Negotiators dig in for fierce climate cash struggle

Hello from Azerbaijan’s capital of Baku, where the UN’s COP29 climate summit has just kicked off.

For months, some have been talking about this as a “placeholder COP”, before the big event of COP30 next year in Brazil. That’s about right — if you see these conferences as a green-hued version of Davos, a vast networking event with lots of business celebrities in attendance. The turnout of corporate executives will clearly be much lower than at last year’s huge, slickly managed extravaganza in Dubai.

But the actual negotiations in Baku will make this one of the most important, and fiercely contested, UN summits to date, as I outline below. With Donald Trump’s re-election throwing new doubt over the outlook for global climate action, this promises to be a fascinating, crucial couple of weeks. We’ll keep you updated on every twist and turn. — Simon Mundy

COP29 in brief

• This year is on track to be the hottest on record, the World Meteorological Organisation said.

• Climate activist Greta Thunberg said she would not attend COP29, saying the UN summits had become “greenwashing conferences” hosted by a series of “authoritarian regimes”.

• The chief executive of Azerbaijan’s COP29 team was secretly filmed discussing fossil fuel investments with a man posing as a potential investor.

Showdown in Baku

What do Singapore, Liechtenstein, Israel, Qatar and the United Arab Emirates have in common? All are among the world’s wealthiest nations, with per capita income well above the average for the OECD club of advanced economies. Yet none is technically a “developed country”, under the 32-year-old framework agreement that guides the annual UN negotiations on climate change.

In fairness to the negotiators who thrashed out the details of the UN Framework Convention on Climate Change in Rio de Janeiro, the balance of the world economy looked very different back in 1992. The in-principle agreement they reached then — identifying 25 parties who would be expected to provide climate-related financial support to developing nations — was a major achievement. But at this month’s climate summit in Baku, that framework is showing its age — driving tensions that are threatening to undermine global progress on tackling climate change.

The key subject up for discussion at COP29 is the so-called “New Collective Quantified Goal” (NCQG) — a concept enshrined in the 2015 Paris Agreement. Developed nations had already promised to mobilise $100bn a year in climate finance for developing countries by 2020. In Paris, they agreed to extend that commitment to 2025. Before 2025, the agreement stated, parties would agree a new, higher annual target for the years to follow.

That deadline means that COP29 must be the time and place where the NCQG is agreed. But as the conference begins, there are some huge differences to be resolved if parties are to reach a deal.

The EU and US are leading the charge to extend the group of contributors to international climate finance under the UN process.

The EU wants a deal that will call on “parties with high [greenhouse gas] emissions and economic capabilities [to] join the effort”, rather than only countries covered in the 1992 framework convention.

“It is . . . entirely fair to add new contributing parties given the ongoing evolution of economic realities and capabilities,” said the US in a recent position paper.

Brussels and Washington are both pushing for a two-layer goal, with a broad target for overall global investment towards climate action, as well as a specific target for “international provided and mobilised climate finance”.

But their suggestions have received strong pushback from other nations. For some large economies such as China, there is an incentive to resist changes that would tie them to new financial requirements. Some of the most vulnerable economies, meanwhile, are leery of anything that looks like a dilution of the financial expectations imposed on the rich nations under the UN convention (who already damaged trust by repeatedly failing to deliver on their previous $100bn pledge).

The resistance is seen most notably in a joint statement from the G77 group of developing countries and China. The paper argued that the categorisation of nations set out in the UN process was “a guiding principle for the whole climate change regime; it is therefore not negotiable”.

It also pushes back against the US and EU argument for an NCQG that includes all sources of finance. “NCQG must be delivered via provision of public finance in a grants-based or concessional manner,” the paper states, arguing that the new goal “must not include the domestic resources of developing countries”.

Whether China should be expected to provide international climate finance in this process is a matter for reasonable debate. It’s true that it’s now the world’s biggest carbon emitter, and second-biggest economy. It’s also true that it remains much poorer than OECD nations in per capita income terms ($12,600 in 2023), with cumulative per capita emissions roughly a fifth of the US level.

In any case, China’s alignment of itself in this struggle with the G77 is clearly a masterstroke of economic diplomacy, as well as a reflection of Beijing’s enormous clout with smaller developing nations. Separate statements from the African and Arab groups of nations also push back against the EU and US efforts to widen the pool of contributors. The stage is set for one of the toughest rounds of negotiations seen at any COP to date. (Simon Mundy)

Quote of the day 

In a speech at the COP29 opening ceremony, Simon Stiell, secretary-general of the UN Framework Convention on Climate Change, urged nations to raise their ambitions around climate finance and broader financial system reform:

Let’s dispense with the idea that climate finance is charity. An ambitious new climate finance goal is entirely in the self-interest of every single nation, including the largest and wealthiest.

Beyond COP29: The future of finance for US renewable energy companies

One of the biggest questions for clean energy investors after Donald Trump’s election victory is the fate of the US Energy Department’s loan programmes office. This programme offered $42.1bn in loans and loan guarantees to clean energy companies in fiscal year 2023, endearing it to Wall Street banks for taking some of the risk out of financing renewable energy projects.

The loan office has won special plaudits from mining companies for expanding support for the extraction of minerals such as lithium — an essential ingredient in the production of rechargeable batteries that are crucial to electric vehicle production. Just last month the programme finalised a $2.26bn loan — its largest-ever for EV materials — to Lithium Americas Corp, a Vancouver-based mining company with operations in Nevada. It will fund nearly $2bn of construction costs for the company’s Thacker Pass project in Nevada.

“The loan [announcement] removes the risk that the project does not enter construction,” Morningstar said in an October 29 research report. “With this risk substantially removed, we see the project moving forward through the various construction stages as catalysts for shares.”

As EV sales have slowed from their rapid growth a few years ago, one of the biggest issues is their affordability.

“The most expensive part of an EV is the battery,” said Andrew Timbers, a managing director at Goldman Sachs, which advised Lithium Americas on its DoE loan. The most expensive part of the battery is the cathode “and that’s where the lithium sits”, Timbers said. “Because lithium is so tied to EVs for lithium-ion batteries it does have an impact on this sector.”

Other companies have received similarly hefty support from the loan office. Gevo, a biofuels company, said in October it received a conditional $1.46bn loan guarantee to produce sustainable aviation fuel.

But with Trump soon to implant his own people throughout the federal government, there is a big question about how active the energy department’s loan office will be in the years ahead. (Patrick Temple-West)

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