Per-capita GNI (left) and per-capita historical emissions (right) for the top five climate-finance contributors (red) and five of the largest emerging economies that currently are not obliged to provide climate finance (blue). Source: World Resources Institute’s (WRI) climate finance calculator.
Given this, the ODI concludes in its analysis that demands for China to become a contributor have “dubious” scientific basis and are “based on geopolitics, particularly China’s status as global power and international financier”.
All of this is further complicated by the fact that many relatively wealthy countries that are not obliged to provide climate finance, including China and South Korea, already contribute climate-related aid and other funding that could be classified as climate finance.
Yet there is resistance from nations such as China to formally classifying their activities as “climate finance” under the UN. Doing so could result in them facing more scrutiny and accountability.
It could also have great political significance given the long-standing division between “developed” and “developing” states in UN talks. This “firewall” was partially broken down with the Paris Agreement, which compelled all countries to set their own “nationally determined contribution” to climate action, but has remained in place for climate finance.
Charlene Watson, a senior research associate at the ODI, says developed country officials argue that having more countries on board makes it easier for them to persuade their treasuries to release more climate finance. However, she questions the value of insisting countries that already provide climate-related funds are included in the UN system:
“My view is that the cake is not going to get any bigger in the short term. It’s just going to be that we can better see the size of the cake.”
Pauw says there is a need for more nuance, including a new category of “net recipients” that both give and receive climate finance. He says coming up with a new list of contributors may be too difficult:
“Whatever you push forward as an idea is arbitrary. There will always be countries who say ‘we cannot agree to this’ – which means that you will not reach agreement.”
One compromise that has been proposed is to introduce different contributor bases for different “layers” of the NCQG, if countries agree on a “multilayered” goal.
That way, China and others might not be responsible for contributing to the “new US$100 billion” part of the goal, but may be covered by another layer. (See: What sources of money should be included in the NCQG?)
Meanwhile, Erzini Vernoit says poorer developing countries are “extremely wary” of the contributor base discussions, as any ambiguity over who is obliged to provide climate finance could hamper its provision. “Accountability is why burden-sharing frameworks and differentiated lists, like the Annex II list, are important to poorer recipient countries,” he explains.
Another highly contentious issue in the NCQG negotiations is what types of finance should feed into it. This inevitably influences the discussion of how big the goal could be.
The US$100 billion target is already fairly broad, covering finance “from a wide variety of sources, public and private, bilateral and multilateral, including alternative sources of finance”.
This in itself is controversial, with civil society groups and developing countries often arguing that the goal relies too much on low-quality finance, such as non-concessional loans. Nevertheless, the NCQG has the potential to be even broader.
Developed countries argue that expanding the scope, with a focus on private investment and gearing the entire financial system towards climate action, is the only way to raise the trillions of dollars of money required.
These wealthier nations generally want the goal to be “multilayered”, with a large outer layer consisting of “global investment flows for climate action”. The framing is important, as it could refer to all kinds of money being spent everywhere – not only in developing countries – including investments made by the developing countries themselves.
The developed nations also propose a smaller sub-goal within this investment layer, more aligned with traditional “climate finance”, which consists of finance “provided” and “mobilised” for developing countries.
(Here, “provided” is understood as referring to climate finance given by one country to another, while “mobilised” refers to private investment that comes as a result of public money “de-risking” investments and getting projects off the ground.)
This approach could make a big difference to how much money these countries would be obliged to provide. For example, an EU submission describes an “investment” goal in the trillions, in contrast to a “provided and mobilised” goal in the billions.
In addition, developed-country statements have stressed the “important role of the private sector”, the need for “reforming the multilateral financial architecture to further unlock climate finance” and the role of “innovative financial instruments” to raise more money.
By contrast, many developing countries have argued for a single goal that channels high-quality climate finance from developed countries to them in a reliable way.
In practice, this means developing countries want as much of it as possible to come in the form of grants from developed countries’ public coffers. The Arab Group has suggested that at least US$441 billion of the US$1.1 trillion in annual climate finance it has proposed should come from developed-country grants.
All of this speaks to a central tension about the significance of two articles in the Paris Agreement. Article 9 states that developed countries are obliged to provide climate finance to developing countries and others are encouraged to do so voluntarily. Article 2.1c, meanwhile, calls for all “financial flows” to be aligned with the agreement’s goals.
As the WRI diagram below shows, developing countries want to keep the NCQG talks focused on Article 9, whereas developed countries say both articles should be covered. Developed countries, such as Japan, have said that they think Article 2.1c also justifies expanding the contributor base. (See: Which countries will contribute to the new target?)
Potential approaches to the NCQG, based on different interpretations of the roles of Article 9 and Article 2.1c of the Paris Agreement. Source: WRI.
