EP Think Tank: Climate finance – State of play ahead of COP29

International climate finance is essential for developing countries to achieve their climate goals. By 2025, countries need to adopt a new collective goal for climate finance, to be defined at the 29th Conference of Parties (COP29) to the United Nations Framework Convention on Climate Change (UNFCCC) in Baku, Azerbaijan. Discussions ahead of COP29 focus on the scope and quantitative elements of this new financial target, with the European Union and other contributor parties proposing a broader contributor base.

Climate finance under the UNFCCC

The UNFCCC categorises countries in three groups, according to their obligations and commitments. Annex I countries include industrialised nations and economies in transition, while Annex II – a subcategory of Annex I – refers only to industrialised nations that were OECD members in 1992 and the European Community, and has not been updated since. Annex II countries have an obligation to provide climate finance to developing countries. Developing countries are referred to as non-Annex I countries, with particular attention paid to least developed countries (LDCs) and those most vulnerable to climate change.

In the Copenhagen Accord adopted at COP15 in 2009, developed countries pledged to jointly mobilise US$100 billion per year by 2020 to support developing countries’ mitigation and adaptation efforts. However, this target was not reached until 2022, when developed countries provided US$115.9 billion in climate finance for developing countries. To assist the COP in exercising its function in relation to the financial mechanisms established by the Convention, COP16 established the Standing Committee on Finance. In 2015, COP21 adopted the Paris Agreement – which obliges developed countries and encourages other parties to provide climate finance to developing countries – and decided to extend the US$100 billion target up to 2025 and agree on a new collective quantified goal (NCQG), from a floor of US$100 billion, by 2025. To facilitate the adoption of the new climate finance goal, the 2022‑2024 ad hoc work programme comprises four technical expert dialogues per year. In 2023, COP28 in Dubai, United Arab Emirates, decided on the process for establishing an NCQG in 2024, to replace the current target of US$100 billion. The adoption of the NCQG is a main agenda item for COP29.

Green Climate Fund

The Green Climate Fund was established in 2010 to accelerate climate action in developing countries. During COP28, six countries made new pledges to contribute to the Green Climate Fund, with total pledges amounting to US$12.8 billion from 33 donor countries and one region.

In June 2024, the annual Bonn Climate Change Conference included discussions on details of the NCQG ahead of COP29. While parties made progress towards designing the content of the NCQG, the substantive framework for a draft decision was not finalised. In October 2024, Azerbaijan hosted pre-COP29 talks, with heads of delegation meetings and a high-level ministerial dialogue in which EU Commissioner for Climate Action Wokpe Hoekstra participated.

Financial flows

International climate finance to achieve the US$100 billion goal is defined as bilateral and multilateral public finance, as well as climate-related export credits and private finance mobilised by developed countries for climate action in developing countries. For an investment to be counted as climate finance, developed countries need to declare it as such to the UNFCCC. However, the fact that there is no official system of accountability or guidelines to define which activities qualify as climate finance has attracted criticism.

Almost 80 % of total climate finance in 2022 came from developed countries’ public finance, through both multilateral and bilateral means. Multilateral climate finance in particular grew by 226 % between 2013 and 2022, an increase driven by multilateral development banks. Private climate finance fluctuated around US$14 billion per year from 2017 to 2021, but then rose by 52 % from 2021 to 2022, to US$21.9 billion. Almost a third of climate finance in 2022 went to adaptation, up from 10 % in 2016. The EU and its Member States are the largest contributor, providing €28.6 billion in climate finance from public sources in 2023 and mobilising an additional €7.2 billion of private finance.

In addition, voluntary climate finance flows exist between developing countries. These do not count towards the US$100 billion target.

Climate finance at COP29: Issues at stake

COP29 will take place from 11 to 22 November 2024 in Baku, Azerbaijan. The conference will focus on climate finance and the adoption of an NCQG to replace the current US$100 billion commitment, on the basis of a substantive framework for a draft negotiating text. Countries have agreed that the new NCQG will be needs-based, taking account of the priorities and needs of developing countries on finance to tackle climate change. According to the UNFCCC’s Standing Committee on Finance, to meet developing countries’ costed needs, a total of US$5‑6.9 trillion would be required up to 2030, or US$455‑584 billion annually. This figure is based on countries’ estimated costs to meet the targets outlined in their nationally determined contributions (NDCs). Article 4 of the Paris Agreement states that countries must submit updated, more ambitious NDCs every 5 years. To prepare their new NDCs, due in 2025, developing countries need to know the approximate level of financial support they can expect to receive. Failure to agree on the NCQG at COP29 could impact the ambition level in developing countries’ NDCs, and would risk eroding trust between developing and developed countries.

The EU submitted its views on the NCQG to the UNFCCC in August 2024, emphasising that the collective finance goal can only be reached if parties with high greenhouse gas (GHG) emissions and economic capabilities collaborate. This would require an expansion of the contributor base, to reflect the evolution of gross domestic product (GDP) growth and GHG emissions. This issue will be discussed at the upcoming COP29 conference, with the Umbrella Group and the Environmental Integrity Group of countries also supporting a broader contributor base. On the other hand, the largest group of parties, the ‘G77 and China’ which includes 134 developing countries, emphasises the responsibility and financial obligations of developed countries on account of their higher cumulative historical emissions.

Loss and Damage Fund

Other sources of international climate finance are not accounted for in the US$100 billion pledge, such as the finance necessary to address loss and damage resulting from climate impacts. The Fund for Responding to Loss and Damage was agreed at COP27 in 2022 and made operational by COP28. It will support vulnerable countries heavily impacted by climate disasters. Countries have committed US$702 million to the fund.

European Parliament and Council position

The Council conclusions of 14 October 2024 emphasise the need to broaden the group of contributors, reflecting the evolution in countries’ economic capabilities and shares of global GHG emissions in recent decades. The Council reiterates the importance of private finance to achieve ambitious NCQG goals, and underlines that public climate finance alone cannot deliver the levels of funding required to tackle climate change. It points out that the private sector is still financing fossil fuels and activities that are not aligned with the Paris Agreement. The Council conclusions do not propose a quantitative target for the NCQG.

In the European Parliament, the Committee on Environment, Public Health and Food Safety (ENVI) adopted a draft resolution on 21 October 2024 highlighting that international climate finance is fundamental for achieving the goals of the Paris Agreement, and that the NCQG should reflect the increased climate finance needs, in particular for LDCs and small-island states. The text calls for an NCQG that prioritises grants and combines public, private and innovative sources of climate finance from a broader contributor base, in line with social fairness and the polluter-pays principle. Moreover, the draft resolution emphasises that emerging economies with high GHG emissions and high GDP should contribute to the new financial goal.

Further reading

• Jensen, L. with Roniger, J., International climate finance: Status quo, challenges and policy perspectives, EPRS, European Parliament, 2023.

Source – EP Think Tank: Climate finance: State of play ahead of COP29