A new climate finance goal is in the making: what must happen in 2023?
Next week, technical experts will gather in Vienna to resume talks on a new global goal for post-2025 climate finance. Illari Aragon explores the issues that will be critical at the negotiations.
The new collective quantified goal on climate finance, or NCQG, is set to be agreed by 2024. This goal will supersede the US$100 billion target agreed in 2009 and should be informed by the needs and priorities of developing countries.
The NCQG work programme runs from 2022-24 and includes four technical expert dialogues (TEDs) each year and a High-level Ministerial Dialogue.
Many stakeholders were dissatisfied with the results of the first four TEDs in 2022. Although the discussions were wide-ranging, there was a general sense that the TEDs didn't establish a clear roadmap for reaching an agreement by 2024. There was also concern that the November 2022 High-Level Ministerial Dialogue did not provide the political momentum needed to progress technical discussions, with ministers opting to read prepared statements instead of engaging in substantive talks.
At COP27, some delegates wanted to start talking about more substantive matters. For example, they called for discussions on the amount of the new goal, with some countries seeking to reference the need for “trillions” while others considered that it was premature to talk about a “quantum”.
In the end, the COP27 decision was procedural, asking the NCQG co-chairs to develop a 2023 work plan, inviting parties and civil society to present written submissions – but failing to reference more substantive aspects.
Deliberations on the NCQG will resume next week with the 5th (TED) in Vienna, from the 8-10 of March.
Since the first year of TEDs only left us with procedural outcomes, here I look at key substantive matters that need urgent progress.
Approximations to the quantum
The monetary amount of the new goal is a fundamental issue. Unlike the $100 billion goal, which was politically determined, the post-2025 goal will be a negotiated target, scientifically based, and set to respond to the needs and priorities of developing countries. So, understanding what these needs are is essential.
In 2021, the standing committee on finance concluded in its first needs determination report (PDF) that developing countries will need $5.8-5.9 trillion up to 2030 to finance actions listed in their Nationally Determined Contributions (NDCs). But the report also noted acute data gaps. In 2016, a UN Environment Programme report estimated that by 2030 the annual global cost of adaptation alone would likely be $140–300 billion.
While most countries have broadly articulated their needs in NDCs, they’ve used different methodologies to cost them. Furthermore, difficulties in estimating and gaps in data mean that adaptation needs could be severely underestimated. Many parties have called for the inclusion of loss and damage in the new goal, yet only a handful of countries referred to loss and damage needs in their NDCs. Capacity building is crucial to improve information on this aspect.
The quantum of the goal will no doubt be one of the most contentious issues to resolve in 2024. To open the way for agreement, this year’s deliberations must start translating needs into quantitative estimates, agreeing on an initial order of magnitude – or at least discuss the options for agreeing on a quantitative figure.
Another crucial matter is whether the goal should be a single aggregate figure – like the $100 billion goal – or whether there should be sub-goals for different focus areas. The distinct roles of mitigation and adaptation mean that considering separate targets (sub-goals) might be a valuable option, helping to better balance the proportion of funds supporting each.
Many countries have also advocated for including a sub-goal on loss and damage. How this links with the new loss and damage fund adopted at COP27 also needs to be decided.
The timeframe: a goal forever?
The time horizon of the NCQG is also unclear. The current goal has a static time frame: “$100 billion by 2020”, but some countries say the new goal should be structured with quantified milestones set at 2030, 2040 and out to 2050. And these milestones could also be accompanied by review cycles at shorter intervals (every five years, for example).
We need a focused discussion on how review and adjustment mechanisms can be embedded in the NCQG to ensure that it continues to reflect changing needs.
TED reports must capture specific options and proposals to ensure technical discussions progress as far and as effectively as possible in 2023, leaving 2024 for refining details and making decisions.
Learning lessons from the $100 billion
Parties must learn from the $100 billion goal. From a better understanding of what climate finance actually is, to better methodologies for counting it, much can be improved this time. Here are two critical aspects:
Scaling up private finance?
The scale of needs (in the trillions) makes it difficult to envisage that the NCQG can be met with public funds alone. This is why many countries have talked about the need to design the NCQG in ways that can better tap into private finance.
While public finance, especially grants, must continue to play a significant role, public resources can also leverage private finance. In fact, for the $100 billion goal, private finance mobilised by bilateral and multilateral public finance (attributable to developed countries) was included as part of the goal and counted towards developed countries’ fulfilment of their commitments. However, this particular segment of climate finance remained inadequate, contributing to the failure to achieve the $100bn by 2020.
We must understand the private sector’s motivations for engaging in climate projects (most are focused on mitigation) and understand why attempts to mobilise private capital have not been more successful. This can provide the basis for developing incentives and policies that increase private finance, particularly for adaptation.
Since concessional public funding will not match the scale of need, many parties think the NCQG should consider new and innovative financial instruments beyond loans and grants, such as debt swaps, blended finance, levies and taxes, special drawing rights or policy-based guarantees.
While it is important to discuss the nature and value of these different instruments – especially as they represent alternatives to loans – it is also crucial to analyse their suitability for the different thematic responses (mitigation, adaptation and loss and damage) and the capacity of most vulnerable countries to engage with these instruments.
For example, throughout the 2022 TEDs, countries vulnerable to climate impacts stressed the critical role of grant-based finance for adaptation; but this largely supports activities that don’t generate revenue and is thus an unsuitable focus for repayable instruments.
2023: a stepping stone to a successful 2024
We look forward to robust discussions at TED-5 in Vienna. This meeting and all the 2023 TEDs should result in a document that presents concrete recommendations, with options on technical matters and noting the most contentious issues that need ministers’ guidance.
This can pave the way for a climate finance outcome in 2024 that meets expectations and delivers on its promises.