By: Defne Aslan, Paige Massey and Zach Ramwali
As COP29, the UN’s annual conference on climate change, gets underway --- all eyes are on climate finance. The $100 billion climate finance target set at COP15 in 2009 expires next year, and a New Collective Quantified Goal (NCQG) will take its place. However, the road to finalizing this critical target has been anything but smoothe. Debates over how much should be pledged, who should contribute, and how funds can be spent are among the key disagreements keeping the state of the NCQG uncertain.
The $100 Billion Goal - What went wrong?
In 2009, country parties made a breakthrough in climate finance at the Copenhagen climate talks. Under the goal, developed countries agreed to mobilize $100 billion annually by 2020 to address climate mitigation efforts in developing countries. However, this target was met two years late and was widely criticized for being inefficient and debt-crippling.
There was, for example, no formal process to track funds, which allowed developed countries to ignore their commitments and meet targets late. Further, without transparent tracking processes, many questionable projects were funded under the label of climate finance. In Senegal, funds intended for coastal adaptation were redirected to build protective infrastructure around hotels in tourism-heavy areas, benefiting luxury resorts instead of vulnerable local communities facing severe coastal erosion. In Bangladesh, funds were used to build a coal plant that allegedly generates more energy with less coal than the average coal plant. As the new climate finance contours take shape under the NCQG, the challenge of transparency, as seen in the $100 billion goal, will likely become a central issue in determining the effectiveness of future sustainable development and climate finance.
The other major issue of the $100 billion goal was debt-creating finance. The majority of climate finance was provided through loans with interest rates equal to the market rate. These rates can often be too demanding on developing countries, sadding their small economies with high levels of debt.
In 2017, France loaned Ecuador $118.6 million to build an aerial tramway. Although the interest rate of this loan is unknown, initial documents had a rate of 5.88%. From this, France would earn roughly $76 million in interest, more than half of the original loan value. Ecuador on the other hand, now faces the dual challenge of delivering loan repayments while managing a separate debt crisis. In 2017, when the loan was issued, Ecuador was already running a $124 million budget deficit.
Concessionary financing, with average interest rates at 0.7% would make large-scale, impactful climate projects realistic for countries like Ecuador that already struggle with debt. Developing nations would gain fiscal flexibility to manage debt while averting the worsening economic consequences of climate change. As a result, the need for concessionary finance — loans provided with below-market rates — must be a component of the final NCQG if the goal is to effectively and equitably mitigate the consequences of climate change.
Building a Better Goal - What should the NCQG look like?
One of the biggest questions surrounding the NCQG is how much money should be pledged. Estimates from experts vary, but most agree that to properly address climate change in developing countries, trillions of dollars are needed annually. The UN Standing Committee on Finance estimates that at least $5 trillion is needed through 2030 to achieve the latest round of nationally determined contributions (NDCs). Increasing the target from $100 billion to a number in the trillions represents a huge leap in ambition that developed countries will undoubtedly push back on.
The NCQG will also need to address transparency and accountability issues the previous $100 billion goal faced. Without a formal process to track funds, developing countries were able to avoid their commitments and meet targets late. Transparency issues arose when it was revealed that climate funds were being used to build luxury hotels and coal plants. Through the NCQG there is an opportunity to define the concept of climate finance, a term that so far has no clear definition. Further transparency is also needed to ensure that the funds provided make positive impacts on climate issues and don’t leave developing countries worse off. Advocating for more concessional financing is something that many developing countries and climate justice organizations hope to make progress on at COP29.
The introduction of the NCQG at COP29 presents an urgent opportunity for developed countries to fulfill their climate finance responsibilities. Looking back on the failure of the $100 billion goal, it's clear that the NCQG must prioritize creating mechanisms to ensure transparency and accountability and provide financing for mitigation and adaptation that actually make improvements on climate issues without placing further financial burdens on developing countries. By learning from past shortcomings, the NCQG can pave the way for a more equitable and effective climate finance system that empowers developing nations and drives meaningful global climate action.
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