Posted on May, 31 2024

As Yogi Berra famously said, it’s tough to make predictions, especially about the future. But had the baseball legend spent any time observing the UN climate negotiations, he could have safely predicted that climate finance will prove to be a key sticking point at COP29 in Baku at the end of this year.  

‘Who will pay and how much?’ are perennial questions at the climate talks, but this year, the discussions about climate finance will be especially prominent. At COP29, Parties to the Paris Agreement must negotiate a new climate finance goal, to replace the existing commitment from 2009 for developed countries to provide US$100 billion climate finance annually from 2020 to 2025 - a commitment that only in 2022 was starting to be fulfilled, according to a recent OECD report. 

It is vital that the forthcoming Bonn Climate Change Conference sends the right political signals, and lays the procedural and technical groundwork for an ambitious climate finance deal in Baku.

A pressing need

With global warming already destabilising the climate and devastating people’s lives and livelihoods, the need for finance to reduce greenhouse gas emissions and to adapt to a warming world has never been more pressing.

The sums involved are large. The Paris Agreement’s Global Stocktake process estimates that US$5.8-5.9 trillion is required to implement Nationally Determined Contributions (NDCs) in developing countries up to 2030. They will require US$215-387 billion annually over this period for adaptation. Investments of US$1.5 trillion in renewable energy are required worldwide every year up until 2030, according to IRENA.

But these sums are also affordable and beneficial for developed countries. They should be seen in the context of ongoing investments in energy and other infrastructure: around US$2.3 trillion was invested in energy infrastructure in 2023, of which US$1.74 trillion was in clean energy. These investments will generate strong returns for their investors and reduce the costs for energy consumers.

And, crucially, they should also be seen in the context of the alternative. The latest research estimates that the world economy is already set to face a 19% income reduction within the next 26 years based on the levels of warming we have already locked in. The more we delay and the more the planet heats, the greater the economic costs will be.

Laying the foundations for a new finance goal

While financial resources are beginning to flow, they are not flowing fast enough, and certainly not flowing to those developing countries where need is greatest and access to finance is most challenging.

The UN climate framework provides mechanisms that can enable those flows of climate finance. Back in 2015, parties at the climate talks agreed to establish a “new collective quantified goal” (NCQG) for climate finance. They agreed that the NCQG would be set prior to 2025.

The  ultimate size of the NCQG will be a product of the negotiations, but Parties have agreed it must be a significant increase from the floor of US$100 billion annually. For WWF, it must be needs-based and sufficiently ambitious to meet the scale of the challenge we face, and immediately accessible to help countries that are already facing the chaos of a destabilised climate system.

While developed countries are expected to provide financial and technical support, developing countries also have a role to play. Parties are due to submit revised NDCs in 2025, presenting how they plan to reduce emissions and adapt to climate change. Developing countries have the opportunity to use their NDCs to set out how international climate finance can support them and increase their ambition. To do this, they need to know the finance will be forthcoming.

Adaptation in focus

Historically, climate finance has predominantly been directed towards mitigating climate change through emissions reductions and the conservation of forests as carbon sinks. As the impacts of a changing climate are increasingly felt, finance for adaptation and loss and damage must also be dramatically scaled up. We strongly advocate for at least 50% of public climate finance to be allocated to adaptation, as per Article 9.4 in the Paris Agreement.

Similarly, the Loss and Damage Fund, which was operationalised at COP28, must be sufficiently resourced with new funding to make it fit for purpose. The initial pledges amounted to little more than $700m. To meet expected needs, parties should put arrangements in place to ensure that the fund has a reliable and steady source of funding, of at least US$100 billion per year, as soon as possible. Under NCQG, there should be clear sub goals for mitigation, adaptation and loss and damage.

Fixing financial flows

Public finance will be crucial for the bulk of finance for adaptation, loss and damage and for the transition to a net-zero global economy. Private finance will also have a critical role to play. Currently, more finance is flowing to industries and activities that harm our planet than to the sustainable industries of the future. This has to be reversed. Here, central banks and regulatory agencies have a key role to play in regulating to reduce climate and nature risk within financial systems, and to encourage private finance to underwrite sustainable economic activity. 

We know what we need to do, and we have the mechanisms in place, through the Paris Agreement, to make finance flow. What we need is the political will to fund those mechanisms at the scale and speed needed. Bonn needs to send the right political signals that will put governments on course for an ambitious climate finance outcome in Baku. It needs to lay the groundwork to ensure that this “Finance COP” doesn’t short-change the world.