Climate 411

Negotiations at the United Nations climate talks in Azerbaijan, COP29, are now picking up. Global leaders are tasked with deciding on a new goal for how much money will be provided to developing countries to take climate action. The New Collective Quantified Goal (NCQG) on climate finance represents a critical opportunity to reshape how we support developing countries in their fight against climate change.  

As negotiations continue and the negotiation text is revised, we need to see several core principles included in the NCQG to serve its purpose. EDF has reviewed some key issues for the NCQG to bring quality into climate finance, and these are some issues we must address in Baku:  

1. Unlock Economic Opportunities, Don’t Lock in Debt

First and foremost, the new finance goal must break away from traditional financing models that burden developing countries with additional debt, which further hampers their ability to take climate action. Market-rate loans and private finance at unfair market returns should not be counted as climate finance. As revealed in recent studies, many developing countries are already struggling with debt distress, making it crucial that climate finance comes primarily through quality climate finance. 

The NCQG must transform climate finance into an engine for economic opportunity rather than a source of debt burden. This means structuring climate finance to unlock new markets, create jobs, and build resilient economies while avoiding the debt trap that has historically hindered development. The focus should be on enabling countries to seize the economic opportunities of the green transition through grants, concessional finance, and strategic investment in capacity building.

2. Agree on What We’re Talking About: Define Climate Finance

Transparency is another cornerstone of the NCQG framework. We need clear, standardized definitions of what constitutes climate finance. Currently, the climate finance landscape is ambiguous, with some countries counting official development assistance (ODA) or non-climate-specific funding toward their climate commitments. The NCQG must establish precise criteria for what qualifies as climate finance, ensuring accountability and preventing the inflation of reported contributions. 

3. Cut the Red Tape

Access to finance remains a significant hurdle for many developing nations. The NCQG must mandate efficient, streamlined access channels that minimize bureaucratic barriers. Current systems often involve complex application processes and stringent requirements that can delay or prevent countries from accessing crucial funding. The new framework should prioritize swift, direct access while maintaining appropriate oversight. 

4. Remove the Roadblocks

A critical aspect often overlooked is the need to address “dis-enablers” – structural barriers that prevent effective climate finance deployment. High capital costs, excessive transaction fees, and unilateral measures like carbon border adjustments can significantly reduce the real value of climate finance reaching developing countries. For instance, some developing nations face interest rates two to three times higher than developed countries for renewable energy projects, making clean energy transitions unnecessarily expensive. 

5. Make Finance Predictable

The NCQG must ensure predictability in climate finance flows, so developing countries can plan long-term climate strategies with confidence that they will be supported. Currently, financing often arrives unpredictably or later than promised. By establishing clear timelines and reliable funding mechanisms, the NCQG can enable better planning and more effective implementation of climate projects. 

6. Public-Private Finance: Getting the Balance Right

Public finance must remain the cornerstone of the NCQG framework, while strategically leveraging private sector involvement. Currently, multilateral development banks mobilize only about $0.60 in private capital for every $1 of financing – far below what’s needed. While private investment is crucial for scaling up climate solutions, particularly in renewable energy and green technology, it cannot replace public finance. This is especially true for adaptation projects that protect vulnerable communities. Public funding through grants and concessional instruments can de-risk investments and catalyze private capital, while ensuring developing nations maintain sovereignty over their climate priorities. 

Make COP29 outcomes matter if we want 2025 to succeed 

Looking ahead, the success of the NCQG will depend on how well it addresses these fundamental issues. Simply setting a higher numerical target without addressing quality, access, and structural barriers would perpetuate existing challenges in climate finance. We need a comprehensive approach that combines ambitious funding goals with practical mechanisms for effective delivery. 

As negotiations continue, world leaders should remain focused on solutions to make our climate finance system more equitable, efficient, and impactful. By ensuring unconditional access, emphasizing grants and concessional funding, maintaining transparency, and addressing structural barriers, we can build a framework that genuinely serves the needs of developing nations in their fight against climate change. 

For more, read EDF’s latest report on climate finance quality: “Quality Matters: Strengthening Climate Finance to Drive Climate Action”. 

As we approach the United Nations climate talks, COP29 in Baku, Azerbaijan, UN agencies have published several reports highlighting both our progress to-date and the gaps in global climate action. The findings are concerning, but unsurprising: countries’ current climate plans, called Nationally Determined Contributions (NDCs), have a long way to go.  

