Carbon markets are a go but trillions at stake: Will ‘climate finance COP’ deliver the goods at the eleventh hour?

Given the trillion-dollar gap between the Global South’s demands and the Global North’s proposal for a new climate finance target, the 29th Conference of the Parties (COP29) has run into overtime in one last attempt at bridging the divide and finding common ground all parties can get behind. The calls for the Global North to pay up for climate damages have reached a crescendo.

Key takeaways

• COP29 runs into overtime
• Climate finance target gap: $1.3 trillion vs. $250 billion
• Proposed uplift from $250 billion to $300 billion brings further opposition
• Global South urges Global North to pay up for climate damages
• COP29 unlocks carbon markets
• Loss and Damage Fund’s total pledged financial support over $730 million

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With high expectations placed upon its shoulders, COP29 was anticipated to put in place a new global climate finance target in line with the Paris Agreement and assist vulnerable countries, primarily in the Global South, in coming to grips with climate change challenges while stepping up the worldwide switch to clean energy.

Azerbaijan got picked as the home to this year’s COP edition and tasked with the high-stakes climate finance negotiations in Baku, which were expected to be finished on Friday, November 22, with global leaders from almost 200 countries agreeing on a new finance target to pave the way for the achievement of Paris Agreement goals.

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In the aftermath of another year besieged with unprecedented heatwaves, devastating floods, and hurricanes, optimism and caution warred as the UN climate negotiations began at COP29 on Monday, November 11, with developing nations determined to secure the financial boost needed to tackle climate woes.

An undercover operation conducted by Global Witness dived into COPs, including the latest one in Baku and their link to what the NGO labeled as a ‘sinister’ petrostate playbook. Based on the organization’s findings, 1,773 fossil fuel lobbyists were identified at COP29, mostly as part of individual countries and trade associations’ delegations.

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In light of the target to secure not just mere millions or even billions but trillions required to foot the climate bill to help vulnerable countries tackle climate challenges, reaching an agreement on the final text was seen by many as a tall order from the start, with some even claiming it was doomed to fail from the word go, as its aspirations were too ambitious for the current state of affairs in the world.

Those justify their views by highlighting the financial drain even the most developed and wealthiest nations have borne due to the ongoing geopolitical issues, wars, and economic woes the world at large has been suffering as a result of the COVID-19 pandemic, the Ukraine and energy security crises, alongside the ongoing Israel-Gaza conflict, the Red Sea perils, and inflation, which is making it difficult for people across the globe to feed their families and keep the lights on.

Meanwhile, Loss and Damage Collaboration (L&DC), a non-government and non-profit organization made up of a global network of over 200 decision-makers, researchers, lawyers, activists, and artists working to support those affected by loss and damage from the climate crisis, has presented its take on how developed countries, which in its view caused the climate crisis, can gather the funds needed to “pay their climate debt under the new collective quantified goal on climate finance (NCQG).”

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Mohamed Adow, Director of Energy and Climate think tank Power Shift Africa and Climate Justice Advocate, emphasized: “The proposed $250 billion in the latest COP29 text us a 30% reduction in real terms from the $100 billion promised in 2009. Inflation not only makes life ever more expensive for people across the world, but it also allows rich countries to hide the real value of their distant promises. The reality of the 250 billion commitment for 2035 is that not only is it a fifth of the 1.3 trillion that developing countries need, it is a 30% reduction from the $100 bn that was promised in 2009 in real terms (when inflation of 5% is taken into account).

“So rich countries promised a wholly insufficient amount in 2009, failed to fulfil that promise for 15 years, and now are kicking the can down the road by delaying real targets for another 10 years, all while decreasing the real value of their initial commitment by 30% by the time we get there. This truly is the great escape from responsibility for the rich. $100 billion in 2009 couldn’t even buy the global south the coffins we would need for the climate trajectory the rich countries had locked us into. $250 billion in 2035 will buy us even less.”

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Nevertheless, the ambition to get countries to commit to a significantly higher amount as they establish a new collective quantified goal on climate finance garnered COP29, the label of a ‘climate finance COP,’ which has made inroads in certain areas.

One of these highlights came at the start of COP29 with the breakthrough in adopting Article 6 of the Paris Agreement, which was announced on the very first day of climate talks in Baku, setting the stage for the preparations of a UN-backed global carbon market to enable the trading of carbon credits, as an incentive for countries around the globe to curtail their greenhouse gas (GHG) emissions and spend money on net zero projects.

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Moreover, the leaders in Baku reached an agreement on transparency standards for carbon markets, while almost 50 countries signed the COP29 Declaration on Water for Climate Action to address water scarcity.

