Making sense of the COP29 outcome

Welcome back. If you’re struggling to understand what exactly happened at COP29, I don’t blame you. The UN climate summit in Baku involved a furious two-week negotiation over a new global finance goal, with a blizzard of competing proposals involving vast numbers.

Although the summit also reached an important agreement on international carbon trading, the so-called New Collective Quantified Goal was the key element of COP29. And while an agreement on the subject was formally approved, it was strongly criticised by developing nations. Below I explain why — and where things could go from here.

How to turn billions into trillions

It was a strange, bitter climax to two weeks of discussions that were fraught even by the standards of UN climate summits. At 2:35am yesterday, COP29 president Mukhtar Babayev formally invited delegates to approve the new global climate goal that was the crucial subject of the conference.

Precisely 1.04 seconds later (yes, I downloaded the recording and measured), and without raising his eyes to the room, Babayev banged his gavel to signal the adoption of the proposed agreement, which called on developed countries to “tak[e] the lead” in the mobilisation of $300bn a year of climate finance for developing countries.

A lengthy standing ovation ensued. But then came a string of dissenting statements from developing countries including India, Cuba, Nigeria, Bolivia, Malawi, Kenya, Pakistan and Indonesia, all expressing unhappiness with the text. It’s not clear that any would have tried to formally block the agreement, had they been given a chance. But Babayev’s hasty gavelling added to the sense of many developing-country representatives that they had been bounced into a deal that was much less than fair.

Some readers (judging by comments on the FT’s COP29 coverage) might feel these countries should be grateful to be getting anything at all. So it’s worth remembering the principles that led eight high-income countries and the EU to accept heightened responsibility for funding climate action under Annex II of the 1992 UN Framework Convention on Climate Change (that group now includes the EU plus Canada, Iceland, Japan, New Zealand, Norway, Switzerland, the UK and the US).

The logic is encapsulated in the wonky phrase “common but differentiated responsibility”. All nations will be affected by climate change, and all bear some share of the responsibility — but some bear far more than others, because they have polluted far more over the years, and have got rich while doing so.

It’s therefore fair, parties agreed in 1992, for those countries to help poorer nations pay for adapting to climate impacts. It’s also fair (and in their own interest) for rich countries to help poorer nations cover the costs of moving away from fossil fuels — since the rich countries have used so much of the world’s “carbon budget”, the amount of greenhouse gases that can be emitted without catastrophic consequences.

As I noted at the start of COP29, some of the world’s wealthiest countries and biggest emitters are not included in the Annex II group. Even so, those Annex II countries have accounted for 56 per cent of all cumulative global greenhouse gas emissions, despite accounting for only 13 per cent of the world’s population (my calculations using data from Our World in Data and the World Bank). On a per capita basis, that is, these countries have used more than four times their fair share of the global carbon budget.

But how much support should they provide? A suggestion came in the first week of COP29 in a major report from the Independent High-Level Expert Group on Climate Finance, a 32-member international group.

It found that developing countries, excluding China, would require $1tn per year in external climate finance by 2030, and $1.3tn by 2035, in order to cope with climate impacts and pursue low-carbon development in line with the Paris Agreement. Roughly half of this, it found, would need to come from bilateral or multilateral public finance, or other forms of concessional funding. This would be crucial to catalysing a vast increase in private-sector investment, which would provide the other half.

The G77 group of over 130 nations argued at COP29 that Annex II countries should commit to providing $500bn in bilateral and multilateral public finance by 2030, in order to galvanise private investment that would bring total funding to the level suggested by the IHLEG report.

The quantum in the final text was very different. It set a goal, “with developed country Parties taking the lead, of at least USD 300 billion per year by 2035 for developing country Parties for climate action”.

Importantly, this does not mean $300bn of taxpayers’ money. It is to come “from a wide variety of sources, public and private, bilateral and multilateral, including alternative sources”. In other words, this is a goal for the grand total of public funding from developed nations, as well as the private investment that it crowds in.

The road to Belém

Perhaps developing countries were unduly optimistic to hope for much more than they got. This conference began five days after the re-election of Donald Trump, who has shown a conspicuous dislike of both climate action and generous foreign aid. Other developed countries were wary of making a big collective commitment, worrying that Trump’s administration might pull out from the deal and leave them to pick up its share. Political consensus around climate action has been fraying from Canada to Germany to the UK.

The closing text did at least pay lip service to the full scale of developing countries’ needs, calling on “all actors” to work to enable climate finance to them of at least $1.3tn by 2035. It gave little detail on how this is to be achieved. But it did announce a new initiative, the “Baku to Belém Roadmap to $1.3tn”, under which a report on the matter will be produced at next year’s COP30 in the Brazilian city of Belém.

That report might indicate that developed countries will need to provide more public finance, on a faster timeline, than they committed to in Baku. But it will also need to have a serious focus on how public funds can be used far more effectively to catalyse international private-sector investment. The latter is where by far the biggest increase is needed, according to the IHLEG report. It calls for private finance to developing nations excluding China to increase from $30bn to $450bn by 2030.

The IHLEG report is full of suggestions for how this can be done — not least by injecting additional capital into multilateral development banks, and changing their mandates to have a greater focus on galvanising private-sector capital flows — whether through loan guarantees, concessional finance or other other approaches.

Another report this year made clear how much room for improvement there is on this front. It came from the OECD, the developed-nation group that took responsibility for monitoring Annex II countries’ progress towards meeting their earlier target, pledged in 2009, of mobilising an annual $100bn of climate finance for developing countries by 2020.

That goal was met two years late, in 2022, when they mobilised $115.9bn. In that year, they provided $91.6bn in finance: $41bn bilaterally and an additional $50.6bn attributed to them through their shareholdings in multilateral institutions. This money mobilised a further $21.9bn in private investment.

In 2013, they had provided $38bn in bilateral and multilateral finance, which mobilised a further $19.3bn in private investment.

In other words, even as the rich nations provided more cash, the amount of private capital they crowded in for every dollar provided shrank from 51 to 24 cents.

Developing nations were right to call at COP29 for a big increase in the quantum of international climate finance. But the flow of funds, as well as being bigger, will also need to be much more smartly and strategically deployed, with a far bigger focus on catalytic capital. The work towards addressing that challenge in Belém begins today.

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