As world leaders prepare to gather in Baku, Azerbaijan for the 29th Conference of Parties (COP29), the spotlight will shine brightly on the critical issue of climate finance. Developing countries are seeking predictable and adequate funding to address their climate change mitigation and adaptation needs, while developed nations advocate for a broader pool of financial contributors. The negotiations will be crucial in shaping the New Collective Quantified Goal (NCQG) on Climate Finance, a pivotal target that will directly impact the next round of Nationally Determined Contributions (NDCs) and the global effort to keep the 1.5-degree Celsius target within reach.

Unlocking the Climate Finance Puzzle: Bridging the Divide at COP29

Defining the Quantity and Quality of Climate Finance

The negotiations at COP29 will be centered around the quantity and quality of climate finance. Developing countries have put forth ambitious estimates, with India and like-minded nations calling for $1 trillion per year until 2030, the Arab group estimating a $1.1 trillion annual requirement, and the African group estimating a $1.3 trillion annual need. In contrast, developed countries have not provided any concrete estimates, instead focusing on expanding the pool of contributors.The divergence in these positions highlights the fundamental trust issues that persist due to unmet commitments. The $100 billion annual climate finance goal, agreed upon at COP15 in Copenhagen, was not fully realized, with developed countries falling short in the first two years and the claim of achieving the goal in 2022 remaining in question.Developing countries argue that the NCQG negotiations should not be used as a means to reinterpret the existing obligations under the United Nations Framework Convention on Climate Change (UNFCCC) and the Paris Agreement. They emphasize the need for public funds and grants to support country-driven strategies, as opposed to the current reliance on loans, which have put many countries in debt crises.

Expanding the Contributor Base: Balancing Responsibility and Capability

The debate over the contributor base for the NCQG has also been a contentious issue. Developed countries, such as Switzerland and Canada, have proposed criteria to expand the pool of contributors, targeting countries among the top ten current emitters with a per capita gross national income (GNI) exceeding $22,000 USD.However, developing countries argue that this approach erases historical responsibility and fails to account for cumulative emissions. They point to the UNFCCC's Article 9.1, which clearly states that developed countries will provide financial resources to assist developing countries in mitigating and adapting to climate change.The negotiations at COP29 will need to strike a delicate balance between expanding the contributor base and upholding the principles of equity and common but differentiated responsibilities and respective capabilities (CBDR-RC), which are enshrined in the UNFCCC and the Paris Agreement.

Defining Climate Finance: Towards Transparency and Accountability

Another critical aspect of the NCQG negotiations is the definition of climate finance itself. The lack of a clear and universally accepted definition has led to discrepancies in reporting and accounting, with developed countries accused of "rebadging" or "refocusing" existing development finance to meet their climate finance commitments.Developing countries, including India, have been vocal about the need for a clear definition of climate finance, which would ensure transparency and accountability in the reporting and tracking of funds. The UNFCCC's Standing Committee on Finance is currently in the process of defining climate finance, and its outcome will be a crucial input for the COP29 negotiations.

Lessons from the Past: Informing the Path Forward

The NCQG negotiations at COP29 will also be shaped by the lessons learned from past climate finance negotiations. The unraveling of the Glasgow Financial Alliance for Net Zero and the limited progress on Just Energy Transition Partnerships (JETP) have highlighted the importance of credible commitments from the private sector, which are strongly dependent on government and public sector actions.Additionally, the OECD's methodology for tracking climate finance has been criticized for not distinguishing between loans and grants and for including the full value of climate-related expenditure instead of estimating the climate-specific component. This underscores the need for a more robust and transparent system of accounting and reporting.Developing countries are also calling for the inclusion of thematic sub-goals, such as mitigation, adaptation, and loss and damage, within the NCQG. This would ensure a more balanced allocation of funds and address the current imbalance, where the majority of climate finance has been directed towards mitigation efforts.

Contextualizing Solutions: Ensuring Effectiveness and Efficiency

As the negotiations unfold, it will be crucial to ensure that the solutions proposed at COP29 are not only equitable but also tailored to the local contexts of the host countries. The negotiations should take into account the unique challenges and needs of the host countries, ensuring that the outcomes are both effective and efficient in addressing their climate change priorities.The Azerbaijan Presidency of COP29 is expected to focus on advancing a climate finance deal that addresses the key elements, including identifying contributors, determining priority recipients, ensuring "new and additional" finance, establishing robust accounting methods, and aligning global finance flows with the Paris Agreement goals.The outcome of the U.S. election, set to be announced a week before COP29, may also have a significant impact on the negotiations, as the U.S. has historically played a pivotal role in climate finance discussions.As the world watches with bated breath, the COP29 negotiations on climate finance will be a critical juncture in the global effort to address the climate crisis. The ability of world leaders to bridge the divide, define clear and equitable solutions, and secure the necessary financial resources will be a true test of their commitment to a sustainable and resilient future for all.