For what is supposed to be a ‘placeholder’ Conference of Parties (COP) before COP 30 in Brazil next year, where updated country goals for climate action will be decided, COP 29 at Baku has already seen a lot of action.

The main aim of this COP, which has also been called the ‘Finance COP’ is to arrive at the definition and scope of a ‘New Collective Quantified Goal’ (NCQG) enshrined in the 2015 Paris Agreement. This is supposed to replace the commitment of a flow of $100 billion dollars annually from developed to developing countries for climate action, which the former claimed to have finally fulfilled in 2022 (as opposed to 2020). ‘Claimed’ because as with so much else about climate negotiations and outcomes, this is hotly debated in terms of what should (or should not) have been included in what was claimed as climate finance. Whatever the outcome of that debate, what cannot be denied is that the grant element in the flows is very small and very little is available at concessional interest rates or terms, going against both the letter and spirit of the Paris Agreement.

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Consequently, it is hardly surprising that the Global North and Global South were heading for a showdown in Baku. Particularly, small island nations (who literally run the risk of being submerged due to climate change-induced rising sea levels) and Africa (groaning under a huge debt burden and therefore financially and macroeconomically very strapped) have long complained that their interests have been completely neglected by the rest of the world and the Global North in particular.  The BASIC countries (Brazil, South Africa, India and China) were also concerned about climate-related trade measures such as the EU’s CBAM, which is contrary to the spirit of the UNFCCC negotiations.

In this backdrop, much to the delight of its Azerbaijani hosts, COP 29 has already seen two important commitments: an agreement on a carbon trading mechanism under the auspices of the UN, which again was a part of the Paris Agreement; and, second, a commitment from multilateral development banks (MDBs) to come up with almost $120 billion of lending resources per annum by 2030, a substantial (more than 50 per cent) increase from current lending levels. This latter commitment has to be seen in the context of the third report of the Independent High-Level Expert Group, co-chaired by climate finance experts Amar Bhattacharya, Vera Songwe, and Nicholas Stern, which has assessed that outside of domestic resource mobilisation by individual developing economies, an additional annual outlay of $1 trillion will be required up to 2030. The report also noted that if countries failed to act expeditiously, this outlay could rise to $1.3 trillion per year.  The MDB commitment of lending $120 billion per annum would then appear not to be insubstantial and could be used to leverage the rest of the funding.

‘There is however much more to this than meets the eye.’

From one standpoint, particularly promoted by the Global North, carbon markets, or a carbon trading mechanism, are seen as an alternate non-state market-based mechanism of raising climate finance, where companies follow individual (profit maximising) business strategies, trade-in carbon markets and thereby raise resources to finance climate change in developing economies. Even in theory, this is not as simple – creating a market for ‘bads’ such as the carbon market is effective in addressing unidimensional market failure but is akin to applying a band-aid on a festering wound when we consider the problems of a multidimensional climate catastrophe. But more to the point in the COP context, right from Paris, negotiations around the carbon market have been vexatious, getting stuck both in terms of principle and minutiae.

As Simon Mundy, writing for a reputed newspaper, has noted the supervisory body tasked with overseeing the rulemaking process, used a sleight of hand and adopted the principles that will govern carbon markets rather than place it before COP 29 for discussion and await permission to implement them. Needless to say, there were immediate protests of bad faith and a ‘damaging breach of process’. And as Erika Lennon (quoted by Mundy) of the Center for International Environmental Law, notes, “Approving these carbon market rules without discussion or debate sets a dangerous precedent for the entire negotiation process”. Hardly a situation that engenders trust among negotiating parties! This point about the process is particularly important because it is precisely this process in COP that allows small economies, small countries, and marginalised voices to be heard. So, finessing the issue of carbon markets might simply have stored up trouble for the future. Despite all this, no formal protest was lodged and COP29 adopted the carbon trading principles to hosannas of interested parties.

Similarly, even as MDBs have committed to expanding the quantum of lending available to developing countries for climate finance, it is important to remember that the process to access these funds is tenuous and complex for countries of the global south.  Even more critical is that they are not a source of grants or concessional lending in net terms. For many debt-ravaged economies, in strained macroeconomic conditions as a result, access to grants and concessional lending in net terms is key to dealing with the ravages of climate change as well as switching to a sustainable green economy. It is for this reason that the G77+China statement to COP 29 has argued the following:

“Transparency arrangements must be related to a definition which is agreement on what to count and what not to count as climate finance. Loans at market rate and private finance at market rate of return cannot be termed as climate finance under the NCQG. Rather, they represent a reverse capital flow from developing to developed countries when repayments are considered.”

