Climate finance
COP29 was dubbed ‘the finance COP’ with the purpose of agreeing a new collective quantified goal (NCQG) on climate finance to support developing countries build low-carbon energy systems and industries. The financing also supports adaptation to the impacts of climate change which, for the largest part, has historically been caused by the US, Europe and, more recently, China.
The final USD300 billion deal inevitably satisfied no one. Developed countries were called upon to “take the lead” in the mobilisation of the climate finance, drawn from a mix of public and private sources, and while trebling the prior collective goal of USD100 billion, developing countries and global NGOs described the outcome as insufficient, highly unfair, and “too little, too late”. However, the final text does call on “all actors” to scale-up the financing, from public and private sources, to at least USD1.3 trillion per year by 2035. This much larger goal recognises both the demands of the G77 group of developing countries and China and the independent assessment from the UN’s High-Level Expert Group on Climate Finance, a 32-strong group of global economists.
Four questions on the financing which will carry over into COP30:
- Which countries should contribute to the target, and should that group include China? China argues that it is still classified as a developing country under the initial UNFCCC convention from 1992 and is therefore not obligated to contribute to the goal, although it is worth noting that research shows China has been a significant provider of climate finance over the last ten years.
- What kind of contributions can be counted against the new goal? Only government-funded grants, or also concessional loans, various blended finance packages, and private sector investments?
- Which countries should be the primary recipients of these funds?
- How will it be distributed between climate mitigation, adaptation, or, potentially, loss and damages?
For private sector financial institutions, the new agreement will result in growing opportunities and expectations from governments and civil society to play a bigger and more active role in contributing to innovative climate finance solutions, as well as climate insurance partnerships for developing countries.
According to global economists, private finance is expected to account for 50% of the larger USD1.3 trillion figure – this presents an unprecedented growth opportunity. For example, investment in clean energy will need to increase sixfold in emerging markets by the 2030s, according to the International Energy Agency (IEA). This development will also place additional pressures on financial institutions to stick with their net-zero commitments even in the face of countervailing signals from the new U.S. administration.
Separately from the official negotiations, a group of 14 countries from the Global North and South - led by France, Kenya, and Barbados, with the EU, Germany, and the African Union as observers - launched the Coalition for Solidarity Levies. This coalition will explore additional sources of climate finance, such as levies on shipping, aviation, fossil fuel extraction, and certain financial transactions.
No progress was made on finding a regular funding mechanism for the separate Loss & Damage fund which launched at COP28 in Dubai. Negotiations on that will continue next Summer in Bonn.
Fossil fuels
A key contention at COP29 was whether the UAE Consensus from COP28 to “transition away from fossil fuels” would be re-confirmed either in the final document on the Mitigation Work Program, or in the document on implementing the Global Stocktake. In the end, none of the texts repeated this formulation. To many observers, this was an indication of Azerbaijan’s COP29 falling behind the ambition of the UAE’s COP28.
Carbon markets
Nine years after the Paris Agreement, the missing details of its Article 6 on carbon markets have finally been agreed. The agreement on regulating the international trade of carbon credits between countries had been pre-empted by countries such as Japan, Singapore, and Switzerland who have already set up a range of bilateral deals to allow them to import credits from developing countries. A central idea behind Article 6 is to allow countries to work together in this way, providing developing and land-rich countries with additional sources of revenue, while ensuring that emissions reductions are only counted once. The Paris Agreement Crediting Mechanism (PACM) will effectively be a third type of carbon market with a UN supervisory body, next to the existing compliance markets, such as the European Union’s Emissions Trading Scheme (EU ETS), and the voluntary carbon market, where companies choose to buy carbon credits, often in order to offset emissions. Critics of the new agreement consider the quality standards as too lax and worry about a new ‘wild west’ of carbon offsets.
Future of the UNFCCC process
During the first week of COP29, many of the world’s most respected leaders in climate science and climate policy, including former UN Secretary-General Ban Ki-moon, published an open letter urging a reform of the COP summits. As their number one suggestion, the signatories suggested strict eligibility criteria to exclude countries from hosting COP summits who do not support the transition away from fossil energy. Partially, this letter was seen as a response to Azerbaijan’s President Aliyev describing fossil fuels as a “gift of God” in his opening keynote, and to a BBC investigation about the CEO of Azerbaijan’s COP29 having tried to use his role for promoting fossil fuel deals.
A second noteworthy signal on the UNFCCC’s perceived inadequacy came from the host of COP30, Brazil’s President Lula. In a keynote to the G20 summit, Lula suggested the creation of an additional Climate Change Council at the UN, without providing further details.
With President-elect Donald Trump having declared his intention of leaving the Paris Agreement again, there had also been concerns other countries may follow suit, particularly after Argentina’s President Milei withdrew his negotiators from Baku. Since then, Argentina’s government declared that it had no intention of leaving the Paris Agreement. In another unusual move, Russia’s President Putin had his representative explain to the Financial Times that Russia “urges” the U.S. to stay in the Paris Agreement.
The limited outcomes of COP29 and the continued calls for COP reform will only increase the pressure on Brazil to host a successful COP30 next year.
Other major sector-specific or regional outcomes
National climate targets:
- 11 nations including UK, Brazil, UAE, and Canada formed a “high ambition” coalition to commit to 1.5°C-aligned nationally determined contributions (NDCs) covering all sectors of their economies.
- 25 countries and the EU indicated their intentions to put forward national climate plans that reflect no new unabated coal in their energy systems and issued a call to action for others to do the same.
- Indonesia announced that it would retire its coal and other fossil fuel power plants within the next 15 years and bring forward its net-zero target date from 2060 to 2050.
- The United Kingdom announced a more ambitious NDC to reduce its greenhouse gas emissions by 81% by 2035, compared to 1990.
- Brazil, as the host of next year’s COP30, also raised its ambition in its NDC, committing to reduce emissions by up to 67% by 2035, compared to 2005.
- Mexico announced their commitment to net-zero emissions by 2050, meaning all G20 members have now committed to a net-zero target.
Clean energy:
- Major economies, such as the U.S., Brazil, the UK, Saudi Arabia, and the UAE have joined an initiative to increase global energy storage sixfold by 2030. They also want to build or modernize around 80 million kilometers (ca. 50 million miles) of electricity grids by 2040. The commitment comes a year after 133 countries committed COP28 to tripling renewable energy capacity and doubling the rates of energy efficiency by 2030.
- 12 countries launched the Global Clean Power Alliance, spearheaded by Brazil and the UK, which is committed to speed up the global drive for clean power by uniting developed and developing countries across the north and south on finance and technical support.
Industrial transition:
- To accelerate the decarbonization of emission-intensive heavy industry across seven sectors, such as steel, cement, chemicals, aviation, and shipping, an alliance of almost 1,000 businesses developed its own policy playbook to ensure greater demand for low-carbon products. Together, these businesses and organizations advocated for targeted policies to unlock USD1 trillion in investment in low carbon industrial projects via the adoption of carbon pricing regimes, mandatory limits on carbon intensity, and greater support through government procurement programs.
The road to COP30
Brazil’s Presidency of COP30 next year, and the focus it brings to significant ecosystems like the Amazon, will ensure that 2025 is a significant year for global climate action. There will likely be a new wave of political and industrial energy getting behind the acceleration of sectoral decarbonisation, especially in hard-to-abate sectors; an augmented focus on unlocking private capital for the transition of developing and emerging markets; and a major focus on nature financing boosted by Brazil’s own interested in growing the bioeconomy.
