This year’s gathering at the Conference of the Parties to the United Nations Framework Convention on Climate Change (COP29) in Azerbaijan, the ‘Finance COP’, will be crucial, as countries will look to secure additional public and private financing for climate initiatives.
Over 12 days of discussion in the City of Baku, thousands of negotiators and leaders from the public and private sectors will work to advance progress on implementation of the Paris Agreement. Like previous COPs, the official negotiations will be somewhat separate from the impressive range of informal events on solutions - everything from decarbonization in industrial and commercial operations, the continued reduction of fossil fuel use, nature-based mitigation solutions, building resilience to unavoidable climate impacts, and engagement of Indigenous People in climate action.
Negotiators themselves will be taking up the critical issue of a new global target for funding and financing – without which none of the solutions will be fully realized – and which could impact the ambition of developing countries’ future emission reduction targets and whether they get implemented.
This will be a particularly consequential COP for Canada, which will take up the presidency of the G7 in January 2025 and, as such, will have a responsibility to help marshal global efforts to implement the decisions taken in Baku.
Looking Back at COP28
In Dubai, countries undertook the first Global Stocktake. This regular accounting of progress against the Paris Agreement’s goals of limiting warming, achieving resilience and transforming finance is planned every five years as a way for UNFCCC Parties to “take stock” before making their next round of emission reduction pledges and commitments to provision of support. Without surprise, Dubai found that progress was too slow on reducing emissions, that billions around the world remain highly vulnerable to the impacts of climate change, and that without significant additional funding and financing, we could remain off-track in terms of our global efforts to address climate change.
Canada did not come to Dubai last year with major financial commitments. Those totaling 67$M that were announced, just like the larger initiatives announced at the G7 Summit in Italy this summer, were largely funded out of Canada’s prior commitment to $5.3 billion in support to developing countries over 2021-2026.
Canada also made commitments related to squaring the circle between being a major oil and gas producer in a world where demand remains strong and needing to reduce the climate impact of the industry to achieve its own targets. The Net-Zero Producers Forum (Canada, U.S., Norway, Saudi Araba, Qatar, and the United Arab Emirates), introduced the Upstream Methane Abatement Toolbox. The Toolbox, according to Natural Resources Canada, “… provides information on measures taken so far and lessons learned in implementing methane-abatement technologies. Its goal is to highlight existing and planned methane-abatement policies, resources and initiatives across the member countries.”
Canada also:
In proposing and/or backing these initiatives, the government committed itself to further action and investment on reducing national and global emissions.
Climate Finance – The Keystone Challenge
The biggest point of contention at this year’s COP is the New Collective Quantified Goal (NCQG), to build upon the previous goal set at the Copenhagen Climate Summit in 2009, which committed developed countries to mobilizing US$100 billion per year by 2020 to address the needs of developing countries (and which was only achieved in 2022, with mobilization reaching just shy of US$116 billion).
The 2015 Paris Agreement committed Parties to reset this collective quantified goal every five years, with a new goal set for 2025 with US$100 billion per year as the floor. From the World Economic Forum: “The NCQG […] was adopted in 2015 to strengthen the global response to the threat of climate change. […]. However, though the world has begun to hit this number, the efficacy of these funds in driving climate-friendly development without creating debt repayment issues is very much in question, highlighting the need for a more robust and effective financial mechanism.”
Indeed, for the moment, the official mechanisms of the UNFCCC, such as the Global Environment Facility, the Green Climate Fund, and the Loss and Damage Fund introduced at COP28 in Dubai, have helped advance the financing of projects in developing countries, but have not yet met developing country expectations for large-scale and easy-to-access funding sources to complement channels like the World Bank and bilateral development assistance.
Nor have they contributed sufficiently to the mobilization of trillions of institutional capital to climate projects outside the developed world. In fact, even in the richest countries, not enough money is flowing to climate-friendly investments, even if progress has been made.
Developing countries want Baku to be a game changer for finance – asking for billions in pledges to the Loss and Damage Fund and looking for the NCQG to not only be much larger than the prior $100B, but also to be much more reliant on public funding provision rather than private sector finance mobilization. They will argue that without significant funding on the table, they will find it challenging to increase their ambition when they put their next Nationally Determined Contribution on the table – due in 2025. After all, it is understood as a core principle of the UNFCCC that developing countries need support to be able to act, with developed countries having to take the lead in providing such support due to their historical responsibility for causing change in the first place and the right of developing countries to pursue sustainable development and poverty reduction.
However, countries like Canada, struggling with significant expenses and debts at home, will struggle to make financial pledges that go well beyond what they have already committed. They will also be reluctant to give up the need to focus on tapping into the massive pools of private capital that could deploy significant more financing in the context of ambitious targets, an enhanced international architecture and enabling national policy, and a more robust pipeline of climate-aligned projects supported by catalytic public support.
The bottom line, however, is that without significant additional funding and financing – for domestic projects and to support developing country action – keeping warming well below two degrees and closer to 1.5 degrees will be elusive and we will risk catastrophic climate change outcomes, putting our societies in greater peril.
Canadian Expectations in Baku
For Canada, COP29 could be particularly consequential. Beyond the climate impacts on Canadians and their communities in terms of how quickly global climate action progresses, COP29 will have political impacts on the Government (whether the Liberals hold onto power for a full five-year term or not). With Canada assuming the Presidency of the G7 in 2025, Canada will have no choice but to take a leadership position in global climate talks and will under the spotlight for its domestic action.
Canadians still largely want Canada to take ambitious climate action. More fundamentally, Canada remains highly vulnerable to climate change, as evidenced by recent wildfire and flooding events that have been a frightening harbinger of what could be ahead.
Not only is Canada not yet on track to meet its NDC – which commits to a 40-45% reduction in GHG emissions by 2030 against a 2005 baseline – Canada will need to put a 2035 pledge on the table, with a view to achieving net zero emissions by 2050. Canada has made significant progress in reducing the GHG intensity of Canada’s economy – GHGs per dollar of GDP – but it needs to advance on reducing absolute emissions. Scaled up investment will be key.
Furthermore, as G7 President, Canada will be expected to lead through its actions to ensure its credibility as a champion of global action and will be under pressure to up its prior financial pledges (in line with its “fair share” of any new NCQG). Canada will also steer conversations led by Finance Ministers to enhance the capacity of the multilateral system to drive more finance: a longstanding issue that remains largely unaddressed is the need for organizations like the World Bank to be willing to take much more risk with the capital they have and to use that capital more effectively to fill market gaps in the flows of climate finance. The role of institutions like FinDev, EDC and CCC could be helpful in supporting Canada’s efforts to catalyze finance, in partnership where appropriate with the Canadian business and financial sector, all the while respecting Canada’s longstanding commitment to open trade and untied aid.
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