From Bonn to Baku
A series of missed opportunities at the Bonn Climate Change Conference have ramped up pressure for COP29 to deliver on the green transition, argues UNEP FI Climate Lead Remco Fischer.
The climate crisis is “too big, too serious and too urgent to rely on the resources of public institutions alone”, according to the World Economic Forum (WEF). The forum estimates developing countries need US$2-4 trillion annually to avert “catastrophic” consequences.
Nearly 15 years have passed since the COP15 Copenhagen Climate Summit, where wealthier countries had agreed to provide US$100 billion a year to help emerging economies meet their fossil fuel reduction targets.
While the funding was eventually mobilised, in the intervening years it has also become apparent that not only does the sum fall far short of what’s needed – but the conditions on which emerging economies are bound to their creditors have given cause for concern.
Though the Paris Agreement established a New Collective Qualified Goal (NCQG) on climate finance to provide a fairer framework for driving capital to developing nations, signatories are yet to agree on a number.
This June’s Bonn Climate Change Conference has been widely perceived as a missed opportunity to progress the NCQG towards final agreement, ahead of the upcoming COP29 in Azerbaijan in November.
Slow progress
Remco Fischer, Climate Lead at the UN Environment Programme Finance Initiative (UNEP FI), had hoped greater progress would be achieved on the NCQG and climate finance in general between last year’s COP in Dubai and the Bonn conference.
“A lot more was expected than ultimately happened in Dubai, and I don’t think a whole lot was achieved in Bonn either,” he said. “A lot of the detail still needs to be slowly hammered out, and that needs to happen at the ministerial level. There are a few opportunities to do that in the fall at the UN General Assembly.”
Fischer sees the NCQG as essential in ensuring developing countries can meet their nationally determined contributions (NDCs), which set out tailored plans to reduce emissions and adapt to the impacts of climate change.
“There needs to be, if not a breakthrough, then at least some solid progress on the NCQG,” he added. “The strength of NDCs, particularly those of developing countries, depends at least partly on having clarity on finance. The more financial support and clarity there is, the stronger developing countries’ NDCs can be.”
Despite slow progress on the NCQG, there has been improvement on the quality and content of negotiations at recent climate summits, Fischer argued. The decision to transition away from fossil fuels agreed during COP28, for example, signifies genuine positive momentum.
“In terms of communication and collective ambition, there was some good progress in Dubai, where delegates doubled down on the importance of the science,” he added. “For the first time, keeping global warming to 1.5°C was mentioned, as was tripling renewable energy power and doubling energy efficiency – and importantly, phasing out fossil fuels. We didn’t have that in Paris and we did not have that in Glasgow.”
If the world is to triple its renewable energy production by 2030, capacity will have to grow at a rate of 16.4% a year, according to the International Renewable Energy Agency. At current rates, that target will be missed by 13.5%.
As it stands, NDCs also fall far short of meeting the 1.5°C target set by the Paris Agreement. In fact, most countries are on course to hit 2.7°C.
“Everyone is happy to make the commitment of net zero by 2050, but the problem comes with the short- and medium-term plans and promises, and the NDCs – here, the situation is not good,” said Fischer. There needs to be systemic change whereby meeting 1.5°C is integral to each country’s capital market. Governments need to work with the private sector to make this happen.”
Moving forward
Against this background, a key priority is for climate finance to become more sophisticated and efficient.
“The discussion should be how can we use whatever money is coming from donor countries in the smartest, most impactful way possible,” said Fischer. “We need to use public money surgically and catalytically to mobilise much greater volumes of private capital.”
UNEP FI has long argued that public money should be used to guarantee private investment in renewable energy and other green infrastructure projects. As far back as 2009, the organisation made the case that if institutional investors were to invest the requisite trillions of dollars in the green transition, expected returns on climate change mitigation investment needed to be commensurate with the perceived level of risk.
This can typically be done through guarantees provided by governments, such as the Loss and Damage fund which was established during COP28.
But beyond transactional incentives, Fischer wants to see systemic changes in climate finance that can attract institutional investors.
“We need policies and regulatory reforms in all, including developing, countries that shift the risk-return profile of climate investments, so that they are attractive enough for private investors,” he said. “We certainly need to make them more attractive than carbon-heavy and conventional alternatives.”
An example would be to use international climate finance to put in place feed-in tariffs for renewable energy, or to create energy efficiency standards. “These don’t cost much and represent a catalytic systemic use of public finance,” Fischer said.
Ultimately, his hope is that the NCQG will provide a framework for both transactional and systemic climate finance that would reduce borrowing requirements for developing countries and make investments more attractive to private markets.
“The NCQG will be a much better construct than the previous financial formula, which revolved around providing US$100 billion a year – it will be better informed and more nuanced,” Fischer added. “I hope the NCQG is agreed at COP this year, because otherwise we will have lost more time. We need to get the financial piece in place if we are to mobilise [climate change] ambitions.”
Globalised carbon pricing
Other hopes for COP29 revolve around the establishing of an effective carbon pricing market. According to Fischer, UNEP FI members – especially the Net Zero Asset Owners Alliance – believe governmental carbon pricing is a necessary part of the climate policy toolkit required to achieve net zero emissions and reach the Paris Agreement goals.
“Carbon pricing provides a broad incentive for decarbonisation, driving emissions reductions where they are most cost-effective,” he said. “There is the EU-wide scheme, and there are others at the country level. One of the key asks from the investor community is for there to be an internationalisation of these schemes and globalised carbon pricing.”
The Bonn Climate Change Conference failed to reach a consensus on open issues such as the functioning of an international carbon credit market, in line with Article 6 of the Paris Agreement. Participating countries failed to come to agreement on the extent to which emission avoidance can be used to generate carbon credits, and what components of carbon credit systems should be centralised.
“If there was one bit of positive progress on carbon pricing at Bonn that can be taken to Baku, it’s the agreement that emission avoidance is not permitted under Article 6, and that all units must be real emission reductions or removals,” said Fischer, adding that he was optimistic that COP29 would drive further adoption of an international carbon credit market.
“I think the decision goes in the direction of building a credible market, which is something that the private sector and our members want,” he argued. “This will be central to achieving net zero by 2050.”
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