The most significant outcome of Baku is widely believed to be the New Collective Quantified Goal [NCQG] for climate finance. This is a $300 billion target by 2035, with the ambition to raise this to $1.3 trillion. The latter figure was sought by developing countries and by those who see it as a more accurate price for the types of investment needed to fund the energy transition and mitigate and respond to climate change. Most arguments between the Parties in Baku were between these two numbers, with the lower figure widely viewed as an abrogation of the responsibility of the developed country parties to meet their Convention commitments. In convention speak this group have "common but differentiated responsibilities and respective capabilities” [CBDR] to singularly pay for the crisis they have historically caused. The Baku outcome is widely viewed as a failure or a tragedy or both. But the divide between the parties is also entirely predictable, in a 15-year pattern of disagreement over, first, what money is needed and second, who should provide it.
What money is needed?
The headline number is perennially contested. But are people actually counting commensurate pools of finance? I don’t think so. For the private sector, and those using deductive methodologies, a figure is arrived at for investment based on the cost of buying, transitioning, replacing and sometimes decommissioning different assets, benchmarked to emissions footprints, Paris alignment, Net Zero pathways or combinations of the above. In the popular imaginary, like the cost of replacing a gas boiler with a heat pump, or a petrol car with an EV – but economy wide. How much it would cost, for example, to decommission South Africa’s remaining 14 coal-fired power stations and replace them with solar, wind or nuclear, when the closure of the first – Komati in 2022 – occurred with the incentive of half a billion in transition funding from the World Bank. Globally, the numbers to fund all the Nationally Determined Contributions [NDCs] were calculated by the COP Presidency at between 5.1 to 6.8 trillion dollars up to 2030, or just for adaptation finance, 215-387 billion. The range is wide. This is because these are guestimates: while the prices of things, even whole power grids, appear fixed in asset manager spreadsheets, the price is also affected by multiple variables which change rapidly. If, for example, fossil fuels – which account for nearly 90 per cent of all carbon dioxide emissions – were subject to pollution taxes, the opportunity cost of the energy mix would change, making renewables cheaper. Capital seeks opportunity, but it doesn’t make it in a vacuum. In other words, the missing piece affecting the price of something is politics.
So here is the conundrum. We are not talking about finance in the abstract, but finance owned and used by different groups. The private sector has an opportunity in climate change to seek profits and build new infrastructure. People and Nature meanwhile, pay the externalised costs of a fossil fuel global economy, in losses and damage, shortened lives, sickness and poverty. And while they hope to benefit from investments in transition, in jobs and incomes, this is by no means guaranteed.
Who is responsible for paying?
In the paradigm of climate justice, and in the original Convention this falls to the developed countries group. But the global political economy has shifted, and many of the developed countries now see this as unfair and impractical. They have been increasingly resisting and removing the language of responsibility, with redlines around ideas of compensation, in, for example, loss and damage draft texts. They seek language on finance ‘from all sources’, ‘innovative finance’, including from carbon markets, and from domestic sources and new contributors of all types. For example, they point out that China has now accumulated more emissions than Europe, despite still being in the developing country group. But China has no obligation to contribute to the NCQG, although it has voluntarily raised around $25 billion in climate finance, nonetheless. Significantly, the developed country group seek to count more and more private flows to boost headline numbers for the total of climate finance available. But the Group of 77 and China, the African Group of Negotiators [African Group] and the Small Island Developing States (SIDS) are unimpressed with this sleight of hand over who should pay and insist on the original moral binary. Amb Ali Mohamed, Kenya's Special Envoy for chair of the African Group called the COP29 deal “totally unacceptable and inadequate.”
Who is going to pay?
While parties are fixed on the high and the low numbers, it is easy to forget that this argument is about a future target, which is essentially virtual. The actual amount of new commitments to the top five UN climate finance funds made in 2024, including at Baku, was at a 5-year low of around $228 million [Climate Funds Pledge Tracker]. Derisory.
So perhaps it would be better for the developed country group to be more explicit that their route away from a sense of singular obligation is complete. It is not just a temporary this, that or the other excuse, - austerity, COVID, Trump, a downturn - but a permanent decision that finding the NCQG funding from [just their] public resources is not the game they are playing. Afterall, the USD300 billion is relatively easily met with a small increase in current resources (around 6.3% growth per annum until 2035), in the context of the new Baku voluntary agreement that all multilateral development bank (MDB) climate finance to developing countries can now be counted, rather than just the portion attributable to developed countries (paragraph 8(c)) (How to Deliver the New Climate Finance Goal).
And then perhaps it would also be better for the developing countries to admit that they keep losing the old game: every COP is the same pantomime of attending, stressing the powerful case for climate justice, but nonetheless leaving with next to nothing. The binary of the developed/developing categories is not working as a means of access to finance. Another strategy would be to prise open the doors to increasing global taxation on the private sector high emitters and on changing trade rules [Copy of Progress report - Nov 2024-3.docx - Google Docs]. For example, building carbon export taxes, because the export of strategic green minerals in Africa is allowing for a reduction of emissions in Europe. This could be paid as an internationally traded mitigation outcome [or ITMO] to the producers of the minerals.
In changing the broader rules of engagement, the Group of 77 have key advantages: they are many and the rich are few; and they have over 50% of the global stock of strategic minerals.
A way forward?
There is also a broader joint pathway, where the interstate divisions of developed and developing fall away, and the differences between public and private finance come to the fore: a solidaristic alliance for all types of states to regulate capital together. After all, it is not a new pot of money that needs raising, but finance that needs shifting, or repurposing, which can be done through regulation. In other words, if you view the $1.3 trillion figure as the price of new things that is additional to current financial resources, it looks very big. But if you think about it as repurposing a small proportion of current resources in global capital markets, a sort of marginal opportunity cost of change, it shrinks in size and looks distinctly doable. For example, it is only 1% of global GDP; or only 0.009% [around 1 percent] of global fixed income markets [loans outstanding] in 2023 [$140.7 trillion]; or equivalent to less than 0.003% [0.3 percent] of the assets of global financial institutions in 2022 [which were $461.2 trillion] – a minute flow to shift to avoid the increasingly catastrophic costs of inaction.
In sum, debates over climate finance look complex, but are also profoundly simple. They centre on who will bear the costs and who will reap the benefits of change. It is possible for us to meet this challenge, if you view it politically, and at scale.