Pauw of Eindhoven University of Technology tells Carbon Brief that this comes down to a fundamental difference of opinion on what climate finance is and should be.
On the one hand, the world needs to channel as much money as possible into tackling climate change and, on the other hand, there is the question of transferring money from developed to developing countries – often framed using the language of climate justice. He says:
“You can’t mobilise a lot of money if you provide everything in grants. So those two motivations seem to clash, and it’s important to understand that both of them are relevant, both of them are important and both of them need to be realised.”
The wording below from the proposed “draft negotiating text” released ahead of the COP29 negotiations shows the main options on the table for the NCQG.
Option 1 broadly captures ideas proposed by developing countries, while option 2 captures the layered “annual investment goal” presented by developed countries.
There are practical reasons for developing countries wanting to avoid certain types of finance in the NCQG.
Some global-north leaders have framed private finance as essential for meeting the needs of developing countries. For example, when asked about climate finance, former US climate envoy John Kerry repeatedly stated that “we don’t have the money”, arguing that the key would be to encourage more private capital into climate-related activities.
Yet the amount of private climate finance “mobilised” by developed countries remained virtually unchanged at around US$14 billion each year between 2016-2021, only increasing significantly to US$22 billion in 2022. (This is based on OECD data for private finance with a clear causal link to a donor country sending development finance to a project.)
Private investment is also far less likely to flow into the poorest countries, many of which are the most in need of climate finance. It is often viewed as unsuitable for many climate-adaptation projects, which are less likely to generate profits than mitigation work such as clean-energy projects.
Moreover, while national governments are within the remit of the UNFCCC and the Paris Agreement, private companies and other financial actors, such as banks, are not. This could make it more risky to rely on them to meet the NCQG.
There are also strong calls from many developing countries to exclude “non-concessional” loans – provided at or near market rates – from climate finance altogether.
Since 2016, around 70 per cent of public climate finance has been delivered in the form of loans, with Japan, France and Germany, as well as MDBs, providing most of their contributions in this way.
UN figures suggest that at least one-fifth of reported loans are “non-concessional”, resulting in wealth flowing back to the donor countries as loan repayments and interest, according to a Reuters investigation.
Many of the poorest countries are spending more on servicing debts than they receive in climate finance, according to the International Institute for Sustainable Development.
These debates form part of a wider discussion around the “quality” of finance.
Developing countries want finance to be predictable and accessible, especially given the complications they often face when obtaining it from MDBs and large funds.
For their part, developed countries are more likely to emphasise the need for “effective” climate finance – meaning funds that are used for their intended purposes and have a climate impact.
What kind of activities will the NCQG support?
Finance for climate action is divided into broad categories, depending on its main purpose. The US$100 billion target supports two types of activities: those that cut emissions – mitigation; or those that help countries adapt to climate change.
Now, there is pressure from most developing countries to include loss and damage as a “third pillar” in the NCQG. This would enshrine support for the victims of climate disasters as an official component of the international climate finance goal, for the first time.
After years of fraught negotiations, developing countries secured a “win” last year with the launch of the loss-and-damage fund at COP28.
However, contributions to the fund have been small compared to the scale of climate-related damages, which are estimated to reach US$447 billion-894 billion per year by 2030.
Some developing countries would like to see NCQG sub-goals in order to ensure there is ring-fenced funding available for adaptation – which remains poorly resourced compared to mitigation – and for loss and damage. This would involve percentages of the overall target being assigned to each of the three pillars.
Sherri Ombuya, a consultant at Perspectives Climate Group, tells Carbon Brief that there has been some convergence between parties on the general idea of increasing adaptation finance. “This builds on some existing positions that have already taken place within the broader negotiation space,” she says.
(Developed country parties have already pledged to double adaptation finance from 2019 levels by 2025, for example.)
However, developed countries broadly do not want to incorporate loss and damage under the NCQG. They argue that, while a fund for loss and damage finance has now been established, contributions to it are voluntary and not part of the NCQG mandate.
Moreover, Article 9 of the Paris Agreement only refers to climate finance for “mitigation and adaptation” – and the Paris “decision text” that mandates the NCQG does the same.
Developing countries argue that including loss and damage in the NCQG is nevertheless valid, because Article 8 of the Paris Agreement separately “recognises” the importance of “averting, minimising and addressing” loss and damage.
They also see room for the climate-finance goal to expand over time, to reflect the changing needs of developing countries, in line with the Paris Agreement requirement that “efforts of all parties will represent a progression over time”.
How long will countries have to meet the NCQG?
Parties at COP29 must also agree on the timeframe for the provision of climate finance under the NCQG, as this was not specified in Paris.
A key source of conflict concerns whether the target should cover a shorter period of around five years or a longer one of 10 years or more.
