Out of sync at COP29: NCQG negotiations still in the red

At the negotiation table, developed and developing nations remain sharply divided over key details of the New Collective Quantified Goal (NCQG) for climate finance. Points of contention include expanding the list of donor countries, determining the fund’s structure, and reaching a consensus on the definition of ‘climate finance‘

Next week, the annual climate negotiations — COP29 — will begin in Baku, Azerbaijan, amidst calls to decide a climate finance quantum that serves the urgent needs of the developing world.

In September, the second Needs Determination Report (NDR) said that climate finance of $5.012-6.852 trillion cumulatively will be required until 2030 to support developing nations to achieve their Nationally Determined Contributions (NDC).

On October 9, the High-level Ministerial Dialogue on the New Collective Quantified Goal on climate finance was held in Baku. The result? Not so encouraging.

The lack of a clear suggestion of a quantum by developed countries continues to delay progress in reaching a meaningful conclusion at COP29. Recently, India’s Minister of Environment, Forest and Climate Change (MoEFCC), Bhupendra Yadav, called for a clear definition of climate finance. This was echoed by other developing countries who also clarified that climate finance is not loans at market rates, private finance under commercial terms and Official Development Assistance (ODA) or domestic resources. 

At the NCQG meet in Baku in October, disagreements between the developed and developing countries were reinforced every time a Party took the floor as the Ministers discussed responses to the updated input paper developed by the co-Chairs to advance the draft negotiating text. 

The points of contention were multiple— from the actual NCQG number to the inclusion of Loss and Damage in the quantum, contributor base, structure of NCQG i.e. multilayer or single layer and whether to bring in private finance or stick to public finance. But the point of contention that continues to stand out and will be perhaps the toughest to get consensus on is — a clear definition of climate finance. 

We outline here the most important themes that emerged in the dialogue.

If we pay, you do too

There were consistent calls on widening the contributor base by the developed world. The UK said it “is ready to be a contributor, but a fit for purpose goal would need a broad range of contributors than is currently the case.” Italy seconded the widening of contributor base as “economies have changed”. Overall, the sentiment from the developed world is that while they are not “shying away from their responsibilities”, NCQG is “a collective goal and should therefore be open to a wider contributor base.”

The developing countries, however, remained committed to the UNFCCC’s principles of equity and Common but Differentiated Responsibilities and Respective Capabilities (CBDR-RC) as well as the requirement for fair burden sharing by developed countries. India  reminded the room that conditionalities of the contributor base do not fall in ambit of the Paris Agreement.

In technical submissions, developed nations like Canada and Switzerland suggested possible criteria, including per capita income or either accumulated or per capita emissions. According to Switzerland, it wants non-developed nations that “are among the ten largest current emitters and have a purchasing power parity adjusted gross national income per capita of more than $22,000″ to contribute as well.

This would add Saudi Arabia, China, and Russia to the list of countries that are required to contribute to climate funding. However, studies that employ different criteria, such as historical emissions, would leave out China and other populous emerging market economies with high emissions.

Responding to the “changing economies call for a wider base” narrative, Brazil said, “We hear from many Parties that the world has changed from when we agreed to the Paris Agreement, but let me remind you the world has changed since 1945 when we decided the international governance and many other forums have not changed the obligations on which Parties are taking their decisions on under those bodies.”

While China, Singapore, and other nations acknowledged that developing nations will continue to make voluntary contributions to climate finance through South-South cooperation pathways, they emphasised that any thought given to broadening the contributor base deviates from the mandate of what is to be delivered under the NCQG.

Moreover, research has found that many developing countries are voluntarily providing climate finance to other developing countries for climate action, but their contributions go largely unrecognised as they do not report on this provision.

Private finance to rescue

When it comes to the structure of the NCQG, the developed world is rallying for a “multilayer structure which attracts private finance”. Developing world, on the other hand, is not so keen. While Congo said that the NCQG needs 60% minimum of public finance, Saudi Arabia  “rejected” the private sector.  

However, strong differences exist among Parties on how multilayered is understood. 

Addressing the discussion on structure and in an attempt to bring focus back to the matter at hand, Brazil said that, “That is a debate we’ll have in another moment when we debate Article 2.1C. That is not the debate we need now.” The country also said that “Article 9 already gives us the structures we need to think about” — at the core of which lies the money given by developed countries to developing countries. 

Interventions from developed countries are known to distract the conversation from the topic at hand, in order to delay progress on significant issues like climate finance. 

Here come MDBs

Experts said that the intention of the governments from the developed world is to make some core contribution to, say, Multilateral Development Bank (MDBs) or through bilateral channels. Those funds will then be utilised to leverage private sector funds by those multilateral financial institutions.

“Even the previous goal, the whole $100 billion was not totally in grants. About 20-25% only of this is in the form of grants routed through bilateral or multilateral channels. Same thing is likely to happen here. Some core finance will be provided through official development channels and this will be scaled up through the MDBs who will mobilise private sector funds. But this will largely be in the form of loans and debt,” said R R Rashmi, Distinguished Fellow, The Energy and Resources Institute (TERI).

A recent analysis by the International Institute for Environment and Development (IIED) found that the poorest and most climate-vulnerable nations in the world are spending more than twice as much to pay off their debts than they get to combat the climate issue.

Rashmi added that public finance, however, can play a role to make the mobilised finance concessional if it is used imaginatively to create blended financing facilities or instruments, which can bring down the cost of capital. “Whether that will happen or not will depend on whether Baku is willing to address the question of concessionality”.

Despite being called the ‘Finance COP’, top financial bosses from Bank of America, BlackRock, Standard Chartered and Deutsche Bank, among others, are expected to skip COP29, citing fewer business opportunities. 

Funds for the “most vulnerable”; Loss and Damage at risk

Many Global North nations including France, Belgium, Ireland and Spain, took to the floor to emphasise that the funds must go to the “most vulnerable” countries first. This seemed like a blast from the past when the EU shared its proposal to set up the Loss and Damage Fund. By offering the fund on such conditions, the developed world can cause friction within developing country blocs with a mix of different-sized economies. 

Countries and blocs like Nepal, Gambia, AILAC, G77, among others from the developing world pointed out that just transition and loss and damage, along with mitigation and adaptation, must be included under NCQG. No developed country mentioned Loss and Damage, which could pose a serious risk to the inclusion of loss and damage as a subgoal under the NCQG. 

NDCs hang in balance 

The latest NDC Synthesis Report said that current national “climate plans fall miles short” of what’s needed.  With countries currently working on new NDCs due next year, a fair, effective and equitable climate finance goal as well as the delivery of it is instrumental in making or breaking the course of climate action. Whatever comes out of the NCQG will certainly set the tone for the ambition of the countries and their ability to meet the targets set in the updated NDCs. 

An accessible and fair NCQG could potentially build back the lost trust between the Global South and Global North. Whether that happens or not is yet to be seen as the annual negotiations inch closer, with no consensus on NCQG in sight.

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Vandita Sariya

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