Overview
As we have previously reported over the last two weeks, the 29th Annual United Nations (UN) Climate Change Conference (COP29) focused heavily on climate finance and implementing key strategies for global emissions reduction, particularly to limit a global warming to 1.5°C.
In this article, we share the key takeaways from COP29 for governments, multilateral institutions, investors, financial institutions, and other key stakeholders. While the world watches to see if the United States does withdraw from the Paris Agreement, work will continue to progress crucial outcomes agreed upon during COP29.
Overview
- Countries agreed to a “new commitment to channel $1.3 trillion of climate finance to the developing world each year by 2035,” which includes a core “target” commitment of $300 billion annually from developed countries.
- Governments agreed on standards for carbon markets under Article 6 of the Paris Agreement, which are aimed at streamlining carbon credit trading to accelerate emissions cuts.
- Set to mobilize aid starting in 2025, the Loss and Damage Fund (L&D Fund) was also advanced during COP29, marking significant progress in international climate cooperation – although final details are yet to be agreed upon.
In Depth
THE BAKU FINANCE GOAL
The Baku Finance Goal, also known as the New Collective Quantified Goal on Climate Finance (NCQG), sets a “target” for developed countries to mobilize at least $300 billion annually for developing countries by 2035. The annual funding goal prioritizes support for the least developed countries and small island developing states, with a focus on accessibility and transparency.
“This new finance goal is an insurance policy for humanity amid worsening climate impacts hitting every country,” said Simon Stiell, executive secretary of UN Climate Change. “But like any insurance policy, it only works if premiums are paid in full and on time. Promises must be kept to protect billions of lives.”
The $1.3 trillion finance goal “encourage[s] developing country parties to make contributions, including through South-South cooperation, on a voluntary basis.” This is partly because of ongoing questions surrounding the role of major emerging economies that were not considered developed when climate summits began in the 1990s, including China, India, Saudi Arabia, and other gulf states.
While parties are not mandated to provide grants, a clear theme throughout the text is the role of public finance and other sources mobilized by public finance. Parties are particularly called upon to significantly reduce the cost of capital by 2030 through the use of products such as first-loss instruments, guarantees, local currency financing, and foreign exchange risks, among other ways.
ARTICLE 6 OF THE PARIS AGREEMENT: COUNTRY-TO-COUNTRY TRADING AND A CARBON CREDIT MECHANISM WILL BECOME FULLY OPERATIONAL
After a turbulent few years for carbon markets, governments have revived the prospects of a once nascent sector by approving rules that will create a global market for countries to meet their Paris Agreement commitments. Countries adopted operational standards for international carbon markets to enhance emissions reductions and finance flows to developing countries, which the UN will supervise.
Crucially, least developed countries will get capacity-building assistance if needed so they can enter the market in a meaningful and informed manner. Additionally, where relevant, projects will not be able to proceed “without explicit, informed agreement from Indigenous peoples.”
The new rules for a centralized carbon trading system, known as the Paris Agreement Crediting Mechanism, provide clarity on the creation, trading, and registering of emissions reductions and removals without double counting. This will allow heavy-emitting countries and businesses to purchase credits from decarbonization schemes in developing countries.
Involved parties approved essential guidelines for developing and evaluating carbon credit methodologies and carbon removal projects, which aim to operationalize Article 6.4 of the Paris Agreement by enabling countries to trade emissions reductions and removals while preventing double counting. The new rules also emphasize integrity and transparency, addressing past criticisms of carbon markets.
Initial credits under Article 6.4 will transition from Clean Development Mechanism projects, including renewable energy and efficiency initiatives. New methodologies for innovative carbon removal techniques were not agreed on (as predicted) but are expected by mid-2025, covering technologies like direct air capture and enhanced weathering.
The Article 6.4 Supervisory Body, which is made up of 12 members from the Paris Agreement parties, preemptively approved standards to break prior negotiation deadlocks. While this accelerated progress, it also drew criticism for bypassing national negotiators and limiting debate on the standards.
