This is an extract from a recent report “Preparing for COP 29: Seven critical success factors” by The Oxford Institute for Energy Studies. 

COP 29, which will be held in Baku between November 11-22, has been widely trailed as “the finance COP” and it is certainly true that decisions on how funding for mitigation and adaptation in the developing world is to be sourced and allocated will be fundamental to the success of the Conference. However, although this is probably the most important item on the main intergovernmental agenda there are a number of other key issues which COP 29 needs to address if the world is to have any hope of meeting the target to keep the post-industrial revolution temperature rise to below 1.5 Celsius. There are seven key issues which need to be addressed if COP 29 is to be seen as a success. These are: 

• Finalising the amount to be contributed by developed countries to developing countries in the period 2025-2029 under the terms of the New Collective Quantified Goal (NCQG). The current contribution is $100 billion per annum, but needs to increase significantly. A level of $1 trillion or above is being demanded by some developing country groups. 

• Increased funding and a clear methodology for the operation of the new Loss and Damage Fund that was established at COP 28. This could well be vital to a successful outcome at COP 29, as many developing countries have expressed scepticism about the level of funding to date and the definitions of who should be providing and receiving finance. 

• Commitments to greater ambition on mitigation in light of the results of the global stocktake at COP 28, which clearly demonstrated that the current nationally determined contributions (NDCs) leave the world well off track to meet its climate targets. New NDCs must be submitted in early 2025, but prior to that countries must submit their Biennial Transparency Reports (BTRs) by the end of this year. The Azerbaijani presidency is prioritising this process at COP 29 as it will provide further evidence of the progress (or lack of it) towards meeting climate targets. 

• Discussing progress against the other major COP 28 commitments, including the goals of tripling renewable energy by 2030, doubling energy efficiency and transitioning away from fossil fuels in the energy system. Although this is not on the official agenda it is sure to be brought up in the early days of the conference.

• Ensuring that commitments on the reduction in non-CO2 gases, especially methane, are being met and that measurement, reporting and verification systems are in place and operational. Again, this is not a topic for the official intergovernmental agenda but has been driven by a number of NGOs and lobby groups and further discussion is very likely at this COP. 

• Completing the negotiations on how to operationalise carbon markets under Article 6 of the Paris Agreement to ensure credibility, full accounting and transparency that will provide the confidence that market actors need. 

• Discussions on the prioritisation of adaptation as it becomes increasingly obvious that higher global temperatures are already impacting many parts of the globe, especially developing nations.

Underlying all the discussions will be a raft of geopolitical issues including the widening conflict in the Middle East, Russia’s continuing invasion of Ukraine, the outcome of the US presidential election, the deterioration in US-China commercial, trade, and political relations and the global impact of the green industrial strategies developed in a number of countries, in particular the EU, the US and China, on competitiveness and protectionism.

Finance: how much will be pledged, who will be paying, who will be receiving and how will funds be made available?

One of the first priorities of the COP will be to set the “new collective quantified goal” (NCQG) for the mobilization of finance to the developing world to fund mitigation and adaptation. The current level of funding, established in 2008, established that developing countries should provide and mobilize $100 billion per annum from 2020-2024. The target was missed in 2020 and 2021, and although the OECD claimed that it had been met in 2022, this remains disputed by many developing countries. A new target now needs to be set for the period 2025-2029 and a number of key issues need to be discussed. 

Firstly, the overall amount, or quantum in COP-speak, that needs to be committed. There is a broad agreement that the $100 billion figure needs to be increased significantly, but the exact amount is hotly debated. Based on a UN forecast of $6 trillion needing to be spent on the energy transition in the developing world by 2030, a figure of around $1 trillion per annum has been mentioned by some developing nations, while developed countries have merely talked of negotiating “from a base of $100 billion”. Thus, there is clearly a wide gap to be bridged. 

However, the overall figure is only one part of the debate. At the Bonn climate conference, held annually in June as the precursor to all COP meetings, developed countries argued that there needs to be a clearer definition of who should be the recipients and contributor of funds, and the original 1992 UN designation of “Annex I” (developed) and “non-Annex I” (developing) countries is now out-of-date. A country like Singapore, for example, is now one of the richest in the world on a per capita basis and so can no longer be called a developing country. But more importantly the positions of China, India and Saudi Arabia as potential recipients of funds, rather than contributors, is being called into question. There has been a push-back from developing countries who state that the developed world needs to accept its responsibilities rather than try to change the terms of reference, and as a result, this definitional debate has the potential to disrupt the overall negotiations.

