COP29 Baku: What is climate finance, and the relevance of Baku summit

The seemingly complex process of climate finance however, has one singular aim. Which the UNFCCC executive secretary Simon Stiell expressed eloquently. He said, "in all this talk of numbers among the many acronyms let's not lose sight of what's really at stake. Cleaner air across the world's megacities. Commuters no longer choking as they make their way to work and their return back home. Households who can sleep soundly knowing a flood or storm will not wash away everything they hold dear. Stopping the devastation and damage, improving lives and livelihoods and building a better world for everyone."

While it is centred on negotiation, the first week of COP29 has concluded without any significant progress on climate finance, especially negotiations about a new climate finance goal due to concerns about equitable responsibility for climate action.

What is climate finance?

Simply put, climate finance refers to financial resources and instruments that are used to support action on climate change. It can be used for different activities including mitigation, adaptation and resilience-building. It can come from a variety of sources – public and private, national or international, bilateral or multilateral. And it can also take several forms including grants, loans, donations, equities, green bonds, sovereign bonds, guarantees, debt swaps, and carbon trading. But for all its flexibility, countries often have a hard time agreeing on the specifics of who should contribute, how much, and how.

The underlying principle of climate finance is that of climate justice. This means that countries that have been historically responsible for carbon emissions and in turn, climate change, should contribute a lion’s share of the finance commitment, which essentially means the developed nations according to the U.N.

Not only this, these funds should then be provided to developing and least developed nations to help them mitigate climate change as well as to countries that are disproportionately affected by climate change – especially island and coastal states – to assist in addressing loss and damage.

UN framework for climate finance

The United Nations Framework Convention on Climate Change has provided a financial mechanism to streamline climate financing. This mechanism also serves the Kyoto Protocol, as well as the Paris Agreement. The mechanism has been made accountable to the COP, which decides on its policies, programme priorities and eligibility criteria for funding.

The main operating entity for climate finance is the Global Environment Facility – which has been performing this function since the Convention came into force in 1994. The GEF also manages the two special funds created by the conference of parties. These are the Least Developed Countries Fund and the Special Climate Change Fund. There are others as well – including the Adaptation Fund, established under the Kyoto Protocol in 2001, and the Green Climate Fund, created in 2010.

The seemingly complex process of climate finance however, has one singular aim. Which the UNFCCC executive secretary Simon Stiell expressed eloquently. He said, “in all this talk of numbers among the many acronyms let's not lose sight of what's really at stake. Cleaner air across the world's megacities. Commuters no longer choking as they make their way to work and their return back home. Households who can sleep soundly knowing a flood or storm will not wash away everything they hold dear. Stopping the devastation and damage, improving lives and livelihoods and building a better world for everyone.”

The Paris Agreement and Climate finance

All of these funds, except the Adaptation Fund at present, serve the Paris Agreement as well. The Paris agreement from COP15 is important because – for the first time – it brought all nations into a common cause to undertake ambitious efforts to combat climate change, with enhanced support to assist developing countries.

It lays down long term temperature goals and global goals on adaptation, prioritises averting, minimising, and addressing loss and damage, and requires nations to put forward their best possible Nationally determined contributions. In effect, the Paris agreement has charted a new course in the global climate effort.

Relevance of COP29: the Finance COP

While addressing the COP29, Nicholas Stern, co-chair of the independent high-level expert group on climate finance highlighted that the question being addressed at Baku is a clear and strong one. “What does it take to deliver on (the) Paris (Agreement) in terms of investment and how do we finance that investment? That's how we understand the question of climate finance. It's finance for a purpose. It's finance for that investment."

There has been a lot of talk of a new climate finance goal at the COP29 – the new collective quantified goal or NCQG. NCQG is a key element of the Paris agreement. It seeks to fill persistent gaps in climate finance, build on the 2009 target of a $100 billion dollars, and provide a more realistic, and ambitious financial framework.

Through the Cancun Agreements of 2010, developed country parties had committed to a goal of jointly mobilising USD 100 billion per year by 2020 for climate finance. At the Paris agreement, this goal was confirmed along with the decision to set a new collective quantified goal from a floor of 100 billion dollars per year before 2025.

For emerging markets and developing economies outside China, the investment needs number is 2.4 trillion (USD) a year in 2030. Of that 2.4 trillion (USD), COP29 assumes that 1.4 (USD) comes from domestic resource mobilisation. This leaves with procuring 1 trillion (USD) externally.

The race against time

COP29 is indeed, a finance COP. However, the draft for new goals has been rejected by China, as well as the G77 members. The main reason for this was non-inclusion of reference to means of implementation that has been the main demand of developing country parties.

The need for financing climate action however is immediate, urgent, and immense. Negotiations are still underway. COP29 will conclude on November 22nd. There is not much hope that productive results will be achieved. Added to this are concerns about the U.S. presidency under Donald Trump – a hard climate change denier. Meanwhile, climate change marches on, bringing forth more disasters, claiming new victims. Every day.