Climate diplomacy has long grappled with the thorny issue of money. Developing nations often point fingers at their wealthier counterparts, blaming them for the majority of carbon emissions and the ensuing climate crisis. Meanwhile, wealthy countries contend that the trillions demanded from their government coffers simply don't exist. Efforts to source funds from other entities like China, development banks, and Wall Street are met with skepticism from poorer nations, who see it as an attempt to evade responsibility.

Multilateralism's Retreat and Its Impact on Climate Finance

Officials in Baku attribute the difficulty in reaching an agreement to the broad retreat of multilateralism. The reelection of Donald Trump as US president serves as a recent reminder that politicians worldwide lack the mandate to strike cross-border deals, especially those involving financial transfers. This lack of collective action further complicates the already challenging task of climate finance.Another aspect is the success of the energy transition. As more rich countries recognize the economic advantages of clean energy, there is a growing concern that climate finance may become a casualty of zero-sum trade competition. Juan Pablo Hoffmaister, a climate finance expert at the Environmental Defense Fund and former finance negotiator for developing countries, highlights this paradox, stating, "We're seeing the native instincts of industrial policy start to kick in, where there's a feeling that helping someone else's energy transition may put you at a disadvantage."

The Discrepancy in Demanded and Needed Funds

The amount of money developing countries seek, often around $1.3 trillion, may seem relatively small when compared to global economic output. However, it is far from sufficient. A report by London School of Economics researchers last week concluded that at least $2.3 trillion is needed by 2030 for climate action in developing countries, excluding China. Even if negotiators agree on a fundraising figure, such as the European Union's push for $200 billion to $300 billion, it will still fall short.Moreover, simply having more money is not the solution. Other details under negotiation play a crucial role in ensuring the intended impact of climate finance. Even after rich countries reached the earlier $100 billion climate finance target in 2009, many developing countries complained about difficulties in accessing the funds and the burden it added to their sovereign debt. Hoffmaister emphasizes the need for measures such as providing guidance to under-resourced governments on fund applications, lowering barriers for middle-income countries to access concessional lending, and setting specific rules for allocating public finance between climate adaptation and decarbonization projects. Currently, these measures remain unresolved as negotiators are hesitant to agree on one provision before others are decided.

Final Negotiations and the Likelihood of a Breakthrough

A new version of the draft finance agreement is expected by Wednesday night or Thursday, offering one of the last opportunities for negotiators to make progress. Most top negotiators are scheduled to leave Baku on Sunday. Just like in many previous COPs over the past three decades, an eleventh-hour breakthrough seems the most likely outcome. Avinash Persaud, special advisor on climate change to the president of the Inter-American Development Bank, notes, "The most potent force for agreement is the prospect of not reaching one. That prospect only looms large in the final hours of the last day."