From Billions to Trillions
High stakes fuelled dramatic scenes in Baku, but institutional investors remain focused on greater policy scope and certainty.
Coming so shortly after a hard-fought climate finance deal had been gavelled through by the COP29 Presidency, Indian negotiator Chandni Raina’s sharp rebuke shattered the fleeting illusion of multilateral consensus in Baku.
Her intervention at the summit’s delayed closing plenary – in which she accused rich countries of shirking their “historical responsibilities” – was the culmination of a day of walk-outs, redrafts and huddles over the level of funding to be directed to developing countries under the New Collective Quantified Goal (NCQG) to help them survive climate change.
Placed alongside equally biting comments from Cuba and Nigeria, India’s outright rejection of the approved deal is consistent with the criticisms voiced at COP16 that the concerns of developing countries – largely around the resources needed to mitigate and adapt to climate change and to expand nature protection – are being ignored.
While the contested and flawed NCQG notably referenced private sources of capital, the new deal and its detractors are expected to place most pressure on multilateral development banks (MDBs), to make better use of their resources to catalyse climate-related funding for developing countries.
“The reform of multinational finance architecture is an essential part of this effort going forward, and it is encouraging that the final agreement invites international financial institutions to align their operational models, channels and instruments to be fit for purpose,” says Rebecca Chapman, Head of Climate and Environment at the UN-convened Principles for Responsible Investment (PRI).
Raina also raised the prospect of the “abysmal” NCQG limiting the ambition of many countries’ updated nationally determined contributions (NDCs) to the Paris Agreement, due in February. Comprehensive and ‘investible’ NDCs remain a core focus for institutional investors, and some saw reasons for hope on this front, despite Baku’s closing display of diplomatic fireworks.
“Between now and COP30 there is a need for deepening ambition, unlocking policy reforms to give investor confidence in national transition strategies, with a real focus on transformational real economy policy alongside corporate and financial policy, and driving integration between the climate mitigation, nature and adaptation agendas,” adds Chapman.
Detailed, comprehensive and ambitious
The NCQG package dismissed as “too little, too late” by developing countries pledged at least US$300 billion a year by 2035, accompanied by a roadmap to raise ambition to US$1.3 trillion a year by COP30, to be held next year in Brazil.
Many observers agree that the vagueness of the NCQG’s wording on its sources and purpose is unhelpful. The Energy Transitions Commission (ETC) has calculated that the annual global funding figure for mitigation is closer to US$3 trillion a year by 2050, with just over two thirds invested at commercial rates of return and underpinned by the detailed and comprehensive NDCs of large economies. The remainder is to be supplied or catalysed by reformed MDBs to support the net zero trajectories of developing countries.
This makes the lack of detailed, comprehensive and ambitious NDCs in Baku more of a concern for investors than the low-ball NCQG, according to ETC Director Ita Kettleborough.
“The NDCs need to have a sufficiently high ambition level, but they also must have better coverage, across all sectors and greenhouse gasses (GHGs), as well as increased granularity, meaning sector-specific targets,” she says. “Further, they need policy frameworks that can deliver those targets. Without clear policy signals, we’re not able to get the finance flowing into the real economy at the scale needed.”
Much work will be required between now and February as eye-catching new NDCs were thin on the ground in Baku, and those that were announced were thin on detail.
The UK unveiled a new NDC in Baku, pledging to reduce GHG emissions by at least 81% from 1990 levels by 2035. Meanwhile, Brazil’s NDC committed to reducing emissions by a wide-ranging target of 59-67% below 2005 levels by 2035. At the lower level, Brazil’s 2035-focused NDC will not ensure a significant improvement relative to the country’s 2030 target.
“Importantly, there is no mention of ending deforestation, but it is encouraging that the NDC includes insights on areas such as adaptation and fossil fuel phase-out,” says Johannes Honneth, Analyst at the Transition Pathway Initiative (TPI) Centre.
In contrast, the UAE significantly increased its climate ambition, aiming to reduce emissions by 47% by 2035 compared to 2019 levels. However, it has not revised its 2030 NDC, meaning it will have to make substantial decarbonisation progress over the five-year period.
Promising developments
A promising development was the emergence of a coalition of countries – including the EU, UK, Canada and Mexico – committing to align mid-term milestones with long-term net zero targets.
“This leadership is vital as over 90% of global emissions are now covered by national net zero goals which, if fully realised, would limit warming to 1.5°C to 2°C,” says Steffen Menzel, Programme Leader at think tank E3G.
“The February 2025 deadline for updated NDCs presents an opportunity to raise ambition, not only through new 2035 [targets] but also through stronger 2030 targets and accelerated net zero timeframes,” adds Menzel.
COP29 also saw the first submissions of Biennial Transparency Reports (BTRs) under the Paris Agreement, ahead of a year-end deadline. Among around a dozen submissions were BTRs from Panama, Spain, Germany, and the Netherlands.
“When data is measured regularly and openly, countries are more likely to meet and exceed their [climate] commitments,” said Inger Andersen, Executive Director of the UN Environment Programme.
Parties are required to submit BTRs every two years including information on national inventory reports, progress towards NDCs, climate change impacts and adaptation measures, and capacity-building needs and areas of improvement.
