Explained: Why A New Climate Finance Goal Already Has Countries Fighting

Against this backdrop, world leaders will convene in Azerbaijan next month for the 29th annual climate conference or COP29. The conference will go on for two weeks, but its centrepiece is likely to be the next climate finance goal.

Historically, there has been a schism between members of this conference over money to deal with climate change. Developed countries were supposed to provide $100 billion per year up to 2020 to developing countries in order to deal with the effects of climate change such as for adaptation and taking steps to curb global warming. However, developed countries did not meet that deadline, and even when they have completed the target now, there are questions around it, furthering the atmosphere of distrust.

As per the Paris Agreement, countries are supposed to agree on the next finance goal that will come into effect 2025 onwards, taking the $100 billion as the floor and raising it suitably as per developing countries’ needs. This new corpus will be called the New Collective Quantified Goal on Finance or NCQG. India was one of the few countries in the world to put a number to this finance goal, demanding that the developing world be given around $1 trillion per year, starting from 2025.

But NCQG’s journey has already been rocky, with disagreements over what kind of finance, paid by whom, to whom and related matters. Since all countries are supposed to revise their climate pledges by February 2025, developing countries need to see the money in order to finalise their plans.

As COP29 starts in less than a month, we explain what is at stake.

What is NCQG?

Money has always been at the heart of global climate negotiations because the world will need this sum to curb global warming and deal with the effects of climate change while transitioning away from fossil fuel. In fact, money has been crucial from the beginning.

In 2009, at the then 15th annual climate conference or COP15, it was decided that developed countries would provide $100 billion in finance to developing countries to combat climate change. The rationale behind this is that it is the developed countries that have historically contributed the most to greenhouse gas emissions and therefore, have a greater responsibility.

At the conference’s 21st session in 2015, countries decided to extend the $100 billion goal through 2025 and to set the NCQG by then. They agreed that $100 billion per year would be a floor for the new goal, which means that the new goal will build on that.

Then, what would the ceiling be?

Developing countries require about $5.8-5.9 trillion up until 2030 in order to meet their climate goals and comply with what they promised as per the Paris Agreement, according to the United Nations’ Framework Convention on Climate Change’s (UNFCCC) own estimate.

Meanwhile, during COP27, the Independent High Level Expert Group had stated that annual investments in climate action need to increase to $2.4 trillion annually by 2030 for developing countries (excluding China) to ensure accelerated energy transition, investment in resilience and the protection of nature. Of this, $1.4 trillion needs to be mobilised from domestic sources, whereas $1 trillion a year will be needed in external climate finance by 2030.

India had become one of the first countries earlier this year to put a number to what developing nations need, in its official submission to UNFCCC over the NCQG. It had said that developed countries should provide at least $1 trillion in climate finance to developing countries every year from 2025 onwards. It also mentioned that this should be in the form of grants and concessional finance, while suggesting a 10-year time frame.

Formal NCQG deliberations have been going on for about three to four years now. There is an ad hoc working programme, high level ministerial dialogue, regular stocktake and guidance, along with many other elements to the day-to-day deliberations on NCQG. The process was supposed to have moved closer to completion at the recently concluded talks in Bonn, Germany, but many sticking points led to a disappointing result.

Avantika Goswami, programme manager (climate change) at the Centre for Science and Environment, said that the floor has to be $100 billion but whether that will be a token increase of a few billions higher or climb into the trillions is a bit uncertain right now.

“Some developed countries are positive about the figure being in trillions, but they are doing some clever workshopping by saying that there will be a larger private finance mobilisation goal,” Goswami said. “Now that's a bit dicier because there's no accountability and guarantee in the private sector. Private capital mobilisation for climate needs has been underwhelming so far. Most of the funding has been through public sources.”

How the cookie crumbles

Disagreements started with the earlier finance goal. Developed countries failed to fulfill the promise of $100 billion by 2020. It was only in May 2024 that data from the Organisation for Economic Co-operation and Development (OECD) showed that, for the first time, developing countries had in fact hit that target.

The OECD’s seventh assessment found that in 2022, developed countries provided and mobilised a total of $115.9 billion in climate finance for developing countries, exceeding the annual goal for the first time. At the request of donor countries, the OECD has been tracking progress towards this goal since 2015.

