COP29: The climate funds math that needs to be reset, explained

The 29th annual United Nations climate summit, COP29, started in Azerbaijan this week. Key on the agenda is devising a new roadmap to finance developing countries’ needs in their fight against climate damage. The current $100-billion-a-year commitment made by advanced nations in 2015 to support them is set for an upgrade in 2025, making it critical to decide the path ahead.

The need to set this “new collective quantified goal” (NCQG) by 2025 was part of the agreement struck at COP21 in Paris in 2015. The pact was that this goal would take into account “the needs and priorities” of developing countries—this wasn’t the case with the $100-billion annual figure. The enhanced financial support would help developing countries strengthen their national climate plans, which, too, are due for an update in 2025. Some countries, including India, have called for advanced countries to provide around $1 trillion per year for this.

According to a new report by the United Nations Conference on Trade and Development (UNCTAD), a needs-based approach would put the bill for developing countries at around $1.1 trillion in 2025, rising to $1.8 trillion by 2030. At least 75% of this would need to come from rich countries, or 1.4% of their GDP in the first year, as per UNCTAD calculations. This figure is relatively lower than other major recent expenditures by developed countries. That makes it feasible—but will it be enough?

COP29 stakes

The NCQG would also support climate adaptation—the component of climate action aimed at helping countries adjust to existing climate impacts. Currently, the adaptation finance is falling short. The gap between what’s coming and what’s needed remains extremely large, shows the UN’s Adaptation Gap Report.

International public adaptation finance flows improved from $22 billion in 2021 to $28 billion in 2022, the largest increase since the Paris deal. But, the requirement is nearly 18 times higher, and the report says that even if the money rises to around $40 billion by 2025—double the 2019 levels as aimed by the 2021 Glasgow pact—it would reduce the gap by only around 5%.

If COP29 succeeds in establishing a robust financial framework to succeed the current one, it could mark a significant milestone towards the Paris goal of limiting global temperature rise to well below 2°C, preferably to 1.5°C, above pre-industrial levels. But concerns are coming in from the US, where Donald Trump is set to become president again in January. During his last term, he had pulled the US out of the Paris deal, a move reversed by his successor. Such political shifts can impact global climate efforts as the US is the second largest greenhouse gas emitter.

"The election result is a setback for global climate action, but the Paris agreement has proven resilient and is stronger than any single country's policies," said Laurence Tubiana, chief executive officer of European Climate Foundation, a Netherlands-based philanthropic initiative. "The context today is very different to 2016. There is powerful economic momentum behind the global transition, which the US has led and gained from, but now risks forfeiting. The devastating toll of recent hurricanes was a grim reminder that all Americans are affected by worsening climate change."

Also Read: Will the COP29 climate summit break the cycle of broken promises?

Beyond finance

COP29 negotiations will extend beyond financial frameworks to focus on mitigation strategies and greenhouse gas reduction targets. Vulnerable nations are pushing their industrialized counterparts and emerging economies to submit more ambitious plans with stronger emission cuts and faster transition from fossil fuels.

Recent global temperature data justifies these demands. The period from February 2023 to January 2024 marked a troubling milestone as it was the first 12-month period when global temperatures averaged 1.5°C above the pre-industrial levels, reaching 1.52°C, according to theCopernicus Climate Change Service. The US’ National Oceanic and Atmospheric Administration’s average greenhouse gas index (AGGI), which measures how much heat Earth’s atmosphere is trapping due to long-lived greenhouse gases, has risen 52% since 1990. TheWorld Meteorological Organization (WMO) projects an 80% chance that temperatures will surpass the 1.5°C threshold for at least one year before 2028.

Lastly, COP29 also intends to finalize rules for a global carbon market, which could help companies offset their emissions by investing in green projects and earning ‘carbon credits’. Members approved the standards for such a UN-backed market on the opening day. The Least Developed Countries (LDCs) have been early adopters of carbon markets, but their small economies limit their influence and benefits.

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A UNCTAD analysis shows that the value of carbon credits coming out of LDCs so far has been minimal against the more common sources of funding such as development aid, foreign direct investment and remittances. In 2023, LDCs captured just about $403 million in carbon credit value, just 1% of total development aid they got.

From finance and emission targets to fossil fuel transition, the stakes for COP29 are running high.