Just as a simple lever can move heavy objects, rich nations are now relying on a different kind of leverage - financial - to help poorer nations cope with climate change. In Baku, Azerbaijan, negotiators are working hard to determine the new amount of aid needed to transition developing nations to clean energy and adapt to climate change. But the question of how much money will be provided and in what form remains a hotly debated issue.

Unraveling the Complexities of Climate Finance in Baku

Financial Leverage: A Double-Edged Sword

Experts estimate that the need for climate finance is closer to $1 trillion, while developing nations have called for $1.3 trillion. Rich nations have not yet offered a specific number for the core of money they can provide. The European Union is expected to contribute around $200 to $300 billion per year, which could potentially be leveraged to reach much higher amounts. For example, when a country gives $1 to a multilateral development bank, it can be used with loans and private investment to get up to $16 in spending for transitioning away from dirty energy. However, when it comes to adapting to climate change, the leverage is slightly less, with about $6 for every dollar. But for compensating already damaged nations like Caribbean countries, leverage doesn't work as there is no investment or loans. Straight-out grants are needed in such cases.

Whatever the form of the finance, it is crucial that developed countries make a firm commitment. Ireland's environment minister Eamon Ryan emphasized that it would be "unforgivable" to walk away without such a commitment. "We have to provide the finance, particularly for the developing countries, and give them confidence that they will not be excluded," he said.

The Fear of Debt in Developing Nations

If climate finance mainly comes in the form of loans, except for damage compensation, it will add to the debt burden of already debt-ridden nations. Michai Robertson, the climate finance negotiator for the Alliance of Small Island States, warns that "all of these things are just nice ways of saying more debt." His organization argues that most of the $1.3 trillion needed should be in grants and low-interest, long-term loans. Only about $400 billion should be in leveraged loans.

United Nations Environment Programme Director Inger Andersen acknowledges that leverage from loans is a critical part of the solution but also emphasizes the need for grants and debt relief. Bolivia's foreign policy director Diego Balanza has called out developed countries for failing to provide committed support. "A significant share of loans has adverse implications for the macroeconomic stability of developing countries," he said.

The G20 Statement: Praise and Worry

The G20's mention of the need for strong climate finance and the replenishment of the International Development Association gives hope to negotiators in Baku. It sends a clear message that developed countries should provide the necessary funds. However, the G20 failed to specify the amount of funds for the new goal, which is a disappointment. Analysts and activists are also worried as the statement did not repeat the call for a transition away from fossil fuels, a hard-won concession at last year's climate talks. Veteran climate talks analyst Alden Meyer blames Russia and Saudi Arabia for the watering down of the statement.

Despite these concerns, the search for a new climate finance agreement continues in Baku. The fate of developing nations and the future of our planet depend on the outcome of these negotiations.