Helping nations meet climate goals

COP29 was held in Baku, Azerbaijan, where 200 countries discussed climate finance and the widening adaptation finance gap. With climate action high on the agenda, the talks focused on key avenues for finance mobilisation: the New Collective Quantified Goal (NCQG) and Article 6.

Leveraged together, both hold the potential to eradicate not only the fiscal restrictions which hold back countries from achieving their climate and development goals, but also offer adaptation co-benefits through Article 6 and carbon markets. The NCQG builds upon the previous commitment set in 2009 to mobilise $100 billion each year. Until 2022, developed countries failed to meet this. This commitment was fulfilled two years later.

To further mobilise climate finance based on the floor set by this goal, the NCQG aims to unlock the much-needed climate finance for nations that are affected the most by the climate crisis, yet have done little to contribute to it.

According to reports, countries expect the NCQG to reach about a trillion dollars to be able to cope with the needs of developing countries. Signs of a deadlock were also visible as the United States and Europe expressed willingness to contribute only if other countries such as China and South Korea do so. Following close behind as one of the most important topics of COP29 and avenues for climate finance, is Article 6. Disagreements over Article 6 were the highlights of COP28 as negotiations among countries failed to reach a consensus on fundamental issues.

A lack of progress on Article 6 guidelines stalled efforts to utilise carbon markets as an avenue for climate adaptation and mitigation.

While a possible consensus over Article 6 and the NCQG will be a step forward in the fight against climate change, it is worth discussing the necessity of both avenues in enabling developing countries to attain adaptation and climate resilience goals, while pursuing emissions mitigation. The annual cost of fighting climate change, protecting biodiversity, and cutting pollution in 48 developing economies is projected to be nearly $5.5 trillion from 2023 to 2030. These countries are already plagued with numerous development challenges such as economic fragility.

To meet the adaptation needs of developing countries and scale up climate finance, financial flows need to be diversified, optimised and amplified. To do so, carbon market projects offer the opportunity to generate the much-needed revenue that grants, loans and other avenues may not be able to offer, without the threat of debt and uncertainty. Carbon markets also lead to climate adaptation and resilience as they unlock a plethora of co-benefits in the form of environmental regeneration, improved health, green employment and more.

The approval of Article 6.4 mechanism and the launch of global carbon markets pave the way for countries to trade carbon emission reductions and achieve climate goals while ensuring climate adaptation. Pakistan is one of the countries which has witnessed insurmountable damage due to the climate crisis as it interlinks with the pre-existing challenges. The country grapples with economic crises such as flaring inflation rates, slow growth, extreme poverty and a staggering debt.

In 2022, the country faced disastrous floods, which inflicted an economic loss of $30 billion. Already reeling from the fiscal burden of the 2010 and 2011 floods due to borrowing of $20-40 billion, which translated into annual interest payments of between $1.6 billion and $3.1 billion, the country was left with no choice but to retreat into the debt cycle once more. To cope with the floods, $10 billion was pledged by donors, but 90% of these funds are loans, which have increased the country's debt. Pakistan's fiscal vulnerability has far exceeded its ability to adapt as the World Bank estimates that it needs $348 billion from 2023 to 2030 to meet its climate and development needs, an amount which equates to 10.7% of the cumulative GDP for the same period.

To work towards its climate and development needs while dealing with the fiscal crisis, Pakistan has taken a number of steps, especially the mobilisation of Article 6. It is motivated to harness the opportunities offered by some of the key challenges it experiences and pave the way towards adaptation and sustainable development, which does not hold the danger of debt. Building upon the pivotal success of the Delta-Blue Carbon project in Sindh, Pakistan's first carbon market project, which has reinvigorated environmental regeneration and socio-economic upliftment, the country is eager to mobilise climate finance and develop ground-breaking projects across various sectors including, energy, transport, agriculture and more.

"Pakistan has a high potential for Article 6 action in a number of sectors," says Axel Michaelowa, Senior Founding Partner, Perspective. "In order to attract ITMO buyers, a transparent and effective Article 6 framework will be crucial. With the framework laid out at COP29, Pakistan could become an Article 6 leader in the South Asian context."

One of the key challenges it faces is ensuring sustainable and managed urbanisation. The country faces a waste management crisis, generating 49.6 million tons of solid waste annually. Only 60% is collected while 40% is left undisposed in the environment.

Pakistan has the highest rate of urbanisation in South Asia, with the overall population estimated to go above 400 million by 2050. Carbon market projects can be utilised to improve waste management and infrastructure by adopting low-emission technologies and energy efficiency measures such as waste-to-energy (WtE) technology. Such practices not only mitigate emissions, but improve adaptation by ensuring adequate urban services, employment opportunities and improved air quality. The country's main cities are often termed as unlivable and frequently rank as the top most polluted cities globally due to extreme air pollution and smog. Currently, Lahore's air quality is categorised as hazardous, with schools shut and life on hold as stepping outside poses life-threatening impacts.

This crisis presents an opportunity that can be harnessed to adopt sustainable practices across emissions-intensive sectors such as transport and agriculture. Low-emission and clean technologies can be utilised to drive the transition to green operations, especially among emissions-intensive sectors such as the industry and transport. Additionally, carbon market projects focusing on environmental regeneration can contribute towards building its disaster risk and environmental resilience. Pakistan has one of the highest disaster risk levels standing at 18 out of 191 countries on the Inform Risk Index and an annual deforestation rate of 2%.

Pakistan also has the second highest rate of deforestation in Asia, depriving the country of natural carbon sequestration and environmental resilience. Carbon market projects focused on nature-based solutions (NbS) include interventions such as conservation and regeneration, often in collaboration with local communities, inculcating inclusion and generating revenue.

NbS also holds the potential to create about 20 million green jobs. Hence, carbon market projects can lead to numerous benefits for a developing country like Pakistan. For Pakistan, and fellow developing countries, Article 6 offers a viable path to adaptation finance that may bridge the fiscal gap, which hinders climate action. With the planned launch of its Policy Guideline for Trading in Carbon Markets after approval, the country has prepared itself for further action and collaboration. "The regulatory environment in a country is an increasingly important factor for project developers and investors seeking to develop or finance projects through the carbon market," said Hugh Salway, Senior Director of Market Development and Partnership at Gold Standard.

"Clear and comprehensive policy guidelines can provide confidence for the private sector, and at the same time ensure market action aligns with national goals."

THE WRITER IS A CLIMATE FINANCE AND CARBON MARKET PROFESSIONAL, PASSIONATE ABOUT CLIMATE CHANGE