## COP29 Climate Finance: Clarifying the ‘NCQG’ and Unlocking Private Investment
With the upcoming COP29 climate summit, the world is gearing up for critical discussions around climate finance, particularly the proposed ‘New Collective Quantified Goal’ (NCQG) for financial flows from high-income to low-income countries. The ETC’s latest publication, “NDCs, NCQG, and Financing the Transition,” sheds light on this complex issue by clarifying the types of finance needed and proposing solutions to ensure a successful outcome for the NCQG debate.
The report emphasizes the need for a clear understanding of the various categories of ‘climate finance,’ a term often used vaguely to encompass different challenges and priorities. It distinguishes between:
*
Capital Investments for Zero-Carbon Energy Systems:
These investments, averaging around $3 trillion annually until 2050, will be primarily financed by private institutions. However, multilateral development banks (MDBs) play a vital role in supporting financial flows to middle and low-income countries.*
Concessional Payments for Emission Reduction:
These include grants and subsidies to address emissions in specific areas, such as early coal plant closures, deforestation prevention, and carbon removal. While estimated to reach $300 billion annually, current flows are insufficient, necessitating strong policies to achieve emission reductions.*
Investments in Adaptation:
Addressing the inevitable consequences of climate change, these investments, particularly in flood management and coastal protection, may reach $250 billion per annum in developing countries. A significant portion will be financed domestically, but MDB loans and concessional payments from high-income countries are essential.*
Payments for Loss and Damage:
These address the costs associated with climate change impacts already experienced by developing countries, potentially reaching $200-400 billion per annum by 2030. The COP27 agreement established the principle of high-income countries contributing to these costs.The NCQG Debate: Reaching a Consensus
The NCQG aims to replace the current $100 billion per annum target for climate finance, a commitment that was agreed upon in 2009 but consistently undelivered until 2022. While some countries advocate for including ‘loss and damage’ payments within the NCQG, others prioritize mitigation and adaptation finance. There are diverse perspectives on the magnitude of the NCQG, with India and some Arab countries proposing figures exceeding $1 trillion per annum, while high-income countries remain hesitant to commit beyond $100 billion. The ETC’s report proposes several key principles to ensure a constructive and effective outcome from the NCQG debate:
*
Clarity on Categories:
The NCQG should clearly define the different types of investment and payments required, outlining the relevant sources, such as private finance, MDB loans, or concessional grants.*
Focus on Large-Scale Mitigation:
The NCQG should prioritize the massive financial flows needed to support mitigation in middle and low-income countries, recognizing the crucial role of MDBs in catalyzing private investment.*
Expanded Definition of Contributing Countries:
High per capita emitters, including China and high-income oil and gas producers like Saudi Arabia and the UAE, should be included in the definition of contributing countries.*
Support for New Funding Sources:
The report advocates for new sources of funding, such as global carbon taxes on aviation and shipping and the allocation of revenue from border carbon adjustment mechanisms (CBAMs) to support climate finance flows to developing countries.The Role of NDCs in Unlocking Private Finance
The ETC emphasizes the crucial role of National Determined Contributions (NDCs) in driving private investment for mitigation. NDCs, which are national commitments to reduce emissions under the Paris Agreement, should be strengthened to include more ambitious targets, clear links between targets and supporting policies, and comprehensive investment plans. The report recommends that future NDCs should:
*
Reflect Technological Progress:
Set ambitious emission reduction targets based on the rapid advancements in clean technologies.*
Provide Clear Roadmaps:
Define strong links between targets and supporting policies, creating comprehensive roadmaps for implementation.*
Address All Greenhouse Gases:
Cover all greenhouse gases and include absolute or equivalent emissions targets for specific sectors.*
Identify Investment Needs:
Clearly identify the investments required to achieve emissions reductions and the envisaged balance of financing sources.The ETC’s report underscores the need for ambitious, well-defined, and well-funded climate action to deliver a net-zero future. It emphasizes the importance of clear definitions, decisive action, and strong partnerships between governments, businesses, and financial institutions to unlock the necessary financial flows and achieve a just and sustainable energy transition.