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From Baku - The target is 1.3 trillion dollars a year by 2035 to help developing countries mitigate and adapt to climate change. But only 300 billion will be provided in the shape they need most: grants and low-interest loans from developed countries. At 2:39 a.m. Baku time, the most anticipated and controversial text on climate finance was adopted. An agreement that displeases especially the least developed countries and civil society, but keeps the Paris Agreement alive (for how much longer?).

Tasneem Essop, head of Climate Action Network, sums up COP29 well: “This was the most horrendous climate negotiation in years due to the bad faith of developed countries. As civil society, we asked developing countries to reject a bad deal, a deal that would have betrayed the people of the global South.” Added to which, however, is the reluctance of the petrostates, the reluctance of new economies such as India and Brazil to play their part, and the insufficient role of China, which with the coming U.S. exodus will have to take on the job as a leader along with Europe.

Nevertheless, in a highly polarized world, climate multilateralism seems to be sticking. The overall mobilization commitment of 1.3 trillion a year represents a political step forward from developed countries. And this is despite the announcements of the next U.S. president, Donald Trump, and the hostile role of petrostates such as Saudi Arabia and Azerbaijan itself, which has not excelled in negotiating management. Looking at the overall outcome of the past two weeks, it is clear how we have entered a difficult era for the Paris Agreement and the climate struggle. We'll get the final test next year at COP30 Belem, when all the new NDCs, the nations' decarbonization commitments, will be presented.

The outcome on finance and mitigation at COP29, however, is enough to raise alarm bells. In the text on emission reductions (Mitigation Work Program), the reference to limiting temperature increases to within 1.5°C above pre-industrial levels is even disappearing, and decisions on the implementation of the Global Stocktake are postponed until next year.

“The influence of fossil fuel economy-related interests, through producing countries such as Saudi Arabia and Russia, and fossil fuel companies, which together preach technological neutrality to maintain the status quo, predominated at both COP29 and G20 Rio, blocking the actions needed for the green transition,” explains Eleonora Cogo, an international finance expert at ECCO, an Italian climate think tank. “The push for phony solutions, that we see strongly also in Italy on gas, biofuels and nuclear, stalls innovation, putting industrial competitiveness at risk, and restricts social access to the transition, in favor of a few but strong economic interests.”

Market solutions such as Article 6 on carbon markets alone have found consensus, while much remains to be accomplished for broad global finance reform. Courage to propose new solutions and mechanisms is lacking; there is no acceptance of overcoming the Manichean division between developing and developed countries, even though China, Brazil, India, Saudi Arabia, and Russia want to rise as new global powers. COP29 was neither a historical nor forward-looking negotiation, but a worrying warning sign.

1.3 trillion and where to find it

The New Collective Quantified Goal's text estimates the cost of mitigation and adaptation for developing countries: a monstrous 5.1-6.8 trillion dollars through 2030, or 455-584 billion per year, while the financial need for adaptation is estimated at $215-387 billion per year through 2030. The new goal will be used to support especially those countries that do not have sufficient resources, “nationally determined emission reduction contributions, national adaptation plans, and communications on adaptation” particularly targeting the least developed countries and less wealthy island states.

An estimated handling of 1.3 trillion dollars is expected to be reached by 2035, with contributions from all countries, and from public and private finance. The industrialized world is expected to shoulder the biggest part – already putting in 100 billion a year – but Europe, the U.S., Japan and others are not in a political conjuncture to explain to taxpayers why they will have to at least triple what they already allocate. The narrow target reached is 300 billion dollars by 2035, “from a wide variety of sources, public and private, bilateral and multilateral, including alternative sources (taxes, climate-debt swaps, philanthropy, for which we will figure out how to account).” It is recognized to “account for all climate-related outflows and financing and specifically those for the achievement of the NCQG, the 1.3 trillion.”

The rest of the text offers generic recommendations: strengthen bilateral cooperation; support multilateral banks; increase efforts on adaptation; and reduce the cost of capital through use of innovative tools. It also states to triple public resources (between 2022 and 2030) for adaptation through various existing funds, such as the Adaptation Fund, the Least Developed Countries Fund, and the Special Climate Change Fund, for both developed and developing countries.

