COP29: What to expect

Published on 7 November 2024.

This year’s conference, which has been coined as the “finance COP,” seeks to align climate finance contributions with global needs, particularly supporting developing countries. Building on commitments made at COP15 in 2009 to mobilise $100 billion annually by 2020, COP29 addresses the shortfall in efforts that have not fully met the escalating challenges faced by developing nations[1].

At COP29, leaders will focus on three key aspects of climate finance: 1) the New Collective Quantified Goal (NCQG), 2) the Loss and Damage fund, and 3) Article 6 of the Paris Agreement. Together, these initiatives aim to increase climate finance flows to meet Paris Agreement targets, not only by establishing and refining these goals but also by creating mechanisms to ensure their practical implementation.

NCQG

The NCQG is expected to be the focal point of COP29 negotiations, as the discussions will extend beyond setting a single target amount. Delegates will delve into the complex issues of who will contribute, in what forms, and what types of financing will be eligible.

What is the expected amount of financing needed for this new goal?

According to an estimation of the Independent High-Level Expert Group (IHLEG), developing countries need $2.4 trillion each year to fund climate and nature-related investments. This assessment is supported by a diverse team of experts within the group. The assessment breaks down to $1.4 trillion from domestic resources, with the remaining $1 trillion needing to come from external financing. This external component will be a critical focus in NCQG discussions, as it includes both public funding through multilateral development banks (MDBs), bilateral aid, concessional finance, and private financing—each expected to contribute around $500 billion[2].

IHLEG report summary (pdf, lse.ac.uk)

What will NCQG funds be used for?

NCQG funds aim to provide developing countries with the countries' capacities to adapt to climate impacts while advancing their development goals[3]. Further, climate finance also aids in helping countries meet their Nationally Determined Contributions and national adaptation plans.

Loss and Damage

Another key discussion point is the Loss and Damage Fund, a fund created to support countries facing the direct impacts of climate change, enabling them to achieve immediate recovery. Further, “loss and damage” is a general term used in UN climate negotiations to refer to the consequences of climate change that go beyond what people can adapt to[4]. One of the key outcomes of COP28 was the initial funding commitments to the Loss and Damage Fund, valued at nearly $800 million, building on the fund's establishment at COP27[5]. At COP29, the primary focus will be expanding this fund, a challenging task as it involves direct cash transfers from wealthy to poorer nations in the form of grants. It is important to note that the loss and damage fund is separate from the NCQG.

Why can’t we just use global aid?

The combined aid budgets of wealthier countries total around $200 billion per year, and the Loss and Damage Fund aims to raise an additional $100 billion. Relying on existing aid budgets alone is challenging, as they are already stretched thin, making it difficult to carve out an extra $100 billion from limited resources[6].

What is an expected solution to grow the fund?

One proposed solution likely to emerge in the discussions is the creation of a mechanism similar to the Oil Pollution Compensation Fund—an international fund established in 1978 to provide financial compensation for damage caused by oil spills from tankers, where contributions are made from companies that receive oil via transport from sea, ensuring that victims receive prompt and adequate payment for losses resulting from marine oil pollution[7] – but designed instead to address carbon emissions. Such a mechanism could potentially levy contributions based on the amount of carbon emitted, providing a structured and predictable source of funding[8].

Article 6

Article 6 of the Paris Agreement, focusing on carbon markets, includes three trading mechanisms: Article 6.2 for bilateral and multilateral agreements, Article 6.4 for a global carbon market, and Article 6.8, which supports collaborative efforts without trading credits[9].  With agreements on Article 6 still pending from COP28, completing its framework will be a central objective at COP29, as it holds potential to enhance emissions reduction efforts[10].

What is the current state of carbon markets, and how can Article 6 improve them?

Currently, carbon markets are burdened by weak demand for credits, due to concerns over credit quality and integrity. The main objective for Article 6 negotiations at COP29 is to establish robust standards for carbon markets by removing the barriers of quality and integrity away from carbon credits. This involves defining the international registry structure under Article 6.2, finalising methodologies of assessment including on deciding if avoided emissions can qualify for credits, and determining which aspects of the Paris Agreement Crediting Mechanism should be centralized (Article 6.4)[11].

If successful, these outcomes will not only improve credit quality but also encourage broader private-sector participation. This is crucial, as a well-regulated global carbon market under Article 6 could unlock substantial capital for climate finance, helping to bridge the funding gap for climate action worldwide.

Some barriers to overcome going forward

Overall, this COP has some exceedingly difficult discussions ahead especially as we are coming into the conference from a year where we have seen several climate disasters around the world, geo-political tensions, and many difficult elections.

With the recent U.S. elections resulting in a Republican majority, discussions at COP29 may take a new direction. We can look at what to expect in Donald Trump’s return to office from his previous administration’s approach. Trump has pledged to withdraw the U.S. from both the Paris Agreement and the United Nations Framework Convention on Climate Change (UNFCCC), actions he could initiate on his first day in office[12].

Leaving the UNFCCC would be challenging for the U.S. due to legal complexities, Senate approval requirements, loss of negotiating influence, and significant financial implications.  Such a move would be highly controversial, as U.S. participation in these agreements is a diplomatic tool that pressures other nations to strengthen their climate commitments[13].

If the US were to remain in the UNFCCC during a Trump presidency, it would be to maintain global leadership to help align international standards to American interests, concerns over national security since the US Department of Defence considers climate change a security threat, and for access to economic opportunities in clean tech in developing countries.

Stay tuned for an update of the outcomes of COP29 which will be published in SEB’s flagship research report, “The Green Bond: Your insight into sustainable finance” on 27 November.

The Green Bond (sebgroup.com)

You can also listen to the latest episode of the SEB Next Gen Finance podcast where we hear from Sweden’s climate ambassador and a member of the Swedish delegation at COP29 and discuss the expectations prior to the conference.

Next Gen Finance podcast (libsyn.com)

The podcast is available where you usually listen to podcasts.