COP29 and climate financing: Will environment ministers commit more scarce ODA that is neither ‘new’ nor ‘additional’?

Next month, the global community will meet for another climate summit, the COP29 in Baku, November 11-22, 2024. One of the key issues on the agenda will be climate financing. The USD 100 billion per year commitment to provide “new and additional” funding made at COP15 in Copenhagen, now 15 years old, is due to be replaced. There is pressure to increase this amount with the argument that it should better reflect actual needs in developing countries. A UN needs determination committee estimated that developing countries require climate financing in the range of USD 1 trillion per year up to 2030!

Tough negotiations have already started, and the path to credible commitments is fraught with difficulty. Past promises of “new and additional” funding at international conferences have been vague at best, and dishonest at worst. Here are some of the commitments that wealthy countries have made over the years:

• In 1970, the commitment to provide Official Development Assistance (ODA) at a level of 0.7% of GNI was first recognized by a UN resolution. Now it is even an SDG target.
• In 1994, rich countries committed to “ensure that adequate financial resources are available for programmes to combat desertification,” according to the UN Desertification Convention.
• In 2005, a WTO ministerial declaration promised to commit “mechanisms to secure additional financial resources for Aid for Trade.”
• The 2009 Copenhagen Accord committed USD 100 billion USD in climate financing per year by 2020. It referred to “scaled up, new and additional, predictable and adequate funding” for developing countries.
• Meanwhile, the 2022 UN Convention on Biodiversity obliges developed countries to “provide adequate, new and additional financial resources” for biodiversity protection. The Montreal text sets funding targets of at least USD 20 billion per year by 2025 and at least USD 30 billion per year by 2030. In return, developing countries agreed to conserve 30 per cent of land and marine areas.

The OECD/DAC has been entrusted to monitor these commitments. This is primarily done by letting the donors classify their ODA-funded projects with policy markers. These have the peculiar feature that they are not mutually exclusive, so the same “additional financing” can be counted more than once. A forestry project to export certified timber could easily tick all five boxes, so that the same dollar becomes “new and additional” five times!

The ambiguity and/or lack of honesty of these commitments undermines the ability of the world to reach agreements on critical global challenges. In an unequal world, such resource transfers are often an unavoidable ingredient in such agreements. This will be the case in COP29 in Baku as well.      

According to the OECD/DAC, the USD 100 billion climate financing target was finally met in 2022, reaching USD 116 billion. Of this, 80 per cent was from public sources; USD 32 billion was classified as adaptation. It is somewhat unclear how much was simultaneously reported as ODA, but for sure a substantial share. In what sense these flows can be labelled “new and additional” is impossible to comprehend, as no consensus definition exists. After carefully reviewing the numbers and potential definitions, Charles Kenny at the Center for Global Development casts serious doubts on claims of additionality and concludes that “evidence suggests donors are considerably stripping aid finance from development projects to support climate projects.”

In Baku, a renewed climate financing target is on the agenda. The demands will be for far more, not less, than the current level of funding. So, what will our Ministers of Environment commit to? Will attention be paid to how scarce ODA resources risk being depleted? Will commitments to provide “additional funding” even be trusted this time?

I propose the following starting points to help avoid dishonest double counting, protect scarce ODA resources, and bring real “additional” resources to the table:

1. Set a new target for climate financing by 2035: The new climate finance commitment would clearly have to be above the current USD 100 billion per year target.
2. Split the commitment into two parts: Divide the financing between “Primary Purpose Mitigation” and “Primary Purpose Adaptation.” The UN Secretary General has suggested a 50-50 split, with more attention given to adaptation as the voices of those most vulnerable to climate change risk not being heard.
3. Let ODA finance adaptation: Be honest that ODA will be a key source for adaptation efforts. This funding should be directed to the most vulnerable to climate change in the developing world. This is aligned with the definition of ODA, which has “the economic development and welfare of developing countries as its main objective”. Rich nations must maintain and increase their ODA budgets (commitments to do so have been made repeatedly) to avoid adaptation funding crowding out other priorities. The wording of “new and additional” should be avoided, unless given a precise meaning.
4. Separate mitigation funding from ODA: Mitigation efforts to cut emissions, which benefit everyone and not primarily developing countries, should not be classified as ODA. While adaptation should seek to support those developing countries that are most vulnerable to climate change (to a large extent people in least-developed countries), mitigation measures should target those developing countries where you can cut emissions most efficiently, which to a large extent means emerging middle-income countries.

Is it problematic to separate mitigation from adaptation, given that there are some investments that produce benefits on both fronts? Not really. The problem is not that we need a razor-sharp definition, but that we avoid the double-counting. Put your contribution in one of the categories, according to primary purpose of choice, but not in both! 

The question that presents itself here is obviously where the resources for mitigation will come from. There are at least two important funding sources. The first is catalysing private capital. Mitigation investments often produce profits downstream which make it easier to attract private capital. As shown by OECD’s climate financing monitoring reports, catalysing private sector flows is more difficult for the purpose of adaptation and in the least-developed countries. However, there are still many opportunities to scale up these flows. How this part of climate financing can be increased is discussed by the OECD here.

Another possible source of resources is international levies. A global solidarity levies task force was formed at COP 28. The task force is co-chaired by France, Barbados, and Kenya, with the European Commission, IMF and United Nations observing. Denmark recently joined. The task force will present some interim results in Baku next month and will seek a mandate for its continued work. The aim is to have a final proposal agreed on at COP 30 in 2025. The idea of some form of international taxation or levy to finance global public goods makes sense, but has so far always met opposition from some interests. If it becomes clear to everyone that necessary global investments come with an unavoidable price tag, there might be broader support. The most logical would be some form carbon tax; for example, a levy on international air flights and maritime cargo. There are more options the task force will consider, such as taxing financial transactions.

Financing critical global challenges via international levies or taxation would be a true gamechanger, and a necessary step to create a world better able to resolve its collective action problems. “Additionality” would then no longer be an issue. Will all the Nordic countries join Denmark in energetically backing up this task force when it seeks a continued mandate in Baku?  

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Göran Holmqvist is former Head of Department for Asia, Middle East and Humanitarian Assistance at Sida, now independent.