Climate finance: a complex puzzle at COP29

Conference to prioritise establishing concrete frameworks for climate finance, developing carbon markets, damage funds

The 29th World Climate Conference (COP29), taking place in Baku, Azerbaijan, from 11th to 22nd November, aims to assess global progress on the Paris Agreement and accelerate efforts to limit global temperature rise to 1.5 degrees Celsius. This year's conference will prioritise establishing concrete frameworks for climate finance, developing carbon markets, operationalising the Loss and Damage Fund, and prioritising adaptation efforts. As COP29 approaches, climate finance remains a central focus, with debates on creating a transparent funding mechanism for vulnerable countries and the emerging concept of New Collective Quantified Goals (NCQG) aimed at ensuring measurable climate action.

The 2009 Copenhagen Accord led to the creation of the Green Climate Fund (GCF) which, despite a $100 billion annual commitment, has only disbursed $15 billion to developing countries. Although the GCF was originally slated to be fully operational by 2020, it could have reached its initial funding goal by 2022. However, its project selection criteria and financing priorities remain opaque, hindering access for countries like Pakistan, which has secured so far only eight projects totaling $258 million. Many developed nations are reluctant to contribute fully to the GCF, preferring to provide direct funding to civil society and private sector organisations. The GCF's 24-member board evaluates projects based on their alignment with GCF objectives, but the mixed application of both quantified and qualitative terms can create challenges in determining project success and effective fund utilisation. A standardised and transparent assessment framework is crucial to ensure that GCF-funded projects deliver tangible results.

Centralisation of climate finance under one umbrella presents a significant hurdle. The lack of clarity regarding the nature of funding amounts and the diversity of financing mechanisms - loans, grants concessions - make it difficult to track total contributions to vulnerable countries. Consequently, the GCF, founded with the intention of addressing climate change as outlined in the Copenhagen Accord, has struggled to meet its ambitious funding goals. After 15 years of establishment, the GCF has only distributed only once a fraction of its intended $100 billion per year, indicating that bureaucratic complexities and resistance from various stakeholders have impeded its progress.

Many least developed countries (LDCs) prioritise grant-based financing to avoid debt burdens. This preference often leads to competition among projects seeking grants, while donors may favour a mix of grants, loans and concessions. To address this, a clear mechanism for determining the appropriate financing mode for each project is essential and should be incorporated into the NCQG. If adopted at COP29 with a robust framework and universal support from Paris Agreement signatories, the agreement could significantly advance our progress toward net-zero by 2050.

Countries like China, India and Brazil face a unique challenge as being major emitters and vulnerable to climate change simultaneously. While they have the right to offset their emissions by financing their own adaptation efforts, it's unclear how climate finance mechanisms will address this. The principle of additionality ensures that funds support new and additional climate actions that would not have occurred without the funding. Some countries may attempt to claim their regular climate budgets as contributions to their adaptation projects, violating this principle. To safeguard the integrity of climate finance, strict adherence to the additionality principle is essential.

Project selection criteria for mitigation and adaptation funding also raises concerns. While mitigation projects can be evaluated based on greenhouse gas reductions, assessing the effectiveness of adaptation projects is more complex. Traditional methods often rely on post-disaster assessments, which are impractical and inadequate. A clear criterion should be established to prioritise funding for adaptation projects in highly vulnerable countries like Pakistan. While mitigation projects are essential, adaptation is often more urgent for countries facing immediate climate risks.

However, it's been observed that some countries, despite being low emitters, have received funding for mitigation projects while remaining vulnerable to climate disasters. This discrepancy highlights the need for a more equitable and needs-based approach to project allocation. Poor governance in many developing countries further complicates climate finance efforts. Government capacity limitations often necessitate collaboration with civil society, development organisations and the private sector. However, trust deficits and bureaucratic hurdles can hinder these partnerships.

It is being noticed that some fast-developing countries are funding vulnerable communities directly. While grants to small organisations can support climate awareness, governments should channel climate finance to effective civil society organisations for grassroots action. A positive trend is the growing support for community organisations with transparent fund management. In Pakistan, numerous community organisations and climate startups have successfully utilised small climate grants from Southeast Asian donor countries. This model should be expanded to other developing countries to empower grassroots organisations and build climate resilience.

Given the shortcomings of the current climate finance mechanisms, the call for the New NCQG at COP29 is timely. However, a comprehensive set of rules must accompany it to ensure that all vulnerable countries receive their fair share of climate financing without unnecessary obstacles. The NCQG could provide a more flexible approach for developed nations, allowing them to directly fund projects in countries of their choice, whether government-led or privately run. This increased autonomy could incentivise greater funding contributions. The degree of discretion donors will have in identifying the most effective organisations to utilise their climate finance in the most vulnerable developing world is yet to be determined.

By requiring annual reports from all countries detailing their climate finance contributions and utilisation, the NCQG would facilitate transparent monitoring and evaluation of progress toward net-zero goals. Addressing ambiguities at this stage will streamline the process of assessing annual progress and ensuring that we stay on track to halve global GHG emissions by 2030 and build a climate-resilient world. Achieving the mid-term goal of halving greenhouse gas emissions and safeguarding developing countries from climate disasters will significantly ease the pursuit of net-zero emissions.