Explainer: The Global Battle Over Climate Change Funding

The global battle over climate change funding involves debates on financial responsibilities between developed and developing nations. Key issues include securing commitments for reducing emissions, financing adaptation efforts, and addressing loss and damage in vulnerable regions. This complex dynamic impacts international climate policies and the effectiveness of global climate action.

Preparatory talks among countries' climate negotiators in Bonn, Germany, set to conclude on Thursday, have highlighted significant divisions between governments regarding financial responsibilities and contributions.

Nearly 200 countries are set to negotiate a new global goal for funding to combat climate change at the upcoming U.N. COP29 climate summit scheduled for November in Baku, Azerbaijan.

Preparatory talks among countries' climate negotiators, which are scheduled to conclude on Thursday in Bonn, Germany, have starkly revealed divisions among governments regarding the questions of financial responsibility and the amount each should contribute.

Here’s the current status of discussions:

The discussion revolves around the allocation and management of funding for climate change initiatives on a global scale.

Climate finance refers to financial support provided by wealthier economies to assist poorer nations in implementing projects aimed at reducing greenhouse gas emissions and adapting to increasingly severe weather patterns caused by climate change. In 2009, developed countries committed to transferring $100 billion annually in such funds from 2020 to 2025. The focus for negotiators at this year's U.N. climate talks is to establish a new financial target to succeed the $100 billion benchmark starting in 2025.

The amount needed varies widely depending on the scope and goals of different climate change initiatives. Globally, trillions of dollars are often cited as necessary to effectively combat climate change across various sectors such as renewable energy, infrastructure, and adaptation measures.

Due to worsening climate change and inadequate investments in clean energy in developing nations, the estimated funds required have significantly increased since the initial climate finance goal was agreed upon. According to a 2023 independent report cited by the U.N., developing countries, excluding China, may need approximately $2.4 trillion annually by 2030 to meet climate targets and safeguard against extreme weather events—a four-fold rise from current levels. This sum encompasses public and private finance, including contributions from development banks.

Ahead of COP29, various proposals for the new funding goal have emerged. The Arab group, comprising nations like Saudi Arabia, the UAE, and Egypt, suggests a U.N. target of $1.1 trillion annually, with $441 billion sourced directly from developed countries in the form of grants. Similarly, India, African countries, and small island states advocate for raising over $1 trillion annually, though opinions differ on the proportion that should come from government funds.

Discussions are exploring a dual-layered approach: a broader overarching goal encompassing all global climate finance, including development bank loans and private investments, alongside a narrower core target specifically for public financing from wealthy nations' governments.

While developed countries expected to lead in funding have yet to propose an acceptable figure, the U.S. and EU assert that any new goal must surpass the previous $100 billion annual target.

Who covers the costs?

Currently, only a select few affluent nations are mandated to provide climate finance, a list established during U.N. climate talks in 1992 and unchanged since. The EU and U.S. argue that this roster is outdated and advocate for expanding it to include new donors like China, the world's second-largest economy, and countries with high GDP per capita such as Qatar, Singapore, and the United Arab Emirates.

China has strongly opposed this proposal. The debate over which countries bear financial obligations is anticipated to be a central issue at COP29.

Decisions at U.N. climate talks are made through consensus, meaning all nearly 200 participating countries must agree on any deal, with none having the ability to veto.

Climate finance refers to the funding or financial resources allocated to activities that aim to mitigate and adapt to climate change. These activities include investments in renewable energy projects, energy efficiency improvements, climate resilience measures for vulnerable communities, and other initiatives that contribute to reducing greenhouse gas emissions and addressing the impacts of climate change.

According to OECD data, a significant portion of current public climate finance consists of loans, with grants constituting a smaller share. Additional funding categories include private finance mobilized by governments, export credits, and support from development banks.

During recent negotiations in Bonn, some countries, particularly small island nations, have proposed clarifying what should not be considered as climate finance. They argue that loans offered at market rates and export credits should be excluded, expressing concerns that such financial mechanisms could exacerbate debt burdens for less affluent nations.

Participants in Bonn also debated whether commitments to reduce subsidies for fossil fuels could be integrated into the climate finance objective—a notion opposed by oil and gas-producing countries like Oman.

Amidst strained public budgets, countries are exploring new avenues for financing. Ideas slated for discussion at COP29 include levies on the fossil fuel and defense sectors, as well as debt swaps where a portion of a country's debt is forgiven in exchange for increased investment in climate change mitigation and adaptation efforts.

‍Source: Moneycontrol