In addition, a new COP29 declaration was developed with the Climate and Clean Air Coalition (CCAC) to address methane, which is perceived to be the second-largest contributor to global warming, alongside decarbonizing economies to slow climate change.

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While all the achievements were seen as steps in the right direction, the focus remained on climate finance throughout the COP, with $1.3 trillion said to be needed annually by 2035 for developing nations to meet Paris Agreement goals.

While it was still too early to speculate on how much would be achieved at COP29, Offshore Energy accurately predicted on Monday that the outcome would most likely remain elusive until some last-minute arm-twisting and a carrot-and-stick approach got applied as part of shuttle diplomacy behind closed doors, just like last year.

However, things are not the same in 2024, as the main Global North powers, which exercised shuttle diplomacy last year, are now said to be the ones dragging their feet on accepting the ambitious climate finance target, as they claim there are no available coiffeurs from which they can dish out these large sums of money. Such claims have spurred outrage while creating a sense of impending climate doom among environmental activists, organizations, and climate action-championing politicians.

Many of these – aside from their worries and predictions over the climate implications the return of the former U.S. president, Donald Trump, to the White House will have on the global climate agenda – are now also dreading the consequences of a lesser deal being accepted at COP29 as they claim it will further inflame the damage, urging the wealthy nations to pick up the tab and take responsibility for the climate crisis they helped create.

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The saga over the new climate finance goal has been ongoing for some time, with things coming to a head following a draft finance deal delivered to negotiators on the last day designated for the two-week-long UN climate talks.

The proposed solution, drafted by Azerbaijan’s COP29 Presidency, would have committed the wealthy nations to spend $250 billion per year on assisting the vulnerable countries to cope with the climate change woes, bolstering the global shift to green energy.

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While introducing the draft proposal, COP29 Presidency underlined: “Throughout the year, the COP29 Presidency has been pushing for a fair and ambitious new climate finance goal, taking into account the needs and priorities of developing country Parties. We conducted an extensive and inclusive consultation process that extended into the early hours of the morning.

“We gave all groups the opportunity to react to the package of texts we released yesterday morning and we thank them for their constructive engagement. Taking into account the views expressed during the consultations, and what we heard from Parties at yesterday’s Qurultay, we have now published updated texts. These texts form a balanced and streamlined package for COP29. The COP29 Presidency urges Parties to study this text intently, to pave the way towards consensus, on the few options remaining.”

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The draft related to the new collective quantified goal contained a call for all participants to work together to scale up financing to developing countries for climate action from all public and private sources to at least $1.3 trillion per year by 2035, including a decision to expand the goal of jointly mobilizing $100 billion per year to $250 billion by 2035 with developed countries taking the lead in climate action. 

“We will further engage with Parties to collectively agree final adjustments to the few outstanding yet important issues. We will continue to work hard, inclusively and transparently, to press all sides for the highest ambition outcome possible,” emphasized the COP29 Presidency.

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Loss and Damage Collaboration is urging developing countries to keep pushing for a text that meets their needs while sending a message to developed countries to urge them to stop blocking climate action and meet their obligations under the UNFCCC and its Paris Agreement, adding that it was time for them to pay their climate debt.

Countless others echoed the same message, including Jacobo Ocharan from Climate Action Network (CAN), who underscored: “We urge all developing countries to have courage in the negotiations and keep pushing. This deal is terrible. We are stating that no deal is better than a bad deal.”

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As pointed out by the UN, the draft outcome text, which extended the round of talks into the weekend, did not shed any light on the way the funds would be raised, such as grants, loans, or from the private sector, even though, had it been approved, it would have replaced the existing $100 billion goal which will expire in 2025.

Commenting on the proposed draft, Evans Njewa (Malawi), Chair of the Least Developed Countries (LDC) Group at UN Climate Change negotiations, noted: “Alarming! The new COP29 draft text falls short. $250 billion waters down existing commitments, neglecting special needs of LDCs & SIDS. For us, already on the frontline of climate devastation, this text is unworkable.”

Nearly 200 delegations at COP29 still had things to hammer out, encompassing the details surrounding the role of developed countries in funding their undeveloped peers’ net zero journey, and global goal on a just transition, especially since COP28 ended with a call to transition away from all fossil fuels, and a roadmap on adaptation and mitigation.

While pinpointing that external finance from all sources will need to rise to the challenge to cover $1 trillion per year of the total net zero investment by 2030 and around $1.3 trillion by 2035, the Independent High Level Expert Group on Climate Finance (IHLEG) calculated the global investment for climate action at around $6.3–6.7 trillion per year by 2030.

