Observations from the NCQG negotiations

by Clara Ida Bartram Gurresø 

This year’s UNFCCC session in Bonn, SB60, concluded recently and climate finance was a prominent item in the discussions. Parties are expected to agree on a New Collective Quantified Goal on climate finance (NCQG) at COP29 in Azerbaijan in November, and with just six months to go the deliberations are intensifying.

The NCQG process started in 2022 and has three tiers: the Technical Expert Dialogues (TEDs) for Parties and Non-Party stakeholders (read blog post on TED3), high-level ministerial dialogues, and the Ad Hoc Work Programme (AHWP). The AHWP refers to the technical negotiations between Parties and consists of three meetings, all scheduled in 2024. The purpose of the meetings is to develop a draft text that can form the basis for the upcoming NCQG negotiations at COP29. Based on my observations during the first week of SB60, I here offer some insights into the current status of the negotiations on the NCQG, including common ground and divisive issues.

Shortcomings of the $100 billion goal

To understand the deliberations on the new climate finance goal, we first have to understand current climate finance mobilisation efforts and their shortcomings. At COP15 in 2009, Parties agreed that developed countries would mobilise USD100 billion per year by 2020 from public and private sources. The finance should be “new and additional” to development aid and “balanced” between adaptation and mitigation. At COP21 in 2015, Parties agreed to extend this goal until 2025, by when they should agree on a new annual goal from the floor of USD100 billion. Just ahead of SB60, OECD published their newest report on global climate finance mobilisation efforts. The report shows that developed countries met their target of mobilising USD100 billion per year in 2022, two years later than they committed to. However, in addition to the delay in meeting the overall target, developing countries and civil society have criticised mobilisation efforts firstly for not meeting the agreed objectives and secondly for over-reporting on actual mobilisation.

Firstly, mobilised climate finance is criticised for not living up to the objectives of being “balanced” and “new and additional”. Despite the aim for a balanced allocation, most of the climate finance has gone to mitigation projects. This is partly because mitigation projects are more bankable and therefore better able to attract private investments. It may also be due to the universal benefits of mitigation projects, as lowering emissions in developing countries also reduces climate change impacts in developed countries. This is in contrast to adaptation projects, which only benefit the communities and regions in which they are implemented. Regarding the additionality of climate finance, reports from Oxfam and CARE show a stagnation in development aid levels since the introduction of climate finance. This suggests that climate finance is not indeed “new and additional”, but rather development aid being relabelled as climate finance.

The second category of criticism concerns how climate finance is accounted, with critics arguing that actual climate finance mobilisation may be much lower than what is reported. Climate finance is self-reported by donors and another report CARE indicates that they routinely exaggerate the climate-related share of their projects. Furthermore, the Rio marker methodology, used by OECD donor countries to label their aid contributions, allows for double and even triple counting of climate finance contributions. There are also disagreements over what financial instruments should count as climate finance. Currently, a significant share of reported climate finance consists of concessional and non-concessional loans, which are counted at their face value. Such loans add to the debt-burden of already heavily indebted developing countries. Finally, the world has experienced a high rate of economic inflation in the past few years, which is not considered in the USD100 billion target.

In addition to the shortcomings described above, global temperatures continue to rise, thus increasing developing countries’ need for financial assistance to address climate change impacts. Against this background, Parties are now trying to agree on a new climate finance target.  

NCQG – common ground and sticking points

While Parties seem to share some common ground, they remain deeply divided on several issues. In the following section, I briefly discuss some of the most prominent issues that emerged during negotiations at SB60 and offer some reflections on what may be behind the disagreements.

Common ground

1. More ambitious target: All Parties agree that USD100 billion per year is insufficient to meet the needs of developing countries. We will need a higher quantum target to support ambitious climate action – but views differ on how much is needed and how to reach it.
2. Onion layered structure: There is also agreement among Parties that the NCQG should have a so-called onion layered structure, which has public finance at the core surrounded by different layers of qualitative and quantitative sub goals. For example, several Parties suggested including a quantitative sub goal for mitigation and adaptation to address the current imbalance in thematic allocation.

