Author’s Bio: Linda Kalcher is the Executive Director of Strategic Perspectives.
The silence on the structure and detail of a new long term climate finance deal is for some unnerving, but hours out from an expected new text on the longer term climate finance package, it makes sense. Ministerial pairs are still consulting.
The COP29 talks do not take place in a vacuum: the result of the US elections cast serious doubts about this major economy contributing any finance in the next few years; meanwhile, non-emerging developing countries struggle with unsustainable debt burdens and a lack of access to cheap capital. All countries are very aware that the failure to get a positive outcome at COP29 would be a very bad political signal and would reinforce the views peddled by a number of merchants of doubts on the “inefficiency” of COPs and, beyond, of multilateralism.
Within the confines of these windowless tents at COP29, we are in a low trust space until we hear more developed countries speaking, countries are nervous. UN climate talks are like a game of jenga. Any sudden move on any one of the elements could send the whole tower tumbling to the floor. You can build a nice jenga tower here though, there is still time.
Wednesday’s plenary showed there are still widely divergent views on the structure of the deal, so if negotiators start with the building blocks that will generate the most trust with the most countries, then maybe it will be possible to land the entire package in the coming days.
First piece
The first piece to lock in is adaptation finance, hugely important for developing countries, perennially neglected by most “global North” countries. Countries promised in Glasgow to double adaptation finance by next year. Despite the US, Germany and France stepping up this week, the flows into the Adaptation Fund have been slower than we would have liked. Countries have been slowly stepping up on the critical World Bank’s IDA replenishment, but it can’t be an “either or” with development and climate.
Countries could close that gap and could commit to making all adaptation finance public money in the form of grants. This is essential as the more loans developing countries take on, the worse their debt profiles become.
Further, a meaningful share of the public money in the new public finance target could be earmarked for adaptation, paying as it does for public goods like climate-proof infrastructure and resilience measures to sectors like agriculture that are key for everyone’s economies.
Next piece
Once that is committed, the public finance “quantum” to replace the $100bn could be agreed. Whether it’s in the $200-300bn range floated by the European countries or higher is for countries to agree but it was a helpful first step in the right direction.
Once that is tabled and it is clear what original donor countries are committed to, the conversation about “voluntary contributions” by countries that have graduated could begin.
Who else pays?
The Paris Agreement “encourages” other countries to provide these voluntary contributions. China has already said it is contributing in the order of $3-4bn a year in voluntary contributions. That conversation will bring us to a higher number closer to what G77 countries have said is needed – $1.3 trillion by 2035.
There is no intention to rewrite the Paris Agreement, countries in the Global North remain at the core of future contributions. An approach that allows highlighting existing voluntary contributions helps provide even more confidence to countries for adapting and putting strong national climate pledges forward by February 2025.
Then we get on top of that investments by Multilateral Development Banks and the private sector. MDBs alone have said that they can increase their climate finance to $120bn a year.
When parcelled with global financial architecture reform which was featured at this week’s G20 meeting, money flowing from these banks could increase and be more effective, and more available, for recipient countries.
Right now, a fair proportion of climate finance is in the form of loans, which actually drive up the debt developing countries owe, weighing on their credit ratings, and thus their ability to fund other development efforts.
Fairness and better access to finance
That’s hardly fair, given climate is a problem these countries didn’t create. So a commitment to making sure more climate finance is in the form of grants or has a very low cost of access seems important.
Developing countries also pay higher interest rates to access capital – donor countries and institutions can help reduce that cost of access for vulnerable countries.
All of these principles can be baked into the new finance goal so countries have a commitment that the unfair practices that have been the hallmark of international finance to date will not enter this new phase of climate finance.
There is still a long way to go to get agreement on this new finance deal but the hallways here in Baku are full of people that want to get it done. It is too important to leave another year and it is unclear if 2025 – with all the political upheaval it will bring – will make it any easier.
Related Articles
