Everything You Need to Know About "Climate Finance," the Core of COP29 Negotiations

Focus on finance: 

After securing an agreement on the progressive phase-out of fossil fuels, this year's UN climate negotiations are focusing on unlocking the trillions of dollars needed by developing countries to tackle the climate crisis.

Climate Finance, a Priority for COP29 with Details Yet to Be Announced

The main goal of COP29 in November in Baku, under Azerbaijan’s presidency, is challenging: How much money will developed countries commit to providing vulnerable countries to help them cope with extreme climate conditions?

What is climate finance?

There is no consensus definition. Broadly speaking, "climate finance" refers to any public or private money spent to achieve the goal of the Paris Agreement to “make financial flows consistent with low greenhouse gas emissions and climate-resilient development” (Article 2.1C).

In practical terms, this includes all financing (public or private) that supports low-carbon economic development and adaptation: wind, solar, nuclear, clean hydrogen energy; electric cars; the ecological transition of agriculture; reforestation; thermal insulation of housing; securing access to water; sanitation; healthcare systems capable of managing heatwaves and floods; seawalls against rising waters, etc.

However, there are no strict standards on "green" finance, and the boundary between development aid and climate finance is sometimes blurry. For example, does a grant for a new water-efficient hotel qualify as climate finance? The COPs have never defined this.

How much is needed?

Global "climate finance" needs are estimated at $10 trillion per year between 2030 and 2050, according to a Climate Policy Initiative study. This is compared to approximately $1.3 trillion spent in 2021/2022.

But in UN or media discussions, "climate finance" mainly refers to the difficulties developing countries face in obtaining the necessary international funds for a "just transition" to ecological sustainability and to cope with climate disasters.

Their needs (excluding China) have been estimated at $2.4 trillion per year by 2030 by experts commissioned by the UN, who also noted that only $550 billion had been mobilized in 2019.

Who is paying today?

The United Nations Framework Convention on Climate Change (UNFCCC), adopted in Rio in 1992, listed the countries obligated to provide financial assistance to the rest of the world due to their historical responsibility.

These countries—United States, European Union, Japan, Great Britain, Canada, Switzerland, Turkey, Norway, Iceland, New Zealand, and Australia—pledged in 2009 to raise their climate aid to a round figure of $100 billion per year by 2020 and maintain this until 2025.

However, they only met the target in 2022, and this delay has widened the diplomatic gap between the Global North and South.

At COP29, signatories of the Paris Agreement are expected to agree on a financial target beyond 2025.

India has proposed $1 trillion annually. A provocation for wealthy countries, which argue that they now account for only 30% of historical greenhouse gas emissions and are calling for an expansion of the donor base to include China and Gulf countries.

Today, most of this aid flows through development banks or funds co-managed with the recipient countries, such as the Green Climate Fund ($12.8 billion pledged by donor countries for 2024-2027) or the Global Environment Facility ($5 billion for 2022-2026).

Where to find the money?

The $100 billion in aid is heavily criticized because two-thirds are loans, often at preferential rates but accused of worsening the debt of poor countries.

Even if the future financial target is increased, it will still fall short of the actual needs, but the Global South attaches great symbolic importance to it and sees it as a potential lever to unlock other financial flows, particularly from private sources.

Financial diplomacy is also largely played out at the World Bank, IMF, and G20, where the Brazilian presidency wants to create a global tax on the wealthiest individuals.

Promoted by the UN Secretary-General António Guterres, innovative tax ideas—such as on aviation or maritime transport—are under consideration, for example, in a working group launched by France, Kenya, and Barbados.

Another proposal is Azerbaijan’s call for fossil fuel producers to contribute to a new "concept" fund for developing countries.

As for the "loss and damage" fund, created at COP28 to support poor countries affected by climate disasters, it is still far from being operational (with $661 million in pledges so far).