Despite the advancements, concerns were raised about procedural transparency and the risk of relying too heavily on carbon removal technologies. That said, further refinements to the Paris Agreement Crediting Mechanism are anticipated once it is implemented.
The Paris Agreement Crediting Mechanism is expected to save up to $250 billion annually in climate action costs by incentivizing developed countries to direct financing to developing nations in support of their sustainable development. It will also align voluntary and compliance carbon markets, potentially boosting demand for high-quality credits. This development represents a crucial step forward after years of delays and contentious negotiations.
MANY COMMIT TO OPERATIONALIZE THE L&D FUND BY 2025, PROVIDING FINANCIAL SUPPORT FOR CLIMATE-IMPACTED NATIONS
The L&D Fund, which has been discussed during many previous COPs, was established to support the most vulnerable countries in managing climate-related damage, such as damage from extreme weather events and rising sea levels. It also aims to provide financial assistance for recovery and rebuilding efforts in nations disproportionately affected by climate-related disasters.
The L&D Fund’s current commitments total more than $730 million, with major pledges from France, Italy, Germany, and the United Arab Emirates. However, additional pledges are still being sought to meet its goals, which some have costed at around $580 billion by 2030. Developed countries are expected to raise funding through taxes on fossil fuel profits and international flights, among other sources.
Discussions during COP29 highlighted an urgent need to streamline accessibility for affected countries and communities. Delegates from the Global South emphasized the immediate disbursement of funds and tailored approaches for regional and local needs. Additionally, there was significant focus on involving Indigenous peoples and local communities, ensuring direct support rather than intermediaries and leveraging their knowledge in sustainable climate adaptation strategies.
While a gap between pledged amounts and the amount required remains, now that there are additional operational details, including funding sources and governance, the L&D Fund should be fully functional and financing projects by 2025.
OTHER DEVELOPMENTS OUTSIDE OF THE HEADLINE ISSUES
- More than 75 governments and 1,100 members of the digital tech community endorsed the COP29 Declaration on Green Digital Action to use digital tools to reduce emissions and strengthen climate resilience.
- The Colombian government’s call for a global treaty on energy transition minerals was backed by several countries at COP29. Such a treaty would set global standards for the governance of mineral supply chains (particularly for cobalt, lithium, and nickel), look to increase economic opportunities for countries and people at the beginning of the chain, and establish “no-go zones” to protect nature.
- Countries were urged to commit to an energy storage target of 1.5 terawatts by 2030, which would enable the much talked about tripling of world renewable energy capacity.
- Six new countries – El Salvador, Kazakhstan, Kenya, Kosovo, Nigeria, and Turkey – joined the COP28 pledge to triple global nuclear capacity by 2050, bringing the total number to 31 countries.
- Multilateral development banks, such as World Bank, announced that their climate finance contributions are projected to reach $170 billion annually by 2030, with $120 billion being targeted toward low- and middle-income countries.
- Various development finance institutions signed a pledge to support green hydrogen projects in emerging and developing economies.
- Mexico announced its commitment to net-zero emissions by 2050, which means all G20 members have now committed to a net-zero target.
POTENTIAL US WITHDRAWAL FROM THE PARIS AGREEMENT
As expected, the elephant in the room during COP29 was the US’ potential withdrawal from the Paris Agreement.
US Climate Envoy John Podesta and White House Climate Adviser Ali Zaidi made it clear that efforts to mitigate the effects of climate change will likely remain a priority at the state level at the very least.
Not only has the US, China, and Azerbaijan convened a summit to accelerate actions to cut methane and other non-CO2 greenhouse gases, but the US Environmental Protection Agency announced a final rule to reduce methane emissions from the oil and gas sector. The rule facilitates the implementation of US Congress’ directive in the Inflation Reduction Act of 2022 to collect a Waste Emissions Charge to better ensure valuable natural gas reaches the market rather than polluting the air.
“The fight is bigger than one election, one political cycle in one country,” said Podesta. Without the US’ participation, global emission reduction goals will invariably face setbacks. However, Podesta and Zaidi emphasized that while withdrawal from the Paris Agreement would be a setback for the American people, it’s one that can be overcome in time.
