Over the next two weeks, nearly 200 countries participating in the United Nations climate talks (COP29) in Azerbaijan will negotiate a new, likely multi-trillion-dollar annual economic target to help the world’s poorest economies decarbonize and to adapt to rising temperatures. But even though nations are pledging, much of that money is not going to come from governments.
The goal of COP29
As Bloomberg writes, developed countries, which do not have significant liquidity, have been announcing since the start of the COP29 summit that a large part of the funding they promise will have to come from sources outside their direct control. This includes the private sector through loans and other “innovative” financing structures.
The credibility of a new commitment from COP29
The complex and expensive proposal to deploy more private financing is already opposed by heavily indebted developing nations, which are pushing for a more specific target that would emphasize government subsidies. The strategy also raises a fundamental question: How can nations engage third parties, who are not part of the UN process, to mobilize hundreds of billions of dollars? The answer will be critical in determining the credibility of any new commitment made in Baku this year.
The diplomatic jargon of COP29
In the diplomatic jargon of COP29, the main focus of the summit is to agree a New Collective Quantified Target for climate finance, which will replace an earlier target that promised $100 billion a year from rich nations in the developing world by 2020. There is already a lot of mistrust of the process.
Developed countries are two years behind on their original pledge, and some question whether the $100 billion a year milestone has actually been reached. Countries at this summit will negotiate a much larger target – currently set at around $2 trillion a year.
The role of banks in COP29
On the table is a greater role for private financial institutions and multilateral development banks such as the World Bank.
Of the $116 billion contributed by developed countries in 2022, 63% came through multilateral banks and private financing, according to OECD estimates. Another glaring problem is that MDBs, banks and investors are not included in the negotiating parties at the UN climate talks. Nor are they under the direct control of the COP.
“It often seems that the UN system would like to tell MDBs what to do, but has very little power to do so,” said Chris Humphrey, senior research fellow at think tank ODI Global and G20 adviser on strengthening MDB investment capacity. “This is a long-standing tension.”
How governments can influence
Countries can, to varying degrees, influence MDBs through their respective stocks. Rich nations could, for example, commit to paying more to them. However, MDBs are subject to their own governance structures and have other funding priorities beyond climate change, such as poverty alleviation. A group of the world’s biggest MDBs on Tuesday pledged $120 billion in annual climate finance by 2030, but highlighted the capital constraints they face to go further.
There is also a huge potential obstacle created by former President Donald Trump’s return to the White House. The US is the largest shareholder of most non-European MDBs, including the World Bank, and future commitments to such financing activity under the Trump administration are in serious doubt.
COP29 funding targets
The COP has even less control over the financing flows of private financial institutions. Much of Wall Street has spent the past year reversing its green commitments or betting against clean energy and climate technology. Bankers and investors have repeatedly made it clear that they will only put money where there is a profit.
Further complicating matters, there is no universally agreed system for tracking public climate finance, meaning that countries can already dispute when or whether funding targets have been met. Adding more private finance to the mix, particularly if it is not linked to public funds used to de-risk investments, will further cloud the picture.
André Corrêa do Lago, secretary for climate, energy and environment at Brazil’s Ministry of Foreign Affairs, is more skeptical. It is “obvious” that the private sector and development banks have a role to play in climate finance, he says, but their contributions should be left out of the debate. He would prefer that countries focus on what they can bring to the table, rather than trying to prove that they can mobilize money from sources outside their own pockets.
Source: ot.gr
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