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Last month, Washingtonians voted to protect their landmark cap-and-invest program, showing support for the program’s strong limit on pollution and game-changing investments. Thanks to this resounding win, the cap-and-invest program continues to deliver for Washington communities — with today’s results bringing in record revenue for the year.
Source: Pexels
With anticipated environmental rollbacks at the federal level, the U.S. needs states to act on climate in order to make progress towards the nation’s 2030 commitments. Luckily, there are already signs of momentum. A landslide victory in Washington state to protect its climate law sends a hopeful message that ambitious climate action at the state level is not only possible — it’s popular. This result in Washington should give state leaders across the country confidence to move forward with bold action at a moment when it’s needed the most. Here’s what to know about the power of state-level action and a few highlights to watch out for in 2025.
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Results were released today for California’s fourth cap-and-trade auction of the year, which was administered last week by the California Air Resources Board (CARB). Auction prices in the joint California-Quebec market (known as the Western Climate Initiative, or WCI) have trended downward this year, reflecting growing uncertainty among market participants about how best to plan their compliance strategies in the absence of regulatory or legislative clarity. A clear commitment to ambitious reductions in climate pollution and long-term market stability are urgently needed.
The UN climate talks, COP29, is well underway, and countries have entered final negotiations on the New Collective Quantified Goal (NCQG), a new climate finance goal to boost funding for climate action in developing countries. Reaching agreement on the goal may be difficult in the face of the U.S election results, but it remains an urgent priority.
One glaring finance gap that we need to address in the new goal is finance for climate adaptation. Adaptation is how governments and communities prepare for and adjust to the impacts of climate change. It’s about making changes to reduce or prevent the harm caused by climate impacts like rising sea levels, more frequent storms, and hotter temperatures.
According to a new report from the United Nations Environment Programme (UNEP), adaptation needs are not being met worldwide. Developing countries will need $215 billion per year over the next decade for their adaptation priorities, from building climate resilient infrastructure to restoring ecosystems. Yet international finance flows for adaptation were just $28 billion in 2022 – an increase over prior years, but nowhere near enough.
Transformational adaptation requires closing the finance gap and maximizing the impact of every dollar.
Where is the world falling behind on adaptation?
Many developing countries are particularly vulnerable to climate change impacts, and the good news is that they are prioritizing efforts to build resilience. UNEP’s Adaptation Gap Report found that 87% of countries have at least one national adaptation planning instrument in place, compared to around just 50% a decade ago. These instruments include National Adaptation Plans (NAPs) and other strategies or policies that guide adaptation.
Now time for the bad news: although planning has improved, there is a growing gap in implementation as countries lack the necessary finance to meet their objectives. Adaptation has consistently been underfunded compared to mitigation, and while developed countries are working to double adaptation finance, the current $28 billion in annual flows represents just 13% of the $215 billion needed annually.
[Source: UNEP Adaptation Gap Report 2024]
The lack of finance for adaptation has serious implications for many developing countries, especially small island states which urgently need international support to strengthen resilience. For example, the Caribbean nation of Dominica is installing early warning systems to improve preparedness and reduce the impact of future hurricanes, but by 2023 they had only installed three systems and need 50 more to adequately cover the island. Without sufficient adaptation finance, the country will remain highly exposed to sudden climate shocks.
This finance gap is further complicated by limited private sector engagement in adaptation. UNEP finds that many transformational adaptation projects are seen as risky by private investors, due to their longer time frame for benefits and less clear return on investment. Private finance does flow to projects in infrastructure and commercial agriculture, but often not without efforts by the public sector to de-risk investments.
It is not surprising that two-thirds of adaptation financing needs are anticipated to be financed by the public sector. But the quality of public finance for adaptation has room for improvement as well. 62% of public finance for adaptation is delivered through loans, of which 25% are non-concessional, or at market rate with no favorable terms. And the use of non-concessional loans for adaptation in most vulnerable countries has actually increased in recent years. These tools have the potential to drive up the debt burden in developing nations which are already struggling to pay the bills. Expanding grant and concessional finance will be important to mitigate these challenges.
How do we unlock quality adaptation finance?
The Adaptation Gap Report suggests that filling the finance gap will require several enabling factors that can unlock new finance flows. Notably, in EDF’s new report ‘Quality Matters: Strengthening Climate Finance to Drive Climate Action,’ we identify similar strategies as we call for structural reforms within the international climate finance system. Three key recommendations overlap in both reports.
First, countries need to mainstream their climate objectives and adaptation goals within national planning and budgeting processes. This integration should be paired with robust stakeholder engagement that systematically includes subnational authorities, marginalized groups and potential implementing entities in the planning process. Doing so will better align adaptation activities with other national priorities and create more fundable projects. Moreover, planning processes should emphasize project evaluation and evidence gathering to better understand what interventions are most impactful and maximize the potential of climate resources.
Second, countries should adopt investment planning approaches to climate action. Specifically, they should work to develop a pipeline of bankable projects that can meet the objectives within their NAPs and other planning instruments. This can help attract investors to projects and ensure successful implementation of adaptation plans.
Third, multilateral financial institutions including multilateral development banks (MDBs) and climate funds need to undergo structural reform to improve the quality of finance. The MDBs are currently pursuing reforms to become better fit-for-purpose for addressing the climate crisis, and at COP29 they jointly announced that their collective climate finance will reach $120 billion by 2030 – though only $42 billion will be dedicated for adaptation. Improving the balance between mitigation and adaptation finance will be important to ensure that developing countries’ priorities don’t go unfunded. Additional actions these institutions can take include strengthening the concessionality of terms for adaptation projects to alleviate debt burdens and spark new blended finance opportunities, and leveraging innovative instruments like adaptation swaps which can foster positive adaptation outcomes in exchange for forgiving debt.
The NCQG is an important milestone which has the potential to advance action on these reforms and strengthen adaptation finance flows. Alongside supporting a strong quantitative goal, countries should call for improvements in the quality of finance, to ensure that finance for adaptation projects is available, accessible, concessional, and impactful.
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:
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.
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.
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.
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.
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.
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.
