As the world grapples with the escalating impacts of climate change, the question of climate finance—how much is needed and who will pay for it—takes center stage ahead of COP29, the 2024 United Nations Climate Change Conference. Set to be held in Azerbaijan this November, COP29 will convene nearly 200 nations to address the mounting financial demands of climate action, particularly in developing countries, and to chart a path forward for global cooperation on climate finance.
What is Climate Finance?
Climate finance refers to the funding required to mitigate and adapt to the effects of climate change. While there is no universally agreed-upon definition, the Paris Agreement provides a general guideline, describing it as money spent “consistent with a pathway towards low greenhouse gas emissions and climate-resilient development.” This encompasses investments in clean energy technologies, electric vehicles, and adaptation measures like infrastructure improvements to guard against rising sea levels.
However, what qualifies as climate finance remains a gray area. For instance, should subsidies for a water-efficient hotel or other non-traditional investments be considered part of the broader climate finance umbrella? These ambiguities underscore the difficulty of defining and measuring climate finance, a challenge that negotiators at COP29 will need to tackle.
How Much Is Needed?
The scale of the financial challenge is staggering. According to the Climate Policy Initiative, a nonprofit research organization, the world will need to spend around $10 trillion annually in climate finance between 2030 and 2050. In contrast, only $1.3 trillion was spent globally on climate finance in 2021-2022.
In the context of UN negotiations, climate finance is often discussed in terms of the financial hurdles that developing nations face in adapting to climate change. Experts commissioned by the UN estimate that these countries (excluding China) will require around $2.4 trillion per year by 2030 to cope with the impacts of climate change. Despite efforts to bridge this gap, the line between climate finance and traditional development aid often becomes blurred, complicating efforts to deliver the necessary resources.
Who Will Pay?
A central focus of COP29 will be determining who should bear the financial burden of climate action. Under the UN Framework Convention on Climate Change (UNFCCC), a 1992 accord, wealthy industrialized nations—those most responsible for historic greenhouse gas emissions—are obligated to provide financial assistance to developing countries. In 2009, these nations, including the U.S., the European Union, and Japan, committed to providing $100 billion per year in climate finance by 2020. However, this target was only met for the first time in 2022, eroding trust between developed and developing nations.
As COP29 approaches, a new finance goal for post-2025 is on the agenda. However, deep divisions persist over how much should be contributed and by whom. Developing nations, led by India, are calling for a substantial increase, with demands for $1 trillion annually—a tenfold jump from the current pledge. Meanwhile, countries traditionally responsible for funding climate initiatives are urging emerging economies, such as China and Gulf nations, to contribute, citing their substantial greenhouse gas emissions and economic growth since 1992. China, the world’s largest emitter today, remains opposed to these proposals.
Where Will the Money Come From?
Today, most climate finance is channeled through development banks and international funds like the Green Climate Fund and the Global Environment Facility. However, these mechanisms have faced criticism, particularly because two-thirds of the $100 billion in annual finance has been disbursed as loans, which developing nations argue worsens their debt burdens.
To meet the growing financial needs, new funding mechanisms are being discussed. Proposals include a global tax on billionaires, which Brazil intends to promote at the G20, and new taxes on aviation and maritime transport, an idea supported by France, Kenya, and Barbados. Additionally, calls are growing for the redirection of fossil fuel subsidies toward clean energy investments or for the forgiveness of developing nations’ debt in exchange for climate action commitments.
Azerbaijan, the COP29 host, has floated a novel proposal to ask fossil fuel producers to contribute to a fund for climate finance. Meanwhile, the “loss and damage” fund, established at COP28 to help vulnerable nations cope with climate disasters, has yet to fully materialize, with only $661 million pledged thus far.
Conclusion
COP29 will play a critical role in shaping the future of climate finance. As the world faces an urgent need for trillions of dollars in funding to mitigate and adapt to climate change, the key question remains: who will pay, and how will the necessary resources be mobilized? The outcome of this year’s climate summit could determine whether the world is on track to meet its climate goals or remains mired in division and underfunding.
