The 28th United Nations Climate Change Conference of the Parties (COP28) is fast approaching with climate leaders, negotiators, and civil society set to converge in Dubai.
In the realm of climate finance, COP28 will take place against a backdrop of efforts to reform financial institutions and mobilize new funds, including steps taken to update the multilateral development banks, debt restructuring deals discussed at the Paris Summit for a New Global Financing Pact, and an announcement by the UAE of its new U.S. $4.5 billion fund for clean energy in Africa.
Even though total global climate finance has nearly quadrupled since 2011, it still represents only 1 percent of global GDP and is not increasing fast enough to keep the planet within 1.5 degrees Celsius of pre-industrial temperatures. Much more private sector investment is needed—particularly in the Global South and for adaptation projects—to ensure that those most vulnerable to climate change and yet least responsible for its origins have the resources to mitigate, avert, and respond to its impacts.
With that in mind, here are four key climate finance issues to watch at COP28:
1. Funding for loss and damage
Following a major breakthrough at COP27 where countries agreed to establish new funding arrangements for loss and damage (L&D), countries are facing a deadline to operationalize the funding arrangements and the L&D fund at COP28. There is immense pressure to keep momentum on L&D high and to deliver specifics on the ‘mosaic of solutions’ available to help vulnerable countries respond to unavoidable climate impacts.
Negotiations throughout 2023 within the L&D Transitional Committee have had to overcome disagreement on all manner of issues. This included whether the fund should be housed under a multilateral institution like the World Bank or operate independently, which countries or innovative sources would contribute, how funds would be dispersed, and which countries would be eligible to receive them.
While the Transitional Committee Co-chairs’ proposal is now headed for adoption at COP28, some disagreement remains to be addressed in Dubai. As a strong corollary to climate justice, L&D has the power to set the tone for the entire COP, making it critical for Parties to find agreement within the existing framework this year.
2. Tracking delivery of climate finance pledges
Developed countries are three years past due on a pledge to jointly mobilize U.S. $100 billion annually until 2025 for climate action in low- and middle-income countries, a broken promise that has eroded trust between Parties with each successive COP. While contributions of rich nations have continued to increase and surpass projections—raising U.S. $89.6 billion in 2021—and leaders express confidence that the goal will be met no later than 2023 and possibly in 2022, data lags in reporting mean that confirmation may not come until 2025.
A related commitment is the doubling of adaptation finance by 2025 agreed at COP26. Funding provided to developing countries for adaptation continues to be disproportionately lower than for mitigation projects and faces challenges in delivering better quality finance that does not worsen existing debt burdens. Similarly, the second replenishment of the Green Climate Fund (GCF) in October saw developed countries fail to reach a U.S. $10 billion target. Five countries have since pledged donations without specifying an amount, but if the GCF goal can be met during COP28, it could help to build good faith amongst Parties.
Progress towards these pledges feature heavily in the ongoing deliberations on the post-2025 finance goal due to be adopted next year at COP29, known as the New Collective Quantified Goal (NCQG) on climate finance. The NCQG is obligated to take the needs of developing countries into account and, while estimations of these needs can vary depending on the report, they are consistently pegged at several trillion dollars annually before 2030 to help low-income countries implement their climate goals.
In Dubai, negotiators and technical experts will hold the eighth in a series of NCQG meetings while finance ministers discuss political objectives in a high-level ministerial dialogue. Some countries—including Saudi Arabia and India—have signaled a desire to begin committing pieces of the NCQG to paper in an “early harvest” of the 2024 goal, though it’s unclear what feature of the goal could be achieved outside a package deal. Nonetheless, the NCQG represents a unique opportunity for countries to reaffirm their commitment to provide and catalyze the trillions of dollars required to meet the needs of those most vulnerable.
3. Article 2.1(c): the drive to align global financial flows with the Paris Agreement
In order to scale finance into the trillions needed for emerging markets to reduce emissions and improve resilience, it is critical that countries use all of the financial, fiscal, and regulatory tools at their disposal to mobilize finance to climate causes.
Article 2.1(c), one of the three long-term goals of the Paris Agreement, acknowledges this importance. It calls on countries to “make financial flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development,” but has been difficult to operationalize given limited agreement on its scope and mechanisms for implementation and evaluation.
At COP27, countries agreed to begin discussions on how to assess and achieve this type of “climate-consistency” in all forms of finance—public and private, international and domestic—and opened the Sharm el-Sheikh Dialogue, which held two meetings over the course of this year.
Understanding what collective progress looks like in the alignment of financial flows will be a crucial part of the first Global Stocktake (GST), which will culminate in a summary of key political messages at COP28. Though Article 2.1(c) became a flashpoint during GST negotiations at summer meetings in Bonn, industrialized economies—including the United States, European Union, New Zealand, and Australia—look poised to push for an expansion of the dialogue through an addition of a COP agenda item on the issue. That said, many developing countries see Article 2.1(c) as an attempt by their richer counterparts to evade Article 9 obligations to provide financial resources to poorer countries’ climate commitments, making the proposed agenda item quite controversial.
Despite the immense disparity between the climate finance mobilized today and the real finance needed, the IPCC’s latest report confirms a long-known reality: the resources to close this investment gap already exist. Now is the time to mobilize and redirect this funding towards the shared goals of the Paris Agreement. The imposing task at COP28 will be to find a way to move this capital to climate action.
4. COP28 pledges must be matched with financing plans
Ahead of the COP, support has been building around new global goals to triple renewable energy capacity and double the rate of energy efficiency by 2030. More than 60 countries, including the UAE COP Presidency, and 250 organizations have signaled their support for the measures, with China also indicating interest in recent bilateral talks with the United States. This makes the energy transition, together with the phaseout or phasedown of unabated fossil fuels, a likely contender for the key deliverable from COP28.
As exciting as this successful prospect might be, these pledges must be accompanied by commitments from countries, multilateral development banks, and the private sector to at least triple the proportion of finance and investments in renewable energy by the end of the decade. This need for investment is particularly acute among developing countries.
According to IRENA, tripling renewable energy installations alone would cost an estimated U.S. $1.3 trillion annually by 2030, 2.6 times larger than investments made in 2022. Additional calls for capital will be critical to create the necessary enabling environment and leverage public and private finance in support of the deployment of renewable energy and energy efficiency technologies, particularly throughout developing countries.
C2ES lays out options for countries to embed the recognition of increased global investment in renewable energy generation in its recent technical paper, A Solutions-Oriented Approach to the Global Stocktake.