Some developing party groupings, including the LMDCs and the Arab Group, have expressed a preference for a five-year goal covering the period from 2025-2030, with the same amount of money – roughly US$1 trillion – provided every year.
An advantage of having a shorter timeframe could be that it gets money moving faster. Supporters also stress the importance of a “revision” or “review” process once the five years are up, in order to adequately reflect “the evolving needs of developing countries”.
Other developing countries, including AOSIS and the Least Developed Countries (LDCs), have supported a 10-year timeframe, but with some kind of review after around five years.
Some parties and civil-society groups have pointed out that a five-year timeframe aligns with existing processes for monitoring progress under the Paris Agreement.
Both the global stocktake and national climate plans – known as “nationally determined contributions” (NDCs) – run on five-year cycles and could, therefore, feed into a review of the NCQG goal.
In an assessment of the NCQG, the World Resources Institute (WRI) notes that, while there are advantages to revisiting the target, “reopening negotiations on the NCQG during revision cycles has the potential to cause additional delays and complexity”.
Meanwhile, developed countries including Switzerland and the EU favour a 10-year timeline.
Notably, they have suggested that the NCQG will be achieved “by 2035”. This leaves room to gradually scale funding up over time rather than achieving it up from 2025 onwards, meaning less immediate pressure on contributors.
How will progress towards the target be reported and tracked?
There is general agreement that a workable NCQG requires a system where governments and other institutions report their climate finance transparently. Only then can progress towards the goal be tracked – and contributors held accountable.
As it stands, there are fundamental gaps in the system for tracking climate finance.
Despite being agreed upon in 2009, there was no official UN system in place to track progress towards the US$100 billion goal until the Standing Committee on Finance (SCF) was tasked with doing so in 2021 – one year after the goal was supposed to have been delivered.
This does not mean that no one has been reporting climate finance. Developed countries have to produce reports for the UNFCCC every two years, which must include the finance they have channelled into developing countries, both directly and through multilateral institutions.
Developed countries also submit information about climate-related spending to the OECD, which publishes its own assessments of climate-finance progress. (In addition, the OECD served as the de facto tracker of progress towards the US$100 billion goal.)
Meanwhile, NGOs – particularly Oxfam – have produced regular analyses of climate finance.
Crucially, these assessments arrive at very different estimates of how much climate finance has been provided to developing countries. This is partly because there is no widely accepted definition of “climate finance” in the UN climate process.
Nations are allowed to come up with their own definitions of what counts, as well as their own methodologies to track, measure and report it to official bodies. “This results in challenges in aggregating data on climate finance,” according to the SCF.
The lack of clarity around climate-finance figures has contributed to a “continuous erosion of trust between parties in international climate negotiations”, according to one paper.
Real-world implications include governments inflating the amounts they have given and labelling questionable funding for everything from coal to hotels as climate finance.
So far in the NCQG discussions, there has been a broad consensus that the enhanced transparency framework (ETF) is the best way to report on progress. The ETF is a system set up under the Paris Agreement, which requires most parties to submit information about their climate progress in biennial transparency reports (BTR) from the end of this year.
However, the ODI’s Watson tells Carbon Brief that even if this is agreed there will still be plenty to discuss in the NCQG transparency negotiations:
“The ETF just captures reporting from countries…The more we start talking about whether other sources [of finance] count, or how to capture finance from purely private actors, they’re obviously not covered by the BTRs that come out of the ETF. So what else do we need to know?”
These discussions are, therefore, tied to the question of which sources feed into the NCQG and also which countries contribute towards the goal.
Developing countries have fewer reporting obligations under the ETF and there may be pressure on them to report more if the contributor base is expanded, Watson says.
As for tracking the resulting figures, some parties have suggested the SCF should be given this task. Governments may prefer to opt for a UN committee rather than leaving the task to an NGO or external international body, but this may still face opposition.
Finally, despite the apparent convergence between parties on some of the transparency requirements, there is far less agreement on the need to define “climate finance”.
The G77 and China group of developing countries has pushed for such a definition, calling for non-concessional loans and “non-climate specific finance” to be excluded.
Many developing countries stress that climate finance must be defined as “new and additional”, in line with the language used when the US$100 billion target was set and in the original UNFCCC treaty. This is broadly understood to mean money that comes on top of other obligations.
However, developed countries provide much of their climate finance from their aid budgets and studies suggest that much of this is not “new and additional”.
Given the impact it could have on their finances, developed countries have strongly resisted a strict definition. Perspectives Climate Group’s Ombuya tells Carbon Brief that, while she thinks it is possible that parties could converge on excluding some types of finance from the NCQG, “I feel that to have a successful outcome, it’s likely that parties will have to have a willingness to do without a common definition on climate finance”.
This story was published with permission from Carbon Brief.
