Uncategorized

Financial Chaos Marks the End of COP29

After two weeks of negotiations at COP29 in Baku, an agreed text on climate finance was concluded early Sunday morning. This funding is essential for mitigating climate change and adapting to its impacts. However, as delegates left the Azerbaijani capital, few voices expressed optimism that the compromise was favorable for Africa.

“We conclude our time in Baku without a meaningful climate finance goal, without concrete strategies to limit global temperature increases to 1.5°C, and without the comprehensive support urgently needed for adaptation and addressing loss and damage,” stated Evans Njewa, chair of the Least Developed Countries bloc at COP29. “This is not merely a failure; it represents a betrayal.”

The agreed text sets a goal for developed nations to provide at least $300 billion annually in climate finance to developing countries by 2035. While this figure suggests a tripling of existing commitments, it is widely recognized as a mere fraction of what is necessary to assist nations that contributed least to climate change yet face its most severe consequences.

The newly termed “new collective quantified goal on climate finance” (NCQG) was intended to be driven by need. Governments embarked on a lengthy assessment of their financial requirements for mitigation and adaptation. Using this assessment, developing countries called for the NCQG to total $1.3 trillion per year.

However, the expectation that global policymakers would implement a rigorous needs-based approach faced the reality of budget constraints in developed nations, which initially proposed a target of only $250 billion. Following a walk-out by the Alliance of Small Island States, the offer was increased to $300 billion, accompanied by a vague reference to “scaling up” funding to $1.3 trillion in the text.

“A genuine disaster”

The outcome of the NCQG negotiations sparked considerable outrage among NGOs in Africa.

The $300 billion agreement is “unserious and dangerous,” David Abudho, climate justice lead for Oxfam in Africa, told African Business. He indicated that poorer nations were “bullied” into this outcome, labeling the text as “a soulless victory for the wealthy, but a genuine calamity for our planet and communities suffering the consequences of climate breakdown, such as flooding, starvation, and displacement.”

“And as for any promises of future funding? They are as empty as the deal itself.”

Indeed, there is considerable uncertainty regarding how the objectives outlined in Baku will be achieved. The outcome was an agreed text, rather than a legally binding instrument committing specific actors to particular actions.

The pathway to achieving $300 billion remains unclear, not to mention the ambitious target of $1.3 trillion. There is no clarity on how climate finance commitments will be allocated among developed nations, and it’s even ambiguous which countries qualify as “developed” and thus accountable for providing climate finance. For instance, Western governments argue that China, the world’s largest emitter, should also contribute. While the text asserts that financing will come “from a wide variety of sources,” including the private sector, it fails to clarify how or through whom this private finance will be mobilized.

Oxfam estimates that the actual climate finance needs of the Global South amount to $1.5 trillion annually by 2030. It contends that most of this funding must come in the form of grants, particularly for adaptation, to prevent increasing indebtedness in developing countries. Although the COP29 text acknowledges the necessity of grant funding in some instances, it does not rule out the possibility that interest-bearing loans may be classified as climate finance.

COP-out?

Even before the Baku discussions commenced, concerns were rising regarding the ongoing relevance of the annual COP gathering. The situation was further complicated by the recent re-election of Donald Trump, who previously led the U.S. out of the crucial Paris Agreement aimed at controlling global temperature rises.

During the summit, a coalition of climate leaders launched a prominent appeal for reforms to the COP process, which included establishing a mechanism to track climate finance disbursements. The disappointment surrounding the NCQG is likely to amplify calls for a reevaluation of how global governments address climate change.

South African entrepreneur Ivor Ichikowitz characterized the COP29 agreement as a “complete con.” He conveyed to African Business that nations with the largest emissions dominate the negotiation process, rendering climate finance “unable to flow” due to egregious conflicts of interest.

Expressing frustration at hearing the “same rhetoric” in Baku as in previous COPs, Ichikowitz asserted that African and other Global South governments must take charge of the process. “The only way to resolve this is for the affected countries to become vocal and stop being compliant, to resist being coerced into unfavorable deals, and instead take the lead in driving the process.”

Mobilising private finance

The discussions regarding the future of the climate agenda are bound to intensify. Yet, for now, the responsibility for delivering climate finance primarily lies with development finance institutions.

Marco Serena, chief sustainable impact officer at the Private Infrastructure Development Group (PIDG), a donor-supported infrastructure finance organization, acknowledges that Africa “cannot regard COP as a complete success.”

Nonetheless, he believes this deal offers “a foundation to build upon.” The $300 billion target, while insufficient to meet the needs of developing countries, “is a starting point,” he remarks, emphasizing the necessity of establishing plans to deploy these funds swiftly.

Serena indicates that PIDG—focused on climate action—aims to mobilize private finance for infrastructure by mitigating risks throughout the project pipeline. This entails investing in blended capital structures and funding projects that are in their initial, high-risk development stages.

In light of financial constraints in Western nations, the outcome of COP29 suggests it is unrealistic to expect a surge of public finance directed towards climate initiatives in Africa.

Holger Rothenbusch, managing director and head of infrastructure and climate at British International Investment, the UK’s development finance institution (DFI), agrees that mobilizing private capital is paramount for institutions that aim to assist Africa in deploying renewable energy.

“Our focus increasingly lies in how we can utilize our balance sheet and capital more efficiently to attract commercial investment alongside our contributions,” he states. While DFIs traditionally follow a “patient capital” approach, Rothenbusch notes that BII is striving to “innovate in recycling capital more swiftly, thereby making use of the same dollar multiple times.”

However, Rothenbusch argues that public funding must play a role in adaptation efforts.

“Adaptation is where scarcity will impact the most, as it requires grants and highly subsidized funding, which is a severely limited resource,” he suggests.

“This type of funding is not conducive to commercial investment, as many of the needs will relate to public goods, such as constructing sea walls, for instance,” Rothenbusch concludes. “This necessitates donor funding and substantial public sector support at scale.”

Leave a Reply

Your email address will not be published. Required fields are marked *