At COP29 in Baku, a significant development took place as developed-country parties like the EU, US, and Japan agreed to assist in raising at least $300bn annually by 2035 for climate action in developing countries. This goal was hailed by global-north leaders and presented as a tripling of the previous international climate finance target. However, it faced strong opposition from many developing nations, with some even branding it a joke and a betrayal. A closer examination of the goal and climate-finance data helps shed light on this response.

Unraveling the Realities of the $300bn Climate Finance Target

Much of the goal will be met with ‘no additional effort’

The $300bn climate-finance target at COP29 in Baku will be achieved through a wide range of sources, primarily from developed countries. This part of the “new collective quantified goal” (NCQG) for climate finance will consist of public finance provided directly by governments, as well as funds from multilateral development banks (MDBs), specialized climate funds, and private finance mobilized by public investments. The $300bn goal is an extension of the $100bn target agreed in 2009 for developing countries annually by 2020, which was extended to 2025 by the Paris Agreement.Beyond the $300bn target, the NCQG also includes a broader “aspirational” goal of $1.3tn in climate finance by 2035. However, the text of the deal is vague about who will be responsible for raising these funds.Developed countries and MDBs had already committed to increasing their climate-finance contributions before the COP29 deal. The collective impact of these pre-existing commitments shows that climate finance from developed countries is set to increase from $115.9bn in 2022 to $197bn in 2030. This increase comes from various sources, such as bilateral funding, existing pledges at specialized climate funds, and MDB contributions.Bilateral funding directly from governments is the “big constraint” in climate finance, as noted by NRDC climate-finance expert Joe Thwaites. Many European countries have cut their aid budgets, and the re-election of climate-sceptic Donald Trump in the US has also affected bilateral funding.Moreover, the COP29 climate-finance deal contains no pledge by developed countries to provide a set amount of public, bilateral finance, despite pressure from developing countries.

Developing-country contributions could cover part of the goal

Unlike the earlier $100bn target, contributions from developing countries can now count towards the new climate finance goal. Under the Paris Agreement, only developed countries are obligated to provide climate finance to developing countries. But the NCQG outcome allows developing countries to voluntarily declare any climate-related funds they contribute.This allows negotiators at COP29 to avoid the controversial issue of expanding the list of official donors. Several relatively wealthy developing nations, such as China and the Gulf states, already make large climate-related financial contributions. For example, China announced that it had provided and mobilized more than $24.5bn for climate projects in developing countries since 2017.Counting the developing-country share of projected MDB outflows and associated private finance could add an extra $36bn to the global total by 2030. However, it is not possible to determine exactly how much climate finance new contributors like China will officially declare.Some observers hope that officially counting developing-country contributions will enable parties like the EU to set more ambitious goals. But Michai Robertson, the lead finance negotiator for the Alliance of Small Island States (AOSIS), dismissed it as an “accounting trick.” Li Shuo, head of the China climate hub at the Asia Society Policy Institute (ASPI), believes that the NCQG outcome could bring more attention to China’s climate-related aid but notes that the global target is still low.

Inflation wipes out much of the increase in climate finance

One issue that emerged after COP29 is the impact of inflation. Campaigners have pointed out that not factoring inflation into the 2035 climate-finance target means that the true value of the pledged money will be much lower by the time it is met.Researchers had previously flagged this issue with the earlier $100bn target. Correcting the $100bn for inflation would bring it to between $139bn and $150bn annually. Civil-society groups at COP29 estimated that inflation would cut the “real” value of the $300bn to $175bn in today’s money by 2035, based on an annual inflation rate of 5%. The Guardian used an inflation rate of 2.4% in its analysis.If inflation follows a certain trend over the next decade, the $300bn pledged in 2024 will only be worth $217bn in today’s money in 2035, a 28% reduction in value. To offer climate finance with a real value of $300bn in 2035, countries would need to set a goal of around $415bn.CGD modelling suggests that if developed countries’ climate-finance contributions simply increase in line with expected inflation and gross national income (GNI) growth, they would reach $220bn by 2035. Independent experts and climate-vulnerable countries have emphasized that more than $1tn is needed each year to help developing countries deal with climate change. With the relatively small amount pledged for the NCQG, some developing countries have already indicated that they may scale back their future climate ambitions.