Avinash Persaud, a climate finance expert at the Inter-American Development Bank, is a realist, and comments to Renewable Matter, “It's been a fierce fight, but with 300 billion dollars a year disbursed from developed countries to developing countries, we've reached the limit between what is politically feasible today in developed countries and what would make a difference in developing countries.” Very little, given that this decision will shape the next ten years of action.

An attempt to salvage the process is being made with a classic COP strategy whenever governments are unambitious: launching a roadmap, christened the Baku to Belém Roadmap to 1.3T, where the T is suggestive of trillions. The two presidencies of Brazil and Azerbaijan will have to figure out by COP30 how to move new resources through grants, facilitated and non-debt-creating instruments, and new fiscal measures. As with the DSI in the biodiversity agreement, a 1 percent tax on the turnover of Oil & Gas companies would be appropriate. Or new carbon taxes, or the G20 proposal to tax the super rich.

That leaves the issue of how the money will be spent. If Minister Gilberto Pichetto Fratin comments at the end of negotiations that “we brought the spirit of the Mattei Plan into the COP29 debate,” it is worth remembering how the Italian Climate Fund is not the best example of good use of climate finance. Transparency and accountability will eventually tell us over the years whether these resources have really been useful. Hopefully, it will not be too late.

The mitigation program

Cutting greenhouse gas emissions is the central goal of the Paris Agreement, but weak work on the issue can be described as the figurehead of Babayev's presidency. Despite UNEP's reiteration that current NDCs result in catastrophic global warming of up to 2.6°C over the century, negotiation on mitigation has been hampered mainly by China, Saudi Arabia, and African countries, including lobbying for NCQG funds. According to Jacopo Bencini, president of Italian Climate Network, “these countries have repeatedly stressed that they do not want to accept targets imposed from above or from other states.” No reference to the “transition away from fossil fuel” decided at COP28, reaching peak emissions before 2025, renewables, transition, storage.

The bulk of the text focuses on construction and operational emissions. A good indication for public administration given the focus on “the importance of integrating climate action into work on building and urban systems, in order to reduce emissions through long-term planning in the context of efforts for sustainable development and to eradicate poverty and inequality.” However, the disappointment is strong. If there are no new ambitious NDCs and strengthened implementation of the Global Stocktake, achieving even the 2°C target will be in doubt.

Article 6, green light for new global carbon markets

After 9 years, the last article of the Paris Agreement that was not yet operational was finalized. The finalization pertained to carbon markets, specifically the Cooperative Approaches Article (Article 6.2) and the Centralized Mechanism for Mitigation and Sustainable Development (Article 6.4). Although carbon markets will contribute only minimally to the financial targets for combating climate change, the approval was welcomed by practitioners, despite criticism from the Global South.

Article 6.4 establishes the Crediting Mechanism under the Paris Agreement (PACM), the first UN-supervised global marketplace with unified standards for afforestation and reforestation projects and tools for sustainable development, including the Sustainable Development Tool (an ex ante assessment of each new project based on the SDGs), to meet the demands of indigenous peoples and NGOs. Italian Climate Network explains, “The methodology adopted involves structuring the (historical) baselines on which to calculate the mitigation contribution according to a downward trajectory over time (downwarding adjustment), even though civil society points out that the calculation methodologies may not be as stringent or precise.” Clean Develpment Mechanisms (CDMs), an old and failed carbon market tool of the Kyoto Protocol, will flow into this market, provided they meet the new requirements.

“This is an important decision because it recreates a global carbon market after the Kyoto Protocol, it provides a global price signal, and it will develop more collaborations between states, while not eliminating the fragmentation of the 50 or so national and regional markets that already exist,” comments Edoardo Croci of Bocconi University. “These credits will also be able to be used in the voluntary market, so it's a signal of convergence, development of better transparency rules and greater market strength.”

Article 6.2 legally establishes ITMOs, greenhouse gas emission reduction or removal projects transferred between countries as a cooperation mechanism. If an African government builds a wind farm that generates an annual reduction of 100,000 tons of CO₂ equivalent, it will be able to sell the carbon credits to another nation, which will then count the emission reduction in its CO₂ budget. All ITMOs will be listed in a single registry.

Simone Fant contributed to this article

Cover: Simon Stiell, Executive Secretary of the UNFCCC, and Mukhtar Babayev, COP29 President © COP29