The $300 Billion COP-Out: And Where We Go from Here

It almost didn’t happen, but at the eleventh hour, negotiators at COP29 in Baku were able to finalise an agreement that wealthy countries would provide at least $300 billion annually to developing countries by 2035.

On the face of it, a tripling of the previous $100 billion goal sounds impressive. And reaching consensus on a "new collective quantified goal on climate finance" (NCQG) was a top objective of this COP. Another positive outcome is the inclusion of developing country contributions to the goal, although they will remain voluntary. 

But on closer inspection significant shortcomings emerge, in part because negotiators failed to take on board lessons learned from the previous agreement, which incentivised lending, greenwashing and diverting aid from other objectives. It also failed to meet the independent high-level expert group (HLEG) target of $390 billion from public sources alone and fell well short of the $1.3 trillion that countries most vulnerable to climate change were calling for.  As a result, many stakeholders left Baku embittered.

In addition, our analysis shows that the $300 billion is barely above a business-as-usual scenario. First, the $300 billion target starts from the $116 billion volume of contributions reported in 2022 and makes no provision for inflation. Had the $100 billion target been set in real terms, the obligations of wealthy countries would be closer to $150 billion today. Our modelling shows that if existing provision grows in line with expected inflation and GNI growth it will lead to around $220 billion in 2035, leaving only $80 billion in additional funding to find. So, by the time the new goal is met, beneficiary countries will find that the purchasing power of these resources has eroded significantly. 

Second, the amount of multilateral development bank (MDB) financing that will count towards this goal has increased from 70-80 to 100 percent to account for both wealthy and developing country contributions.  This is a positive development in terms of participation but will also enable progress towards the target through a shift in accounting alone.  As a result, with already-planned reforms at institutions like the World Bank and other MDBs, climate finance could already be approaching $300 billion by 2035, without any additional efforts from rich countries or any additional voluntary contributions from developing ones.

Finally, the accountability mechanism is weak, with infrequent, lagged reporting, inconsistent definitions and no clarity on which countries should contribute most, that will not foster trust between parties.

Chart: Projections of climate finance under new NCQG ($ billions)

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The inclusion of contributions from developing countries is to be welcomed. This is something we’ve argued for before (and Carbon Brief reported during COP that China’s emissions have now caused more global warming than the whole of the EU).  However, in the absence of a specific collective commitment from these contributors, the current text risks disincentivising the provision (or at least the reporting) of such flows because any developing country efforts will make the $300 billion goal easier for the developed countries primarily responsible.

What’s within the $300 billion?

The composition of the $300 billion target also matters.  Public money counts as does private money mobilized by public funds, and they can take various forms.  In 2022, less than a third of climate finance funding was provided in grants.  The rest was in the form of loans, equity, guarantees, export credits and other financing vehicles.  Unfortunately, countries suffering most under the burden of climate change are in desperate need of grant financing, especially for adaptation, and there is no mechanism or incentive to prioritize their needs.  The agreement acknowledges the need for public and grant-based resources and recognizes the need to “dramatically scale up adaptation finance” but makes provisions for neither.  

The absence of the words “new and additional” in the agreement is also a red flag.

The $100 billion target (adopted in 2009 with the aim of full compliance by 2020) was expected to be additional. Whether countries in fact met the target is a hotly debated topic. The official verdict is that the target was met in 2022. CGD analysis, which was hard to undertake because negotiators of the initial target did not establish a baseline or metrics around what constituted climate finance in the first place found that the target was met, but only with the notable caveat that at least one third of the total was achieved by redirecting or rebranding existing financial flows.

For the new target, there is no explicit requirement that the funding is additional to all development funding.  As a result, there’s a risk this target will be met by diverting existing development funding from other critical programs that lack a climate component.  Meeting a goal is easy if it’s not genuinely new money.

Rebuilding trust and the road to Belem

Negotiating tactics caused a lot of anger and undermined trust.  A particular bone of contention is that developed countries only proposed a figure in the last two days of a year-long process which allowed very little time to focus on quality or quantity of resources.  Some developing countries (notably India) indicated the outcome will reduce the ambition of their emissions reduction plans (in NDCs) to be submitted early next year.

One upside is that parties agreed to launch a “Baku to Belem Roadmap to $1.3 trillion.”  The potential of this roadmap remains to be seen; but it puts an emphasis on grants and creating fiscal space. This is also an opportunity to strengthen trust between parties; and to be clearer about the existing levels of finance. Under the roadmap, we’d suggest providers of climate finance could:

• Clarify what the current climate and development finance baseline is to allow additionality to be better assessed and reduce the temptation to raid or greenwash development budgets (though there is an argument that all development assistance contributes to improved resilience).
• Identify the public finance component of the $300 billion total and estimate this in grant equivalent terms (using the grant equivalent of current flows as the baseline). This will reduce incentives to provide ever less concessional support (likely to favour mitigation projects in middle income countries) and allow fairer comparison between donors (including new contributors).
• Commit to reporting annually on efforts; to report less-concessional finance consistently (in particular as Other Official Flows -- OOFs); and agree on a consistent approach to recording and reporting climate finance (in particular in relation to the Rio-Markers).

Many have argued that this COP deal is better than no deal. That depends on your view of the alternative; but we find it hard to make the case that this deal will meaningfully increase the quantity of climate finance, or do much to improve the quality of that finance. Still, perhaps the target reinforces existing plans with a potentially hostile US administration on the way; and a more optimistic perspective is that the roadmap offers an avenue for addressing these shortcomings long before the 2035 deadline. 

We’re grateful to Edward Wickstead for his analysis and chart on projections of climate finance; and to Maya Verber for her very helpful suggestions and edits.