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This means that advanced economies need to splash out $2.7–2.8 trillion in the energy transition journey during the period, China is required to invest $1.3-$1.4 trillion, and other emerging market and developing countries (EMDCs) need $2.3–2.5 trillion.

IHLEG’s figures for 2035 are even higher, highlighting that global investment requirements for climate action need to be around $7–8.1 trillion per year, with advanced economies needing $2.6–3.1 trillion, China $1.3–1.5 trillion, and other EMDCs requiring $3.1–3.5 trillion.

In line with climate experts’ views about the need for the annual funding goal to be between $1 trillion and $1.3 trillion to help vulnerable nations deal with loss and damage from climate change and adapt to it, by, among other things, creating their clean energy systems, multilateral development banks revealed a significant boost in climate finance for low- and middle-income countries.

This is expected to reach $120 billion a year by 2030, with another $65 billion mobilized from the private sector, with a natural projection that will increase these values for 2035.

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Given the outcries and swift rejection of the proposed draft of the new climate finance goal from civil society, climate and environment advocates, and delegates from the Global South, Brandon Wu, Director of Policy & Campaigns at ActionAid USA, said: “Parties are negotiating on COP29 NCGQ text, for some reason now open to observers. Draft has additional stuff for LDCs/SIDS, increase to $300 bn, weak recall of PA Article 9, tripling of flows to various multilateral funds by 2035. Does not adequately address our core concerns.”

Afterward, Wu explained that the new text he was referring to was “a leaked draft,” not an official text, emphasizing that his main point was still relevant given Article 9 and the legal obligation that “developed countries shall provide” climate finance, which he described as “a key point of contention.”

The “leaked draft,” which reportedly came from the U.S., the European Union (EU), and other wealthy nations as an attempt to end the stalemate and come to an agreement on the final text of COP29, sparked environmentalists’ ire further, fanning the flames of their dissatisfaction.

This prompted the Chair of the Least Developed Countries (LDC) Group and the Alliance of Small Island States (AOSIS), currently chaired by Samoa, to “temporarily” walk out of negations on the NCQG, having rejected the proposed text for its lack of ambition and its failure to include key demands from the groups.

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In response to the events unfolding at COP29, the Pacific Islands Climate Action Network (PICAN), remarked: “COP29 was supposed to provide the climate finance needed to unlock the ambition of the all-important NDC submissions due next year! If this COP fails to deliver on finance, we may see this reverberate throughout the UNFCCC processes for years to come—putting 1.5C beyond reach.”

Nikki Reisch, Director of Climate & Energy at Center for International Environmental Law (CIEL), who claims to be dedicated to fighting oil and gas, fossil finance, and false solutions to advance human rights and climate justice, underscored the inadequacy of the text for the NCQG by saying: “A bigger number is just a bigger empty promise without recognition and fulfillment of the legal obligation of the Global North to provide public financing to the Global South for the climate action that is necessary to protect a livable future for all of us.”

With negotiations continuing into the night on the climate finance goal at COP29, 335 civil society organizations wrote letters to developed countries and the G77+ China, to encourage them to reject the deal, stating: “The collective civil society constituencies and members present at COP29, and with broader global civil society behind us, wholeheartedly support you in rejecting the current negotiating text.” These organizations also underscored: “No deal in Baku is better than a bad deal, and this is a very, very bad deal because of the intransigence of developed countries.”

Another letter, which was delivered to the United States, European Union, UK, Canada, Japan, and other developed countries from 156 organizations and received by Trigg Talley, Special Presidential Envoy for Climate and Director of Climate Negotiations and Programs, U.S. Department of State, expressed the outrage civil society was feeling toward these developed countries’ “destructive role in creating an absolutely unacceptable NCQG draft negotiating text,” based on the letter.

The organizations urged developed countries to take “the lead in transitioning from fossil fuels and providing public funding and technology to developing countries” while reminding them of their obligations and commitments under the Paris Agreement and Climate Convention.

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If this COP ends with a weak or nonexistent outcome, the letter said, developed countries will be the ones to blame, as confirmed by CAN. After opening the plenary on Saturday evening, November 23, Mukhtar Babaye, COP29 President, underlined that no one wanted to leave Baku without a deal.

The work on the 2024 review of the Warsaw International Mechanism (WIM) for Loss and Damage and the consideration of the joint annual report of its executive committee and the Santiago Network will continue next year at the Bonn Climate Conference in June 2025.

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The blame game for the stalemate on the new collective quantified goal on climate finance was in full swing, as parties kept tossing the imaginary ball back and forth on why no compromise was being reached.