However, Oxfam research shows that while nearly $92 billion of the reported amount was provided as public finance, nearly 70% of this money was again in the form of loans provided at profitable market rates, all adding to the debt levels of the Global South countries.

“Oxfam estimates that the ‘true value’ of climate finance provided by rich countries in 2022 is only between $28 billion and $35 billion, with at most only $15 billion earmarked for adaptation,” it stated.

Against this backdrop, the NCQG too is facing issues such as who should pay and how much. Currently, “developed countries” are defined as the 24 countries that were OECD members in 1992, when the Framework Convention was signed. There are some developed countries which believe that this list needs to be updated now, since there are countries beyond the original 24 that are capable of paying. Similarly, there is debate over who should get the funding--whether it should go to the most vulnerable countries only, or to all developing countries.

The other important issue is the quality of finance.

Since most climate-vulnerable countries are also financially vulnerable, high interest loans will push them further into debt. Therefore, developing countries are demanding concessional loans, a clear delivery mechanism and a timeline on NCQG.

Both Alliance of Small Island States (AOSIS) and Least Developed Countries (LDCs) have jointly called for financial flows in the trillions under NCQG, and said that “it must consider the special circumstances of SIDS [Small Island Developing States] and LDCs, as per the provisions of the Paris Agreement.”

Bonn gone

However, progress on NCQG was slow in the recently concluded climate change conference in Bonn, Germany. There are disagreements over almost every aspect of the new finance target, including the amount of money that should be provided, who should provide it, who should receive it and what kind of funds should be included.

“Despite pressure to seek compromises, the text essentially remained a summary of all the proposals on the table – including many that directly contradicted each other,” reported Carbon Brief, a UK-based website covering climate change. “As the last meeting came to a close, deep divisions remained between the parties.”

The text in question here is an input paper released at the end of the Bonn conference. During discussions, there was no consensus on the donor base, but developing countries maintained that NCQG is the next finance goal and not the right forum to redefine donor base etc. The G77+ China bloc (an international grouping that started with 77 countries in 1964 wherein China is not a full time member but provides support) argued that the question of who else should provide climate finance was outside the mandate of the NCQG. Besides, there was no consensus on what the final amount in NCQG should be.

“The need for non-debt-creating finance has been highlighted by the G77 and affiliated groups,” said Goswami. “So now, if the developed countries respond with delivery of just market-rate loans, it's going to be a pretty bad-faith response to what the actual demand is. A lot rests on what the US and China decide among themselves on the sidelines. The final outcome is likely to be political rather than a wholly technically informed outcome, which is an unfortunate reality.”

“We’ve taken modest steps forward here in Bonn,” said UN Climate Change Executive Secretary Simon Stiell in his closing speech. “[But] too many items are still on the table… We’ve left ourselves with a very steep mountain to climb to achieve ambitious outcomes in Baku.”

IndiaSpend wrote to the Union environment ministry for comment on India’s stance on some arguments made by developed countries at Bonn, how much of the $1 trillion it has asked for does it expect to get, how critical is this climate finance for our climate goals, and how does India plan to utilise it. This story will be updated when we receive a response.

Arjun Dutt, senior programme lead at the Delhi-based think-tank Council on Energy, Environment and Water (CEEW), said that according to their estimates, India’s net-zero goal for 2070 faces an investment gap of $3.5 trillion spread over 50 years which may be bridged using $1.4 trillion in external, grant financing, which is why decisions like NCQG are important.

“Now, of course, $1 trillion is a huge jump on $100 billion, so there is some resistance to setting a target of this kind of magnitude,” said Dutt. “Plus, we need to keep in mind that it is not just the number but what it should constitute. NCQG should represent actual disbursals and not just commitments. This finance should be new, additional and not a reclassification of existing developmental aid. It should have public capital either in the form of direct grants or grant-equivalent components of concessional finance. But it should not include private finance that is flowing of its own accord.”

The question is, will countries be able to come to terms and adopt the new finance goal at the upcoming COP?

“Often technical logjams are resolved by high-level ministerial and political interventions,” said Dutt. “So, sometimes it is a matter of political will.”