At the COP29 climate talks in Baku, economists warned that developing countries will need at least $1 trillion per year by the end of the decade to address climate change. The call for funding comes as negotiations over financing the green energy transition intensify.
Focus on Climate Finance
Climate finance is a central topic at COP29. The summit will likely be judged based on whether it can agree on a new target for funding. Wealthier nations, development lenders, and the private sector are expected to provide support to help developing countries transition to renewable energy and adapt to extreme weather.
Reaching an agreement on this financial target is proving challenging, especially amid rising diplomatic tensions and global political uncertainty. The mood at COP29 has been strained by these disputes, complicating efforts to secure funding commitments.
Also read: Climate finance at COP29 may settle in the ‘hundreds of billions,’ say key negotiators
Tensions and Diplomatic Rows
Tensions between developed and developing nations have been evident in both the public and private sessions. The rise of populism, especially with the looming shadow of Donald Trump’s presidential election win, has further complicated the negotiations.
The mood at COP29 has been described as pessimistic, with countries expressing concerns about how global political shifts will impact climate talks.
Yalchin Rafiyev, the lead negotiator at COP29, stressed the urgency, saying that “the clock is ticking.” He urged countries to engage directly with each other and take responsibility for finding solutions.
Also read: Ahead of COP29, India to Stress Paris Agreement Principles on Climate Finance
Finance Goals and Progress
The previous finance goal of $100 billion per year, which was set to expire in 2025, was met two years late in 2022. However, much of this funding was in the form of loans, not grants. Developing nations have pushed for a change, requesting more grants and fewer loans to fund their climate transition.
A report from the Independent High-Level Expert Group on Climate Finance suggests that the annual target should increase to at least $1.3 trillion by 2035. The report warns that any shortfall in funding before 2030 will make it harder to reach climate stability in the future.
Multilateral Banks and Private Sector Contributions
Behind the scenes, negotiators are working on draft texts, but the process remains slow. Some delegations have expressed frustration with the lengthy finance documents, waiting for more concise proposals.
Western governments are reluctant to increase contributions unless countries like China join the effort. The likely withdrawal of the U.S. from future funding deals puts additional pressure on other delegates to find alternative sources of funding.
Multilateral development banks (MDBs), such as the World Bank, play a crucial role in this process. These institutions, funded by wealthier countries, are undergoing reforms to increase their lending capacity. The 10 largest MDBs have pledged to raise climate finance by about 60%, targeting $120 billion annually by 2030. The private sector is expected to contribute at least an additional $65 billion.
Azerbaijan’s Contribution
In a positive development, Zakir Nuriyev, head of the Association of Banks of Azerbaijan, announced that the country’s 22 banks would commit nearly $1.2 billion to finance projects supporting Azerbaijan’s transition to a low-carbon economy. This contribution toward meeting the funding challenges facing seen as a step in developing countries.