Why is there a row over climate finance?

The logo of the COP29 United Nations climate change conference is seen next to the temporary fences in Baku, Azerbaijan on November 22, 2024.
| Photo Credit: Reuters

The story so far: The 29th edition of the Conference of Parties (COP), arguably the most important of the UN’s climate conferences, was scheduled to end on November 22, after 11 days of negotiations, and take a collective step forward in addressing rising carbon emissions. However, deliberations are expected to carry on beyond the deadline with several sticking points outstanding.

What is the significance of COP29?

Going into the talks, developing countries had stated that at least a trillion dollars per year from 2025-35 would be necessary to meet emission targets. This was seen to be the New Collective Quantified Goal (NCQG) on climate finance which refers to money that will be given to developing countries by developed countries to help the former meet their goals to transition away from the continued use of fossil fuels and curb greenhouse gas emissions. Developing countries have been repeatedly saying that the figure should be “trillions of dollars.” To this end, developed countries have mobilised and transferred $115 billion in 2021-22 — a controversial clause that has yet to be resolved in the universal agreement — but per the Paris Agreement, a new target higher than $100 billion must be agreed upon by 2025. The talks in Baku were expected to conclusively agree upon a number but there continues to be a sharp split between developed and developing countries on the quantum and other basic aspects of what this NCQG should look like.

What do developing countries want?

This block of countries include China, India and the Group of 77 countries. There are also other coalitions such as the Like Minded Developing Countries (LMDC), Least Developing Countries (LDC), Small Island Developing Countries (SIDS) etc. Nearly all developing countries fall into one or multiple groupings and while they have differences, they are largely agreed on the point that it is the developed countries that should pay the bulk of climate finance.

More importantly, they specified that this money had to be provided not only to help countries meet their Nationally Determined Contributions (NDC) but also buffer against existing threats of climate change, and make good for climate damage already wrought. The NDCs are targeted, voluntary plans by all countries to reduce carbon emissions by certain quantities until 2030. The NCQG, the developing countries say, should also reflect contributions by developed countries on the basis of their historical contribution to existing carbon concentrations in the atmosphere as well as their per capita GDP. To put this in perspective, it is important to note that even if all countries fulfilled their stated voluntary commitments, it would as of now only translate to a 2% cut, and this year — the latest scientific assessments suggest — carbon emissions will likely increase 0.8% over 2023.

What does the developed world say?

However developed countries, led by the European Union, say these demands are unreasonably high. They aver that “all actors” (read countries) should collectively work to hike up climate finance to $1.3 trillion per year by 2035. While agreeing that they must “take the lead” they have only a set a goal of $250-300 billion by 2035 per year. Moreover this would consist of a “variety of sources,” including “public and private, bilateral and multilateral, and alternative sources.”

This suggests that another major demand of the developing world, of ensuring most of the money is in the form of grants or low-cost loans, remains unmet.

Have any concrete agreements been made?

A week before the conference began, China had petitioned the Presidency of COP29 to discuss “climate-change related unilateral restrictive trade measures” at the conference. This is an unusual request as trade issues are discussed on forums such as the World Trade Organization. China proposed this as part of a grouping of countries called BASIC (Brazil, South Africa, India, China).

The petition is primarily directed at a European Union proposal called the Carbon Border Adjustment Mechanism (CBAM), which imposes a tax on products imported into the EU that don’t conform to carbon-emission norms required by the Union. The CBAM is currently operating in a “transitional phase” but will come into full effect from January 1, 2026.

The first day of the conference saw an agreement on carbon markets to be supervised by the UN. Such a market would allow countries to trade carbon credits — certified reductions of carbon emissions — among themselves and whose prices are determined as a consequence of emission caps imposed by countries.

The market itself follows from a section in the Paris Agreement, called Article 6. Sub- sections within the Article spell out how countries can bilaterally trade carbon among themselves (Art 6.2) and participate in a global carbon market (6.4). Though most of the necessary nuts and bolts to make operational such a carbon market, supervised by a United Nations body, were in place since 2022, there were several niggles, particularly on ensuring that the carbon credits generated are genuine and its antecedents are transparent.

While there is criticism among environmentalist groups that enough discussions on this didn’t take place, this is supposed to be a mechanism to facilitate climate finance. India has been discussing bilateral deals to trade carbon with several countries. An agreement such as the one in Baku could be a catalyst, and activate India’s own carbon-trading market.