Furthermore, discussions will also need to take place about the form of financing that will be provided and mobilized. Developing countries argue for the use of grants and preferential loans at very low interest rates to minimise the impact on their balance sheets. On the other hand, developed countries are reluctant to just give funds with limited governance controls and obviously would prefer loans that provide some form of interest-based return. Another complaint from developing countries is that much of the finance provided by developed countries is not actually “new money” but is rather funds that have been re-allocated from existing aid budgets. As a result, the form and transparency of any new financial commitments will also need to be resolved at the COP if any NCQG target is to be believed and trusted. 

A number of other key issues relating to finance will also be on the COP agenda. Developing countries are keen to promote the idea of debt relief as an important source of financial support in order to reduce their debt burden and allow them to raise new capital at a lower cost. On a related note, the roles of the World Bank, the IMF and other regional development banks are also being questioned, and the debate around whether they have been focused enough on providing cheaper finance and structures to reduce private sector risk will continue at COP 29. This will undoubtedly generate debate about the role of the private sector in meeting the finance gap in the developing world and it will be critical to see if a balance can be found between public sector commitments in the NCQG and the incentives that are needed to encourage the flow of private capital.

Overall, then, the topic of finance is set to dominate COP 29. The Azerbaijani presidency has defined one of its two COP pillars as “enable action”, which it sees as a reflection of the critical role of finance in accelerating the transition. However, if the outcome of the Bonn summit in June is anything to go by, the Azerbaijani team must use all of its diplomatic powers to reach a compromise that satisfies all parties. Many delegates were very frustrated with the outcome in Bonn, claiming that no substantive progress had been made, and as a result it is no exaggeration to assert that finance will be the defining issue for COP 29 and one that, if not resolved clearly and fairly, could derail the COP process. Compromise may be sought in the language used to describe the “provision” as opposed to the ”mobilisation” of finance, but at the end of the day developing countries will be seeking much greater commitment from the developed world and will be very disappointed if it does not materialise.

The formation of the Loss and Damage Fund was one of the major achievements of COP 28 and provided a significant boost on day one of the Conference. Its establishment had been a major demand from developing countries and many delegates from the developed world conceded that it was a necessary concession to provide confidence that richer countries were prepared to take some responsibility for their historical climate-related actions. However, by the end of the Conference, only $792 million had been contributed to the fund – a drop in the ocean compared to the damage being caused each year. At COP 29 it will be important to see whether further progress has been made to operationalise the Fund and to establish a methodology for receiving contributions and dispensing real money. The Fund has now been domiciled at the World Bank and it is hoped that by the start of COP 29 a president will have been appointed to lead the debate on its future. Many of the issues to be resolved are similar to the debate on financing above – who should be the contributors, who should be able to receive funds, what types of donations are acceptable – but finding acceptable answers will be critical. Developing countries see the Loss and Damage Fund both as a source of finance, but also as a sign that the developed countries are taking their needs seriously and that they understand their obligation to repair damage caused by environmental catastrophes which developing countries did little to cause. 

Many of the critical issues from the past three COPs will remain on the agenda at COP 29, reflecting the fact that this global negotiation process is a slow and complex one and requires consensus on all major decisions. As a result, it is unrealistic to expect substantive progress to be made in Baku. Having said this, COP 29 has justifiably been labelled the finance COP because some critical decisions, especially on the NCQG, need to be made concerning how finance will be provided to the developing world to ensure a just, equitable and sufficiently rapid transition to keep the world aligned with its climate targets. The numbers are very large and the debate around which countries should be contributing, which should be receiving funds and via which methods, is becoming increasingly fractious. Furthermore, the issue of Loss and Damage has yet to be fully resolved and remains an acid test of developed world commitment as far as developing countries are concerned. With this contentious backdrop, COP 29 also needs to make progress on the ambition for new NDCs, reviewing progress on methane leakage, the planning and financing of adaptation measures, and the formalisation of the carbon offset market along with many other non-energy issues. With a turbulent geopolitical situation further complicating matters, the Azerbaijani presidency will have plenty of work to do to bring delegates to the signing of a consensus-based communique that can maintain confidence that the world can meet its climate ambition on a timescale that balances vastly differing views on how this can be achieved in a just and orderly manner.

Access the complete report here