NCQG Must Triple Climate Finance to EMDEs
Private finance ambition needs to match government commitments to developing nations, according to high-level expert group.
Negotiations for the New Collective Quantified Goal (NCQG) at COP29 have been lent further urgency by a new assessment of the investment needed by emerging markets and developing economies (EMDEs) for Paris-aligned climate action.
The Independent High-Level Expert Group on Climate Finance (IHLEG) estimates global public and private investment must reach US$6.3-US$6.7 trillion a year by 2030 to achieve the goals of the Paris Agreement, with EMDEs accounting for US$2.3-US2.5 trillion. US$2.7-US$2.8 trillion is needed in advanced economies, the report said, and US$1.3-US$1.4 trillion in China.
Domestic resources, which currently account for around 70% of finance in EMDEs, can “reasonably finance” US$1.4 trillion a year of the total needed by EMDEs by the end of this decade and US$1.9 trillion of the projected US$3.2 trillion required by 2035, the report said.
“External finance from all sources, international public and private along with others, will need to cover US$1 trillion per year of the total investment need by 2030 and around US$1.3 trillion by 2035,” it said.
Cross-border private finance should be able to meet around half of these needs, it added.
“To emphasise, these are the investment levels that are necessary for delivery on the Paris targets,” the report said. “They are analytical deductions in relation to our estimates of what is needed, not a ‘first bid’ in a negotiation.”
The NCQG will outline a new financial commitment target for developed nations to better support developing countries in their climate mitigation and adaptation efforts post-2025.
An effective target would entail a tripling of the pre-2025 US$100 billion annual commitment first made at COP16 for 2020, the report suggested.
Mukhtar Babayev, President of the COP29 conference, has argued that “the onus cannot fall entirely on government purses” to plug the climate finance gap in EMDEs, and that private investors must “step up”.
As such, other stakeholders – such as multilateral development banks (MDBs) – and the private sector also need to come forward with more ambitious investment commitments, the IHLEG said.
The group has been tasked with helping to develop policy recommendations to encourage and enable Paris-aligned public and the private investment since COP26.
Loosening the purse strings
A number of announcements and commitments have already been made at COP29 which aim to better mobilise climate finance for developing nations.
The Loss and Damage fund – launched at COP28 – is now ready to formally accept contributions, following the signing of a trustee agreement and secretariat hosting agreement between the board of the fund and the World Bank. This means the fund can start financing projects next year.
Sweden committed US$19 million to the fund during the opening days of the climate conference, bringing the total amount pledged to US$720 million.
In addition, the Emerging Africa and Asia Infrastructure Fund (EAAIF) led an €84 million (US$88.9 million) investment in two photovoltaic solar plants with battery storage systems in Senegal. The investment supports the country’s clean energy goal outlined within its Just Energy Transition Partnership (JETP) to reach 40% renewable energy capacity by 2030.
To further accelerate climate action in developing countries, the Institute for Research on Public Policy (IRPP) has proposed the introduction of ‘climate impact auctions’.
These would involve public or private entities submitting competitive bids for a fixed total amount of climate-related subsidy, with successful bidders receiving results-based payments for producing renewable energy, such as solar or wind. By offering payments per kilowatt-hour of renewable energy produced, the model would support transparency and accountability, and could be expanded to other types of emission reduction projects.
Following a previous commitment to scale climate finance in emerging markets, a group of MDBs said their collective climate financing for EMDEs will reach US$120 billion by 2030, a third of which would fund adaptation measures.
They also intend to mobilise US$65 billion from the private sector.
As part of the NCQG, MDBs should look to triple lending capacity by 2030, the IHLEG report suggested.
“While all MDBs have made progress on the reform agenda, the pace and ambition fall short of what is needed,” it said.
As well as multilateral banks, national development finance institutions (DFIs) are also publicising climate finance initiatives at COP29.
UK DFI British International Investment (BII) plans to unveil new EMDE-focused climate investments and partnerships across India, Asia and West Africa which will generate investment opportunities for private investors.
Global moves
Further climate finance is also expected to be mobilised through multilateral climate policy action in areas such as the international carbon markets and tax reform.
On the opening day of COP29, parties approved Article 6.4 of the Paris Agreement – a mechanism which will establish a UN-recognised mechanism for the validation, verification and issuance of carbon credits.
“The voluntary carbon market (VCM) also has the potential to generate much-needed revenues for priority elements of the transition in EMDEs,” IHLEG said.
The report also pointed to the possibility of introducing international taxation of high-emitting sectors. The Global Solidarity Levies Task Force was launched at COP28 to explore such avenues.
Ahead of COP29, the taskforce announced it will publicly launch levy proposals for sectors including aviation and shipping in early 2025. These will be scalable – raising at least US$100 billion a year, the taskforce claimed.
“Any shortfall in investment before 2030 will place added pressure on the years that follow, creating a steeper and potentially more costly path to climate stability,” the IHLEG report warned.
“The less the world achieves now, the more we will need to invest later.”
Raising the level of climate finance needed is nonetheless expected to be challenging, with COP29 negotiations beset with tension, and the future implications of incoming US President Donald Trump on the global climate transition currently unknown.
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