If a serious start is made soon, the energy transition is much cheaper (Kiara Worth/UN Climate Change)

COP29: The climate finance fudge

Acrimonious debate in Baku amounted to a lost opportunity, squabbling over funds when action is needed everywhere for the energy transition.

Stephen Grenville

3 December 20245 min read

Reporting on COP29, the UN climate change talks held this year in Baku, Azerbaijan, has focused on mostly one aspect – the struggle to reach a satisfactory pledge to fund climate change action in the developing countries. Confusion about the purpose and rationale of the funding made the debate acrimonious.

For some, it is restitution for the depredations of colonialism, and/or compensation for the carbon dioxide legacy created by developed countries during their fossil-fuelled ascent to affluence. The “pay up!” demands reflect this sentiment.

For others, it is financial assistance to supplement the inadequate funding available domestically for the many urgent needs of these poor countries, akin to other aid flows, but with a specific purpose.

Some see it as an essential element in solving a “global commons” problem associated with climate change: what’s the point in reducing emissions in rich countries if the poor nations don’t also restrain their emissions?

Some see it as compensation for renouncing cheap coal-fired generation.

Each of these motivations is understandable.

While there is a clear justice-based rationale for pointing to colonial-era exploitation, it doesn’t help much in establishing a realistic figure, as a just compensation would be hard to evaluate and harder still to ascribe to individual contributing counties.

Whatever the appropriate compensation for the “free lunch” the rich countries had in their coal-fuelled past, it is in the self-interest of the poor countries to join in the efforts to address a problem which will impinge on their own welfare so seriously.

Even the $300 billion is an uncertain promise, with past performance suggesting that the actual disbursement will be much less.

The COP process, sensibly, does not try to adjudicate these unresolvable issues. Instead, the Expert Group on Climate Finance has, before each of the last three COP meetings, produced an estimate of “climate and nature-related spending requirements” if the developing countries are to meet the Paris Agreement targets. Some of this can be funded domestically. The residual becomes the longer-term annual target for international finance. This is a big number: $1 trillion in 2030 rising to $1.3 trillion annually by 2035. Nearly half of this is envisaged to come from private foreign finance, incentivised by links with aid funds.

Just what this calculation covers is left somewhat ambiguous. The total figure includes financing additional electricity capacity, needed because of demographics and growth of these economies. Africa, for example, starts with average per capita electricity consumption just one-fifth of the global average. Thus the funding is not so much for a transition to Paris targets, but rather for relieving this energy poverty.

Of course, this figure is little better than a guess, as the cost depends hugely on the efficacy of domestic policy. If a serious start is made soon – allowing the transition to be spread over the quarter-century before 2050, with progressive replacement of aging infrastructure, vehicles and machinery – the transition is much cheaper.

The figure under dispute at Baku (finally, after much acrimony, set at $300 billion annually) was far short (“paltry”, according to the grand-standing Indian delegate) of the $1–1.3 trillion estimate. To put the $1.3 trillion figure in perspective, it is around five times the current total official aid disbursement, although it includes private funding as well. Not only is the means of getting to this larger figure left in limbo, but even the $300 billion is an uncertain promise, with past performance suggesting that the actual disbursement will be much less.

And even this will, to a greater or lesser degree, be met by shifting funds from donors’ regular aid budget.

A village elder in Alor, Eastern Indonesia, charges his phone with his own personal solar panel (Stephen Grenville)

So, should we judge this impassioned diplomacy as generating much heat without helpful illumination? Perhaps there will be some net additional funds flowing to the poor countries as a result. But the gathering of 200 countries also represents a lost opportunity. Climate change is a global problem, with carbon dioxide emissions created anywhere doing equal harm. We all need to do what we can, as quickly as we can.

COP29 was a chance to put pressure on the fossil-fuel producers to make a time-bound commitment to transition, rather than simply see their fossil wealth as an “gift from God”. There might have been some commitment to reduce ubiquitous subsidies on fossil fuels. It was an opportunity to argue convincingly that solar and wind generation are cheaper than fossil fuels, so there should be no regrets about renouncing coal, and climate-transition action now is far better than action delayed.

If the external funding falls far short of the $1–1.3 trillion specified, as seems likely, does that doom the Paris target? Probably not. While climate is an example of the “global commons”, with the possibility of free-riders who make no contribution, the reality is that the main action lies with domestic policies in the rich countries and, much more important still, in the middle-income economies whose growth requires prodigious additional electricity-generating capacity – notably China and India. It is the increasing energy demands in these, and other larger middle-income countries, which is critical to climate transition.

In fact, China and India as major carbon dioxide-generating countries are on what might be seen as feasible transition pathways. Both, understandably, prioritise security of energy supply, so will continue to rely on fossil fuels until they can get growth of renewables capacity to out-pace their rapidly growing demand. Meanwhile, their planning recognises the cost advantages of renewables over fossil fuel generation.

Other countries are doing less well. Indonesia’s nickel processing boom is powered by newly built off-grid coal-fired capacity. Simultaneously with these additions to coal generation, on Java scarce aid money is being used to take excess coal generation off the over-supplied grid. These are matters of domestic policy, unaffected by anything happening at COP.

Meanwhile, most of the poor countries of Africa seem likely to be stuck with their tiny per-capita energy consumption, responsible for generating only a minute fraction of global carbon dioxide emissions, mired in low-energy poverty while bearing the brunt of climate change.

About the author

Stephen Grenville

Dr Grenville is a Nonresident Fellow at the Lowy Institute.

Topics

Climate & environment United Nations