“This COP was a win for transparency and reporting as further progress was made on how countries will report progress on emissions, climate finance, and decarbonisation plans,” says David Carlin, Founder of consultancy DA Carlin and former climate risk lead at the UN Environment Programme Finance Initiative.
“A lot remains to be seen next year with updated NDCs due ahead of COP30. It is critical that they link sectoral strategies and climate finance policies to their emissions reduction targets.”
Renewed optimism
With somewhat less drama than the passing of the NCQG, Baku’s closing plenary declined to back a new text building on COP28’s response to last year’s Global Stocktake, prompting some concerns over the continued pace of renewables adoption.
In Dubai last December, parties pledged to transition away from fossil fuels by tripling global renewable energy capacity and doubling the pace of energy efficiency improvements.
“The lack of follow-up on the COP28 commitment is a serious failure that will hamper the ambition required to keep the 1.5°C goal a possibility,” says Antonina Scheer, Policy Fellow at the TPI Centre.
According to a recent report by the International Energy Agency, the world is currently on track to increase renewables capacity by 2.7 times by 2030 from a 2022 base, falling short of the COP28 pledge.
Throughout the Baku summit, however, there were signs that the renewables transition was continuing to accelerate.
New initiatives included the Global Energy Storage and Grids Pledge, targeting a sixfold increase in global energy storage to 1,500 gigawatts (GW) and significant grid expansion by 2030, and the Hydrogen Declaration, which aims to catalyse a global clean hydrogen market.
Separately, Indonesia announced plans to retire all coal and other fossil fuel-powered plants over the next 15 years at the Group of 20 (G20) leaders meeting in Brazil, while increasing renewable energy capacity. Also at the G20, the UK formally launched the Global Green Power Alliance, which is designed to accelerate the shift to renewables through increased coordination.
Another potentially meaningful development on the sidelines of COP29 was the increase in membership to the Coalition on Phasing out Fossil Fuel Incentives Including Subsidies (COFFIS), which was joined by the UK, New Zealand and Colombia.
“The group has pledged to publish fossil fuel inventories – a key step towards their phaseout,” says Scheer at the TPI Centre. “This is crucial to align business and investment decisions with the transition away from fossil fuel consumption and production.”
Also in Baku, the International Renewable Energy Agency’s (IRENA) ‘World Energy Transitions Outlook 2024’ report outlined a net zero by mid-century roadmap for governments to develop energy transition strategies. IRENA also launched the Accelerated Partnerships for Renewables in Central Asia (APRECA) during COP29’s Energy Transition Investment Forum.
ETC’s Kettleborough says COP29’s focus on the “nuts and bolts” of electrification, including storage capacity and grid transformation, was encouraging.
“Across the world, we’re seeing forward momentum that is going faster and further because these technologies are becoming so cheap,” she says, acknowledging that the picture remained more challenging for hard-to-abate sectors, such as steel, cement, chemicals and aluminium, as well as energy-intensive transport sectors.
Unfinished business
Like climate finance, agreement on carbon markets was a key priority for COP29 due to the lack of progress 12 months ago in Dubai. A breakthrough deal announced on the opening day was broadly welcomed, which paves the way for a UN-recognised mechanism for the validation, verification and issuance of carbon credits.
After years of incremental progress, consensus on Articles 6.2 and 6.4 of the Paris Agreement should enable the trading of carbon credits between polluting and nature-rich countries. The fact that these can now count toward their NDCs should accelerate the flow of capital to developing countries in need of climate mitigation and adaptation measures. But questions remain as to how Article 6 will work in practice, with further work needed to develop implementation guardrails.
“These steps will help give greater confidence to carbon markets that have been under increasing criticism in recent years. As a result, the decisions taken in Baku will reinvigorate both national and voluntary carbon markets and drive more capital into them,” says Carlin.
Baku also saw some progress on the reforms to MDBs that are seen as critical to supplying concessional or grant-based capital under the NCQG in order to attain its US$1.3 trillion upper bound.
A group of MDBs, including the World Bank, said their collective financing of developing countries would hit US$120 billion a year by the end of the decade. They intend to also mobilise US$65 billion from private investors.
“We MDBs are focused on amplifying our catalytic effect by enhancing the results and impact of our financing, deepening engagement with countries through platforms, supporting clients’ climate ambitions, and increasing private sector mobilisation,” the group said.
Multilateral resilience
The ire of the developing countries shown in the final plenary and the frustration of small island states seen in the final hours of negotiation at COP29 reflected the high stakes of global climate negotiations. While few left Baku feeling elated, all were aware of the increasingly challenging backdrop to the discussions.
“Was the outcome enough? No,” acknowledges Jakob Thomä, Research Director at the Inevitable Policy Response.
“But when you consider that we are asking 190 countries to come together in the context of dramatic political headwinds to negotiate what is effectively a transfer of wealth in response to impacts that are temporally and geographically disconnected from their original cause, it is hard to imagine a more ambitious outcome.”
In particular, the negotiations were conducted under conditions of extreme uncertainty, following the re-election of Donald Trump to the US presidency, having taken his country out of the Paris Agreement during his first.
“Overall, COP29 reaffirmed the resilience of multilateralism in the face of geopolitical crises, fiscal challenges, and uncertainty following the US election outcome,” says E3G’s Menzel.
“The outcomes offered incremental clarity on the path to net zero by 2050, but gaps persist.”
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