Divisive issues

1. Quality of finance: Developing countries demand more grants-based finance and that there should be no role for non-concessional loans. Particularly SIDS and Latin American countries have been vocal about this demand since many of them have vulnerable economies and struggle with indebtedness. Developed countries have been rather quiet on this topic in official negotiations, but their standpoint seems to be that loans should at least be accepted for mitigation projects or recipient countries with a certain level of economic development.
2. Quantum: A major issue in the negotiations is the question of how much finance should be mobilised. At SB60, developing countries proposed $1.3 trillion per year of public finance from developed countries. The developed countries on the other hand insisted that they will not engage in concrete discussions on the quantum without first discussing who will be responsible for contributing to the mobilisation efforts, which brings us to the next issue;
   Quantum: A major issue in the negotiations is the question of how much finance should be mobilised. At SB60, developing countries proposed $1.3 trillion per year of public finance from developed countries. The developed countries on the other hand insisted that they will not engage in concrete discussions on the quantum without first discussing who will be responsible for contributing to the mobilisation efforts, which brings us to the next issue;
3. Contributor base: The Convention from 1992 states that developed countries are responsible for providing financial assistance to developing countries, an objective which was repeated in the Paris Agreement in 2015. Of course, the economic conditions in developing countries have changed since the Convention was first adopted. Some countries, such as China and Saudi Arabia, have experienced rapid industrialisation and economic growth in recent decades and become significant contributors of greenhouse gas emissions. Developed countries therefore want to broaden the contributor base in the NCQG to include developing countries with the economic abilities to contribute. During SB60, developed countries framed this demand using language of fair burden sharing and positioning it as a solution to achieve a higher quantum. Developing countries are strongly opposed to this demand, which they argue is against the agreed principles of the Convention and the Paris Agreement. They highlighted that they already spend a high amount of domestic resources dealing with a problem that they did not create; obligations to contribute to official climate finance would therefore be a double punishment. Tied to this, there is a view among many developing countries that climate finance is a form of compensation that is owed to them by developed countries, who are responsible for the lion’s share of historical greenhouse gas emissions.
4. Link to article 2.1(c): Article 2.1(c) of the Paris Agreement states that Parties should aim to make “finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development”. This speaks to the broader global economic flows beyond climate finance, such as trade and investments. Developed countries would like a strong role for private finance in the NCQG, and a link to article 2.1.(c) could create the hook that they need. The prominent argument for including a link to article 2.1.(c) is that without private finance the international community will be unable to mobilise finance at the scale that is needed to meet developing countries’ needs. Meanwhile, developing countries worry that article 2.1(c) can draw focus away from the responsibility of developed countries to provide public funds.
5. Sub goals: Finally, there are discussions over which sub goals should be included in the onion-layered structure. The NCQG builds on the USD100 billion goal, which only includes finance for mitigation and adaptation. In the years since the adoption of the USD100 billion goal, Loss and Damage was recognised as a third pillar of the international climate regime and Parties agreed to establish a dedicated Loss and Damage fund. Developing countries are therefore calling for a sub goal on Loss and Damage to be included in the NCQG, which would ensure greater access and predictability of Loss and Damage finance. If Parties agree to this, they will have to ensure that the overall quantum is sufficiently high, otherwise it could result in less finance being available for mitigation and adaptation.

The road ahead

The NCQG negotiations at SB60 reflected deep divisions between developed and developing countries on several issues, such as the quantum, contributor base, private finance and sub goals. These issues will require significant compromises if Parties are to agree on a new target at COP29.

To deliver climate justice and achieve the mitigation and adaptation targets in the Paris Agreement, the new quantum must respond to the needs of developing countries, which will be in the trillions. A large share of this must be delivered through public finance from developed countries to ensure predictability and transparency. While public grants must form the core of the NCQG, we will undoubtedly need private finance too to meet the needs of developing countries. However, the NCQG should acknowledge that some of the poorest and most vulnerable countries do not have equal access to private markets. Additionally, Parties must agree on a definition of climate finance that excludes non-concessional loans and emphasises grants, particularly for adaptation and Loss and Damage. All of this could be achieved through sub goals that detail the appropriate use of financial instruments according to thematic area and the economic circumstances of the recipient country.

Agreeing on a definition will not be sufficient on its own, the accounting system for reporting climate finance must also be improved to avoid overreporting and mislabelling of funds. A strict definition of climate finance is superfluous as long as the accounting system is flawed. Furthermore, in addition to committing to a higher quantum, developed countries must step up and actually deliver on their commitments. Predictability of funds is important both for mitigation and adaptation planning in developing countries and for restoring developing countries’ trust in the UNFCCC process.  

image source: https://www.flickr.com/photos/unfccc/53784234426/in/album-72177720317237751/