To keep global temperature rise below 1.5°C, we need to see a 42% reduction in emissions by 2030 compared to 2019 levels – while current NDCs would only lead to 5.9% cut. But there is good news. Countries are currently writing new plans for climate action, to be submitted in 2025. Updated NDCs offer an opportunity to course correct, and turn ambitious targets into real action. 

But new targets alone aren’t a silver bullet. For countries to successfully set and implement aggressive plans, they will need climate finance to back them up. And alongside getting more money to where it is most needed, we also need to ensure that the money is quality: that countries can depend on fair, accessible and impactful finance to help them deliver results.  

In EDF’s new report ‘Quality Matters: Strengthening Climate Finance to Drive Climate Action,’ we have identified key reforms to the international climate finance system which can better enable countries to transform their NDCs into real action and put us back on track to meet the Paris Agreement goals.  

Finance as a Key to Action and Implementation 

According to the UNFCCC’s new NDC Synthesis Report, most Parties to the Paris Agreement say that finance is mission-critical to turning their NDCs into real action. 91% of Parties include specific information on finance in their NDCs, and 69% acknowledge that international climate finance is necessary to meet targets. Moreover, 76% of Parties identify stronger capacity building as key for implementation, which includes support in accessing climate finance. Many NDCs also include targets which are conditional upon receiving international financial support, meaning their goals can’t be met without the money. 

Financial support for climate action is especially important for developing countries, where underlying barriers can make climate action more expensive and challenging. For example, the costs of building a solar project in African countries is two to three times higher than in developed countries, due to high risk and low credit ratings. Additionally, more than half of low-income developing countries are currently facing some degree of debt distress, which can trap them in a vicious cycle of rising interest payments, less money to dedicate to climate action, and persisting vulnerability to climate disasters. 

[source: https://www.weforum.org/agenda/2021/06/5-ways-align-debt-climate-development-goals/] 

The cost of climate action in developing countries is estimated to reach $2.4 trillion annually by 2030 – and NDCs have room for improvement in detailing just where that money needs to go. Just 46% of Parties provide quantitative estimates of their financial support needs, and these needs are often expressed simply as “total amounts over the time frame of the NDC.” This lack of specificity can make it a challenge to properly align finance flows – domestic and international – with climate solutions. 

Quality Finance can Enable Ambitious NDCs 

For developing countries to implement their NDCs, they will require significant financial support from donor countries and multilateral institutions. Unfortunately, current international climate finance flows often fall short – finance can be inaccessible, ineffective, or overly burdensome for countries that need it most, inhibiting their ability to meet their climate objectives. 

For example, in recent years only 23% of climate loans from Multilateral Development Banks (MDBs) to developing countries were concessional, meaning they had more favorable terms than market loans. Higher proportions of non-concessional finance can drive up debt burdens and risk of economic instability, reducing the effectiveness of climate finance. Funding also often fails to reach local communities, and there is a lack of evaluation of impact when it does.  

These concerns have dangerous repercussions for the upcoming NDC updates – if countries lack trust that finance will be available or affordable, they may preemptively limit their ambition as they revise plans. Accordingly, climate finance must be high-quality to effectively support NDCs and deliver climate action.  

EDF’s new report presents key metrics of climate finance quality, including concessionality, or the terms of delivery of finance; access, or how easily finance can be secured and utilized; and impact, or how well finance results in measurable, positive outcomes. These quality considerations need to be incorporated into the New Collective Quantified Goal (NCQG) on climate finance at COP29, which will help scale resources for climate action in developing countries.  

Multilateral institutions will also play an important role in improving the effectiveness of finance. They must do more to improve access to resources and mobilize private investment in support of climate objectives to enable successful NDCs. These institutions can also align quality finance directly with the NDC process, by supporting countries with NDC investment planning approaches. Multilateral institutions should help countries to integrate climate objectives directly into national planning and budgeting processes, realign existing financial flows toward climate action, and create clear pipelines of bankable projects that support NDC targets. 

By improving the quality of finance, both through the NCQG at COP29 and structural reform beyond, we can encourage more ambitious NDC updates in 2025 and ensure that countries can successfully implement their plans.