI. The second condition is that the NCQG figure must start at $100 billion per year as a minimum floor. Yet in terms of putting a concrete figure forward, only the Arab Group and the African Group have proposed $1.1 trillion and $1.3 trillion per year, respectively, which has been disputed by some developed countries, like the United States. “We [have] four months left and we have not seen any sort of signal from parties saying ‘we are going to go way beyond 100 billion.’ We are not even hearing $200 billion,” Climate Policy Initiative’s Naran said. “The bottom line is trillions. It's not billions. And that's something to keep in mind,” she added. Expanding the contributor base Close to 80% of the climate finance mobilized in 2022 under the $100 billion goal was public funds, from both bilateral and multilateral channels. For the new goal, and considering the huge sum of money needed, developed countries are asking for the contributor base to be expanded. In other words, for more groups to provide financial resources. For this, one option is to bring on board developing countries that have the economic capacity to support others and which have greater responsibility for global greenhouse gas emissions. This could include China, an industrialized country — and the largest greenhouse gas-emitting country — which, as OECD’s Falduto pointed out, already mobilizes financing for climate action for countries in Latin America and Africa, but does not do so under the $100 billion goal. Another option could be the private sector, a grouping that experts agree needs to be involved for the new goal to fulfill its purpose. Its participation is growing: The private finance mobilized by public climate finance increased from $14.4 billion in 2021 to $21.9 billion in 2022. “Can governments provide more than $100 billion? For sure. We can talk about $200, 300, 400 billion. But the needs are estimated around $1 trillion per year, $2 trillion per year by 2030. There is no way developed country governments can fill that gap,” Falduto explained. “The role of the private sector is needed from a purely mathematical economic perspective,” and it is clear that the money cannot just come from the public sector, she added. For the OECD specialist, private sector money is already circulating in the economy, but for example, as investments in oil, gas, and heavy industry. In fact, a report by the International Energy Agency shows that companies are investing $800 billion in the oil and gas sector each year, which needs to halve by 2030 to limit global warming below 1.5 degrees Celsius. The challenge would be for the sector to redirect these resources to financing climate action. If the private sector is involved in mobilizing finance for the NCGQ, but considering that it is not directly part of the Paris Agreement, how can it be guaranteed that there is no conflict between the interests pursued by private companies, the projects in which the money is invested, and the real needs of recipient countries? “It is important that provision is made by mobilizing private resources based on the public intervention of the actors who can commit themselves and be accountable as such under the Agreement,” WRI’s Alayza said. Should all developing countries receive NCQG finance? The destination of the $100 billion was developing countries from the start. The NCQG would have to follow the same path if the provisions of the Paris Agreement are taken into account. But some developed countries want the financial resources after 2025 to be limited to the countries most exposed or most vulnerable to the impacts of climate change, such as small island developing states. Developing countries oppose this position and demand that the financing cover all of them. In 2022, most of the money mobilized went to both low- and middle-income countries, followed by upper-middle-income countries, meaning low-income countries did not get the main bulk of the financing. For Alayza, “taking into account the needs and priorities of developing countries does not mean that we should stop recognizing the specific vulnerabilities of some groups.” She also warned that discussions about both the amount for and who contributes to the NCQG cannot be made in isolation: “If the contributor base is expanded, the amount of money can probably also be expanded. If the number of beneficiaries is reduced, the money could also be increased. And vice versa.” Will the NCQG include loss and damage? The $100 billion goal was intended jointly for mitigation and adaptation — with the aim of “significantly increasing adaptation finance.” There was no specific mention and consideration of loss and damage as part of the $100 billion in the Paris Agreement. Only 28% of the financing mobilized in 2022 under the $100 billion target was allocated to adaptation. It is understood that the NCQG should maintain the same spirit as the previous target of equalizing financial resources allocated to mitigation and adaptation policies. According to experts, it is still unknown whether the NCQG will include loss and damage, and/or link to the new fund for loss and damage. “Developing countries have said that if the new goal is based on their needs and priorities, then loss and damage is a need and priority for them. Developed countries argue that this issue already has another room for discussion under the framework of the new fund,” Alayza said. She warned again that these are not independent decisions. Much will depend on how discussions about the contributor base, recipients, and the actual amount evolve in order to see what will happen with loss and damage in the NCQG. The time frame There was confusion in the corridors of the negotiations about whether the $100 billion target was a general amount to be met over the five years (2020-2025) or whether it was $100 billion in 2020, in 2021, in 2022 and so on. The latter was technically correct. The NCQG should not leave anything open to interpretation. What is known for sure is that it must lay the foundations for international climate financing from 2025 — but the details of its time frame will need to be clearly defined at COP 29. So far, suggestions from countries range from defining the characteristics for a five-year period to longer cycles of 10 or 20 years. WRI considers that the first option could be aligned with the update cycle of the NDCs and the global stocktake. The other two options could provide countries with a more predictable indication of the targets they need to aim for, but it is recommended that they include a review every five years, for example, to adjust it to the needs of developing countries. “This is an aspect that has not been explored in detail and that the new goal should clarify in order to avoid confusion at the time of reporting,” Alayza said. Improving reporting and transparency Experts agreed that one clear area for improvement between the $100 billion goal and the NCQG is transparency: How and in what detail climate financing is reported. Here are three considerations suggested as lessons from the $100 billion goal to improve the NCQG reporting: 1. For developed countries that mobilize money: Establish a common framework of methodology to report the money mobilized, and thus avoid estimates with different numbers and guarantee a better overview of the progress of the goal. 2. For developing countries that receive the money: Specify the communication and methodology on the climate financing required for the fulfillment of their climate policies. 3. For both: Report more precisely the effectiveness of the money mobilized. Did it actually contribute to climate action in a meaningful way? Has it resulted in emission reductions or in increased adaptation? “For mitigation, it is a little easier, but for adaptation, it is much more difficult. At the end of the day, climate finance sometimes is very local,” Falduto said, adding: “Hopefully, the NCQG decision can include some language that promotes transparency.” The road to COP 29 Ahead of COP 29 in November, there are some of the key moments where governments will need to advance the discussions to reach consensus on the NCQG at the climate conference. The 11th technical expert dialogue and the third meeting under the ad hoc work program on the NCQG will be held on Oct. 10-13 in Azerbaijan. In addition, a high-level ministerial dialogue on the NCQG will take place on Oct. 9 in Baku, just before the negotiating groups meet for the pre-COP discussions (Oct. 10-11). To facilitate the discussions on the NCQG, the COP presidency has appointed Climate Minister Dan Jørgensen of Denmark and Environment Minister Yasmine Fouad of Egypt to lead consultations on the NCQG.