“We are not blocking anything,” said LDC Chair, pointing the finger at developed countries as the ones to blame for blocking progress on the NCQG.

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“We need to save our people,” elaborated the LDC Chair, adding: “We are saving over 100 billion people in 45 different countries and we need to get an ambitious deal on climate finance in Baku. To support climate action, to help move people out of poverty, get food security and nutrition. We have agreed on language which we have given to the COP president for consideration. Let’s see if we get what we need.”

COP29 Presidency confirmed a decision was made to ensure the full operationalization of the long-awaited Loss and Damage Fund, which developing countries, including small island states, least developed countries, and African nations were calling for.

Described as a “historic decision in Baku,” the full operationalization of the Loss and Damage Fund is said to be in line with the priority set by Ilham Aliyev, Azerbaijan’s President, to address the challenges posed by climate change impacts on small island states under the COP29 Presidency.

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Originally agreed at COP27 in Egypt, the fund aims to provide financial assistance to countries most exposed to climate change impacts. After a decision was made to launch the fund’s operations during COP28 in the United Arab Emirates, the COP29 Presidency claims it took “significant steps” to ensure the fund’s operationalization, working closely with its board and the World Bank to make this happen.

In September 2024, Ibrahima Cheikh Diong was appointed as the fund’s Executive Director. COP29 brought several agreements related to the Loss and Damage Fund, including the trustee agreement and the secretariat hosting one between the fund’s board and the World Bank, as well as the host country agreement between the fund and the Philippines.

COP29 Presidency has confirmed the total pledged financial support for the fund at over $730 million to date, which together with recent activities is anticipated to allow the fund to start financing projects in 2025.

Meanwhile, the COP29 Presidency announced a breakthrough in the “longstanding multilateral negotiations stalemate” to unlock international carbon markets under Article 6 of the Paris Agreement, which is perceived to have the potential to save as much as $250 billion per year in the national climate plans’ implementation, providing for “high-quality and transparent carbon markets through which countries and companies can work together to meet their climate goals.”

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Babayev stated: “We have ended a decade-long wait and unlocked a critical tool for keeping 1.5 degrees in reach. Climate change is a transnational challenge and Article 6 will enable transnational solutions. Because the atmosphere does not care where emissions savings are made.”

While discussing the achievement, the COP29 Presidency underlines it was one of its top priorities for the year, thus, it dedicated its efforts to driving other participants through “intensive dual-track technical and political negotiations, breaking through years of stalemate,” and finalizing, what it deems to be, the last outstanding item in the Paris Agreement. 

COP29 Presidency concluded: “Article 6 provides trusted and transparent carbon markets for countries as they collaborate to reach their climate goals. This cross-border cooperation is expected to reduce the cost of implementing countries’ national climate plans (NDCs) by up to $250 billion per year. The COP29 Presidency encourages parties to reinvest these savings in even greater climate ambition.

“The next generation of NDCs, due in February, are make-or-break for the world’s hopes of keeping 1.5 degrees within reach. Today’s milestone has been reached just in time to aid countries in committing to more ambition in their climate plans.”

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The Glasgow and Sharm El-Sheikh COPs set the foundation stones and established rules, modalities, and procedures for carbon markets, but the final building blocks of Article 6 remained unresolved before COP29, thus, negotiations stalled, leading to what is deemed to be a costly delay in the full functioning of the pathway to greater international climate collaboration.

Yalchin Rafiyev, COP29 Lead Negotiator, commented: “Today, we have unlocked one of the most complex and technical challenges in climate diplomacy. Article 6 is hard to understand, but its impacts will be clear in our everyday lives. It means coal plants decommissioned, wind farms built and forests planted. It means a new wave of investment in the developing world.”

According to the COP29 Presidency, the adoption of these decisions does not mark the end of their evolution, since the Article 6 rulebook can be continuously adjusted, as the COP parties acquire more knowledge.

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In the meantime, negotiations continue as developing nations turn up the heat on developed countries to push them into agreeing to pay at least $1.3 trillion a year in a bid to secure the estimated trillions needed to power the energy transition to pave the way for a much-anticipated net zero and sustainable energy future.

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It is still unclear whether COP29 in Azerbaijan will unlock trillions required to pay the net zero bill while tightening the reins to pull the plug on coal, oil, and natural gas growth by embarking on massive fossil fuels phase-out, enabling climate activists to win this year’s round of high-stakes energy game, or whether the outcome will favor Big Oil.

The activists did not miss this chance to call for a fossil fuel phase-out, chanting that coal, oil, and gas should be kept in the ground.

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