- COP29 negotiations are focused on the New Collective Quantified Goal with developing countries demanding $1-2 trillion in climate finance.
- Developed countries have proposed a multi-layered approach to climate finance, including investment, provision, and mobilisation.
- Developing and least developed countries highlighted the climate debt trap arising from loans and demand grants instead.
Negotiations at COP29 in Baku, Azerbaijan have intensified, with a few days left to build consensus over climate finance. In this final stretch, developing countries, particularly those facing debt crises, have called for prioritising public finance over private finance, raising concerns about accessibility and adequacy of market-based mechanisms.
Parties at COP29, where the focus has been climate finance, are negotiating the New Collective Quantified Goal (NCQG), an upcoming target to support developing countries with financial contributions to tackle climate change. The NCQG is the successor to the Copenhagen Accord that developed countries had a target to mobilise $100 billion towards developing countries as climate finance assistance, annually, by 2020.
In the negotiating text, the NCQG target amount, proposed mostly by developing countries, is noted to be $1 to $2 trillion. Developed nations have been silent on the amount, but have been pushing for a multi-layered approach to financing climate action, including support from public and private funds.
However, negotiators from developing and least developed countries (LDC) have raised concerns about relying on market-based approaches like private investments and loans to deal with climate related challenges. A significant share of previous climate finance has been in the form of a high interest loan where the recipient country has had to then pay interest on the principal amount. This system of financing put pressure on the fiscal health of the country, usually a low-income country.
While addressing the media at COP29, African countries of The Gambia, Sierra Leone, the Republic of Angola, and a few others highlighted that they do not have access to private finance. The countries said that they are vulnerable to climate-induced drought, food shortage, water scarcity, and displacement which cost around five to ten percent of their GDP annually.
During the address, Minister of Environmental and Climate Change of Sierra Leone, Jiwoh E. Abdulai, said that the cost of adaptation in sub-Saharan Africa is estimated between $30 to $50 billion a year, over the next decade. He added that the estimated cost of implementing Nationally Determined Contributions (NDCs) for 98 developing countries is between $5 to $7 trillion annually. “These are not just figures, but rather a context for the negotiation we are going in (with) for the next few days,” he said.
Talking to Mongabay India, Abdulai said, “We are not responsible for the climate crisis, but it is costing our economies a lot. If private finance has worked in the past, we would not be discussing climate finance here.”
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A debt trap
In the latest 10-page negotiating draft for NCQG, after several revisions, developing countries propose more than 50% of the total climate finance, to be provided by developed to developing countries as a grant.
Developed countries, meanwhile, have not put forth their proposals yet.
Developed countries’ deliberation on quantum of finance remains confusing as their push for concessional loans, blended and private finance is evident, says Suborna Barua, a professor of finance at the University of Dhaka, Bangladesh. “More than 55% of the 1.3 trillion planned NCQG is proposed to be in the form of debt, which perhaps is not favourable news for the vulnerable countries,” Barua added, speaking about the version of the draft available on Wednesday, November 20.
“Also, there is an increasing tendency to push the developing countries to the private market, where developing countries will have to borrow at market rate, which would be extremely expensive for developing countries deepening climate injustice,” he said adding that this reliance on debt has already significantly impacted many countries and created a debt trap for them.
A recent report by the Change Initiative, a research organisation in Bangladesh, claims that over 30 countries are already caught in a climate debt trap, with Bangladesh being one of them. The report claimed that Bangladesh’s per capita climate debt reached $62.34 by 2022, largely driven by concessional loans.
Overall, the climate-related debt burden for several least developed countries (LDCs) has increased by 24 times since the Copenhagen Accord, signed in 2009. It has moved from $0.9 billion in 2009 to $22 billion in 2022, according to the Change Initiative study that defines climate finance debt as the financial obligations, incurred by vulnerable countries, through climate financing in the form of loans provided by bilateral or multilateral funds.
Another study published in 2023 by the International Institute for Environment and Development (IIED), a London-based independent policy research institute, claims that because they are already in debt, several LDC countries are unable to borrow the amount of money they need to fight the effects of global warming.
The IIED study also highlighted several LDCs and Small Island Developing States (SIDS) are paying more to debt repayment than they get as climate finance. The study analysed the 2021 data of 59 of the 76 nations in the LDCs and SIDS groups and claimed that in 2021, the 59 countries spent $33 billion on debt repayments and received $20 billion in climate finance.
Grants over loans
Since the beginning of COP29, it has been evident that developed nations, the largest contributors to global emissions, want to pass the burden of emission reduction to developing nations, said Diego Pacheco, a negotiator from Bolivia who also represents Like-Minded Developing Countries (LMDC).
He said, “I am deeply concerned that, instead of offering grants that would provide real assistance, climate finance is primarily being delivered as loans, which only exacerbates macroeconomic instability in developing countries.”
Barua said that for the NCQG to genuinely support the most vulnerable countries, it needs to be predominantly grant-based and easily accessible in a timely manner. In this regard, commitment must be translated into contribution fast enough, unlike the historical patterns observed, he added.
“We are stressing that a lot of climate finance has to be public finance because the market has clearly failed to address the issue. Getting private finance is very difficult for many of our countries,” said Abdulai, the minister of Sierra Leone.
Negotiators from African countries and Bolivia raised transparency related concerns about the previous climate finance mechanism of $100 billion annual transfer from developed to developing countries by 2020, which was only met in 2022. Few studies have questioned this claim of meeting the goal in 2022 and said money flowing for other purposes were also counted as climate finance. Highlighting these claims, the negotiators asked for a clear and transparent mechanism that can track and account flow of climate finance.
Banner image: A demand for climate finance at COP29 from the developing countries. Image by IISD-ENB | Mike Muzurakis.
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