Will COP29 reach consensus on more funds for climate finance?
Levels of climate finance provided to developing countries compare poorly with their actual requirements
DEVELOPING countries need trillions of dollars of help from developed nations to help them meet their climate goals, and to compensate them for loss and damage from climate change. So far, funding has fallen well short of what’s needed.
Financing mechanisms under the United Nations Framework Convention on Climate Change have been among the most contentious facets of the treaty, largely due to the under-provisioning by the developed countries.
While they had agreed to provide US$100 billion by 2020, the actual level of funding consistently remained below this until 2022 when, for the first time, they provided and mobilised climate finance totalling US$116 billion. This was up from about US$90 billion a year previously.
Climate finance from public institutions accounted for close to 80 per cent of funding in 2022, increasing from US$38 billion in 2013 to US$91.6 billion in 2022. Though the amount from public institutions rose by 25 per cent between 2021 and 2022, private climate finance went up by almost 50 per cent.
Most developing countries have long demanded much higher levels of funding from developed countries. India and the Arab Group have, for instance, demanded that developed countries provide around US$1 trillion annually to meet the financing needs of developing countries.
Several institutions have confirmed that the levels of climate finance provided to developing countries compare poorly with their actual requirements, and that their annual actual requirements could run into several trillions of US dollars.
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According to the Green Climate Fund, developing countries would need US$2 trillion to US$4 trillion annually, and mobilising private capital is critical to meeting this target.
The first Needs Determination Report of the Standing Committee on Finance in 2021 estimated that nearly US$6 trillion was needed to implement developing countries’ climate action plans by 2030.
Other estimates put this cost at US$7.8 trillion to US$13.6 trillion for the same time period. In 2019, the Independent High-Level Expert Group on Climate Finance estimated that the emerging markets and developing countries, excluding China, must spend close to US$2.4 trillion a year until 2030 to meet climate goals.
The Expert Group argued that about half of the total funds needed by these countries would be from sources providing concessional credit (including bilateral, multilateral, and other “innovative concessional” finance), and that more than half of this private finance would be directly and indirectly catalysed by multilateral development banks and other development finance institutions, among others.
Two new climate financing windows – the New Collective Quantified Goal and the Loss and Damage (L&D) Fund – are also expected to face a funding crunch when COP29 convenes this week in Baku, Azerbaijan.
Yet, there is hope that the meeting will take important decisions regarding them.
The New Collective Quantified Goal financing window could enable developing countries to meet their nationally determined contributions – plans that countries create to reduce greenhouse gas emissions and limit global warming – by 2030.
The adoption of this financing window at COP29 would ensure continued provisioning of targeted climate finance, a process initiated in 2009 through the decision to set up the Green Climate Fund. Developed countries had committed to contribute US$100 billion by 2020 to it.
The New Collective Quantified Goal is considered vital for channelling more funds towards developing countries, which are urgently needed for climate action. It would support the implementation of low-carbon, climate-resilient solutions in energy, transport, agriculture, and other vital systems.
Increasing financial support should enable developing countries to step up their climate ambitions in the next round of national climate plans, which are due in 2025.
The second major climate financing window, which will also be in focus at Baku, is the L&D Fund.
The fund is the outcome of the COP27 decision to “establish new funding arrangements for assisting developing countries that are particularly vulnerable to the adverse effects of climate change”.
The L&D Fund came into existence during COP28 after the Governing Instrument of the Fund was approved. The case for such a fund was initially made in 1991 by the Alliance of Small Island States to counter the adverse consequences of climate change.
The L&D Fund would test the global commitment to meet the longstanding demand of the most vulnerable countries to be compensated for the loss and damage they have suffered due to climate change.
Since the fund’s establishment during COP28, 23 countries have pledged to contribute US$700 billion towards addressing loss and damage.
Four countries – France, Italy, Germany, and the United Arab Emirates – together account for 60 per cent of the pledges made so far. However, the US – whose share in historical emissions since 1850 is the largest at 20 per cent of the global total – has contributed US$17.5 billion.
These contributions are too meagre given that the projected economic cost of loss and damage by 2030 is estimated to be between US$400 billion and S$580 billion a year. Further, by 2050, the economic cost of loss and damage in developing countries is estimated to increase to US$1 trillion to US$1.8 trillion.
An equally important concern is whether climate finance would worsen the debt burden of developing countries, which is already at a precarious level.
In 2023, public debt in developing countries reached US$29 trillion, almost 30 per cent of the global total. Further, the share of private creditors in the total external public debt of developing countries was 61 per cent in 2022.
Borrowing from private creditors on commercial terms is more expensive, but with concessional financing from multilateral and bilateral sources drying up, developing countries could end up worsening debt burdens while responding to their commitments to reduce global warming.
The writer is acting president and distinguished professor at the Council for Social Development, New Delhi. He retired as professor from the Centre for Economic Studies and Planning at Jawaharlal Nehru University, New Delhi.
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