“NCQG must be delivered via the provision of public finance in a grants-based or concessional manner to address macroeconomic constraints of developing countries, including limited fiscal space, and the elements of the goal should take into consideration the need for support to enhance the economic situations of developing countries.”

Which brings us to the nub of the issue that separates the Global North and the Global South in terms of climate finance: as the two examples of MDB lending and carbon markets illustrate, the Global North wants market-based solutions to deal with climate finance, even when it is clearly understood that a large number of poor developing economies at the frontline of climate change access international financial markets on very onerous terms. And to not recognise this is not only unfair but also counterproductive, given that the costs of coping with the impact of climate change and damage thereof is several times higher than the investments required for climate action today to limit temperature rise within reasonable bounds. The Global North wants to limit the use of public finance flows, particularly in terms of grants and new money. As the G77+China statement makes clear, for the Global South this is absolutely key.

In a related matter, the Global North would like to see an expansion of the set of donor countries, in particular, to include China, arguing that the 1993 OECD definition, on which the Paris Agreement is based, is way out of date. On this too the G77+China statement is very clear:

“The NCQG’s mandate, and its related processes, are under the Convention and Paris Agreement. Regardless of any attempt to detach them, the Paris Agreement was adopted under the Convention. The mandate does not include any discussions on modifications to their content.”

“The Convention and Agreement provide that CBDR-RC is a guiding principle for the whole climate change regime; it is therefore not negotiable”

This position taken by G77+China is the Global South’s position too, being supported by other regional groupings at COP29. Given the contrasting positions of the Global North and the Global South, both in philosophical and technical terms, about the nature and scope of Climate Finance, it is easy to see why the two are at loggerheads at Baku, despite the soundbites of early success noted above. And all the signs from Baku are that the gulf between the two positions remains substantial. Moreover, with a climate sceptic set to take over as the president of the USA, Argentina following the USA and withdrawing from the COP 29 negotiations and envoys from climate friendly countries like France cancelling their plans to visit Baku, it would be an uphill task to finalise a quantitative target for the NCQG.  Perhaps the best one can hope for is to try to arrive at a consensus on the underlying principles to govern finance flows from the North to the South.

Even as the scope of NCQG gets debated and discussed, what should be a minimally acceptable outcome? Given all the dithering on climate finance, we are currently headed towards a well above two-degree warming globally as compared to pre-industrial levels, with all its implications for the increasing intensity of devastating climate events, underscoring the importance of investing in adaptation and resilience. Therefore, in our understanding, the two sets of voices that must be heard and responded to in Baku are that of the Small Island Nations and of Africa. We argue that the following set of outcomes will be minimally a step forward for the Global South:

First, a substantial operationalization and mobilisation of the L and D Fund.  It is imperative that COP 29 carries forward the breakthrough from COP 28 to arrive at a consensus on issues such as setting eligibility criteria, defining disbursement processes and ensuring quick and simple access to funding for the most vulnerable regions.

Second, debt-restructuring deals for highly indebted countries, creating the fiscal space within which to switch towards a sustainable green economy.

Third, an emphasis on unattached grants and genuinely concessional loans. Debt restructuring and concessional (public) finance could lead to greater fund flows for adaptation and resilience which is the need of the hour. Investments in adaptation could lead to the creation of carbon sinks which could then participate in carbon markets to generate further fund flows in addition to improving the resilience of communities that are most vulnerable to the impacts of climate change. Mitigation efforts, which have received the lion’s share of climate funds so far, have led to the development of commercially viable and scalable technologies which may now be left to market forces to attract investment funding.

Finally, investing in weather data collecting infrastructure in Africa and other underserved parts of the global economy so as to improve their weather forecasting capabilities to minimise losses from climate events and build resilience.

If at least these outcomes are obtained, then the Global South would have stood together in solidarity and carried forward the momentum achieved in COP 27 and 28 to achieve a modicum of fairness and equity even as it is ranged against a narrow minded, bean-counting Global North. And the world would have taken a step forward. If we sidestep these issues again, then this COP will be remembered for taking global climate action many steps backwards.

Mritiunjoy Mohanty and Runa Sarkar are respectively former and current professors of economics at IIM Calcutta. They are co-editors of an open access volume The Role of Coal in a Sustainable Energy Mix for India (Routledge 2023). They are currently co-editing a forthcoming (Routledge 2025) volume on Climate Finance in the Indian context. (

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