A financial package too weak to effectively deal with the galloping impacts of global warming was reached in the early hours of Sunday at the annual UN climate summit in Baku, Azerbaijan, in the face of fierce opposition by many countries, including India.
Under the package, rich nations agreed to take the lead in finding money — $300 billion per year by 2035 for developing nations to move to a greener economy and adapt to climate change impacts, an amount described as inadequate by furious climate activists. (The new climate finance target, called New Collective Quantified Goal, replaces the earlier target of $100 billion a year.)
The summit failed to advance in most other areas, including mitigation of greenhouse gas emissions and adaptation finance for people hit by losses and damages. The one good news was the establishment of rules to rejuvenate the carbon market, though many found the rules weak.
The financial package was less than a quarter of the $1.3 trillion per year sought by developing countries. At the final plenary session of the 29th conference of parties (COP29) — as the summit is officially known — India’s representative Chandni Raina called the package an “optical illusion”. The Indian delegation rose to protest its passing but was ignored by the chair, much to its fury.
Borrowed worry
Earlier, COP29 had itself highlighted that “costed needs” were “estimated at $5.1–6.8 trillion for up until 2030 or $455–584 billion per year and adaptation finance needs are estimated at $215–387 billion annually for up until 2030 and notes with concern the gap between climate finance flows and needs, particularly for adaptation in developing countries”.
Nothing was said about how much of it would be in the form of loans, a big worry for debt-ridden developing countries. The resolution said the money would be raised “from a wide variety of sources, public and private, bilateral and multilateral, including alternative sources” and decided to “count all outflows from and finance mobilised by multilateral development banks towards achievement of the goal”.
Developing countries have been asking for grants as reparation since most of the greenhouse gases now warming up the atmosphere have been emitted by rich nations since the start of the Industrial Age.
The $1.3 trillion ask was left as an aspirational goal, with the resolution calling on “all actors to work together to enable the scaling up of financing to developing country parties”.
The $300 billion offer was roundly criticised by developing countries and climate activists as inadequate. Least developed countries and small island developing states even walked out of the negotiations over the issue though they returned to the plenary session chaired by Mukhtar Babayev, Azerbaijan’s Minister for Ecology and Natural Resources and COP29 president.
Much left unsaid
Emerging economies had another worry. Speaking to businessline on the condition of anonymity, a member of the Chinese government delegation said, “The resolution says nothing about whether money given through South-South cooperation will count towards this figure. We’re providing climate finance to other developing countries, but we don’t want that to be counted as part of this $300 billion figure. We don’t want developed countries to escape their historical responsibilities.”
Developing countries wanted a high proportion of the money as grants but the proportions were left unstated. COP29 did “underscore the critical importance of significantly reducing the cost of capital and increasing the mobilisation ratio of finance mobilised from public sources by 2030 and creating fiscal space in developing country parties through the use of innovative instruments, such as first-loss instruments, guarantees, local currency financing and foreign exchange risk instruments”.
In another resolution, the summit noted, “There is sufficient global capital to close the global investment gap but there are barriers to redirecting capital to climate action and governments through public funding and clear signals to investors are key in reducing these barriers, and investors, central banks and financial regulators can also play their part.”
The summit said it “recognises the need to dramatically scale up adaptation finance” without saying anything about how much money would be made available. Pointing out that developed countries had promised to double adaptation finance to developing countries from 2019 levels by 2025, the summit urged rich nations “to accelerate progress in this regard”.
It also “acknowledged the significant gaps that remain in responding to the increased scale and frequency of loss and damage”. A fund to compensate countries for loss and damage was set up in 2023 and has pledges of nearly $800 million but no actual money yet.
Role of carbon markets
It is now widely acknowledged that grants and soft loans cannot meet climate finance needs. The attempt now is to use these to leverage private investments, which is happening — at least in large developing economies — in areas of emission mitigation such as solar and wind energy development. It is far more difficult to attract private players to adaptation projects, most of which have low returns on investment. That is where a robust market in emission cuts — carbon markets — can play a big role.
COP29 established the rules of such a market by starting a registry of such trade, setting standards and bringing existing carbon markets under a common mechanism. Most countries welcomed the move but some climate activists found the standards too weak.
(The writer is India Manager, Earth Journalism Network)