COP29: Following the money through the looking glass

Negotiators at COP29 in Baku, Azerbaijan, have spent this week discussing draft decision texts to hand over to the Secretariat and on to Ministers, probably Saturday. Negotiations on finance split into several streams, on the Green Climate Fund, the Adaptation Fund, the Global Environment Fund (GEF), Loss and Damage Fund, and at this COP in a stream of meetings on the New Collective Quantified Goal (NCQG), which is important to set a target for the funds that all parties make available for mitigating and adapting to climate change into the future.

Currently (as of 14^th November) there appears to be quite substantial agreement on the technical aspects and institutional arrangements for the NCQG, but a reoccurrence of the perennial divide between the G77 and China and the Africa Group, and the ‘industrialised nations’ groups on refinancing, the ‘quant’ issue. In short, 3 days of talking about technical issues, and very little debate on substance, a point of frustration that even the EU delegation has noted.

Relabelling of funds

The background is that in the Paris Agreement ‘developed countries committed to a goal of mobilizing jointly USD 100 billion dollars a year by 2020 to address the needs of developing countries and confirmed that this funding will come from a wide variety of sources’. This target was eventually met, late in 2022, according to the OECD, when $106 billion was committed that year. However, this was contentious, and many commentators pointed to the relabelling of funds from other channels, arguing that this $106 billion was not from legitimate, new or additional sources. The COP21 also committed to replacing the $100 billion target by 2025, with $100 billion becoming the ‘floor’ of a new target – the NCQG – since the first target had in fact expired. This is the primary business in Baku, in terms of climate finance.

So, behind the technical detail, exactly what is happening? At present the committee rooms are closing to observers as the substantive arguments move from the ‘huddle’ mode – where committees effectively stop while some groups ‘huddle’ in a corner - to the more conclusively closed ‘inf inf’ mode -which stands for ‘informal informal’, and means all observers are now removed.

Moral hazards

The diplomats and eventually the Ministers, via the Secretariat, will decide on the new ambition and timeline to help stop the unfolding climate crisis. The current range of demands for the NCQG range from over $1 trillion per year from developing countries, up to a draft goal of $5 trillion per year by 2030. In terms of substance though we do know a few things. First, that the Loss and Damage Fund established last year is being implemented, but not yet open or financed. Second, that the governments of the industrialised countries do not appear to have committed any substantial additional funds so far, although in a welcome contribution the UK government has expressed concern over the price of climate finance, the vast majority of which is debt.

We also know that there are five moral hazards in play in Baku:

1. Announcing a 'target' on the NCQG gives the impression of action when in fact no new resources have been committed. The large sounding $100 billion dates from Durban in 2011, and did this exact same thing [see: Climate Change: Beware, large-sounding-sum-of-money approaching! - The Africa Report.com].
2. The $100 billion for the old target was arguably only just reached in 2022, when countries relabelled existing funds, which could remain the game in town. Other funds can move across, such as export credits as finance is fungible. Again, no new money.
3. The technical detail of what is to be counted is critical and still fuzzy. If private labelled 'green' funds, or blended finance are in the mix, a lot of non-concessionary finance will end up appearing alongside public climate finance, when it is all debt and relatively expensive. These funds support business cases that are already competitive i.e. would have been done in any case.
4. A big announcement on NCQG will take bandwidth from the issue of ending fossil fuels, which is critical. Climate finance can only have a marginal effect compared to decarbonisation.
5. The Adaptation and Loss and Damage Funds may remain empty, while attention goes on the NCQG. It just duplicates institutional structures when people need finance and wider change urgently.

In short, the achievements of recent COPs have been mostly in ‘building climate finance architecture’ rather than making the financial resources actually available to those who need them most - metaphorically like a person hopefully opening new bank accounts and taking out new credit cards so balances can be transferred from one to the other to give the impression of new funds and new commitments, while actually being broke. At the very least, perhaps negotiations over the NCQG can make this process transparent and accountable, so we can finally see how little finance there actually is.