Finance COP fails to offer adequate finance to developing countries for climate action

The Standing Committee on Finance of COP29 last week acknowledged that the nationally determined contributions of developing countries will cost $5.1–6.8 trillion up until 2030, or $455–584 billion per year, and adaptation finance needs are estimated at $215–387 billion annually until 2030.

“The NCQG’s heavy reliance on loan-based financing and private capital, with limited emphasis on grants or low-cost mechanisms, risks exacerbating debt burdens for developing countries. This could shift undue responsibility onto these nations, compelling them to seek additional contributions,” said Suryaprabha Sadasivan, senior vice president at Chase India, a public policy and advocacy advisory firm.

The NCQG refers to finance that is meant to be provided by developed countries to developing countries to help them meet their goals to transition from fossil fuels and curb greenhouse gas emissions. This will cost “trillions of dollars” to developing nations.

Developing countries are due to share their new NDCs by early 2025. Experts have raised concerns that the lack of predictable and adequate finance constrains the ability of developing nations to scale up climate ambition.

“COP29 comes at the close of a brutal year—a year seared by record temperatures and scarred by climate disaster—all as emissions continue to rise,” UN secretary-general António Guterres said in his closing remarks. “Developing countries swamped by debt, pummelled by disasters, and left behind in the renewables revolution, are in desperate need of funds.”

Onus on developed countries

The final draft of NCQG said developed countries must take the lead on climate finance, mobilizing at least $300 billion per year by 2035 for developing countries. It recommended diversifying funding sources to include public and private, bilateral and multilateral and alternative sources.

“The COP29 decision on NCQG is the final nail in the coffin of 1.5°C,” said Vaibhav Chaturvedi, senior fellow at the Council on Energy, Environment and Water (CEEW). “Accelerating mitigation actions without the required means of implementation is only a fool’s dream.”

A funding agreement at COP29 was essential to help nations take measures that would keep global temperature rise below 1.5°C of pre-industrial levels.

COP29 closed in the wee hours of Sunday, two days beyond its schedule. Despite extended plenary sessions, the summit witnessed a dramatic walkout by developing and vulnerable nations, including India and Cuba.

“The NCQG outcome is extremely disappointing; the developed countries have completely let down the Global South,” said Sehr Raheja, programme officer, climate change, at the Centre for Science and Environment (CSE).

Developing countries voiced their opposition to the NCQG in its present form. “The call by developed countries for ambitious NDCs was heard frequently at this COP, but the means of implementation to enable high ambition in NDCs does not really seem to have matched the needs.” 

Raheja lists a number of reasons as to why the outcome from COP29 has been deemed weak. Among the most pressing issues were the quantum of finance, the lack of goals for mitigation, adaptation, loss and damage, the long timeline of 10 years (2035) and reduced emphasis on grants and grant- equivalent finance.

The agreement did say, “All actors to work together to enable the scaling up of financing to developing country Parties for climate action from all public and private sources to at least $1.3 trillion per year by 2035.”

Identifying alternative fund sources

Part of the negotiations this year was to identify alternative sources of climate funding for developing countries, particularly exploring public and private sources.

Rich countries, which are primarily responsible for historical climate change, committed in 2009 to providing $100 billion annually by 2020 to developing countries. This pledge, already seen as grossly inadequate, was only fulfilled in 2022, two years behind the deadline.

“Current NDCs will require $7 trillion. By 2035, NDCs are to be revised at least twice, so the needs will be much greater. Unlike NDC revisions, there is no provision for revising the $ 300 billion target every five years. This sends a negative signal for raising ambition. It would not be surprising if the collective enhancement in NDC 3.0 ambition by developing countries is only symbolic or absolutely conditional,” said Manish Shrivastva, senior fellow, earth science and climate change, at New Delhi-based The Energy and Resources Institute (TERI).

Among other major outcomes, the summit also agreed on standards for a centralized carbon market under the UN.

After nearly a decade of work, countries have agreed on the final building blocks that set out how carbon markets will operate under the 2015 Paris Agreement, making country-to-country trading and a carbon crediting mechanism fully operational.

Facilitating collaboration

Article 6 of the Paris Agreement facilitates international collaboration to lower carbon emissions. It offers two pathways for countries and companies to trade carbon offsets, supporting the achievement of emission reduction targets set in their climate action plans, or NDCs.

“While this development offers hope, the agreement’s lack of accountability mechanisms casts a long shadow. The absence of robust oversight leaves the operational registry’s effectiveness uncertain, with outcomes likely hinging on the integrity of individual actors and active scrutiny by third parties,” said Abinash Mohanty, a climate change expert and a reviewer of the IPCC-AR(6).

“Article 6 carbon markets offer opportunities for cost-effective emission reductions but face challenges from complex frameworks and loopholes – double counting and approval of questionable projects threaten their effectiveness. For nations like India, robust safeguards and oversight are essential to ensure these markets support genuine emissions reductions and equitable development,” Sadasivan of Chase India said in the Indian context.

In India, the COP29 outcomes will directly influence adaptation-mitigation co-benefit projects, potentially accelerating the integration of nature-based solutions. These approaches can play a critical role in mitigating climate risks while unlocking additional financing avenues. 

However, the lack of concrete accountability and actionable finance at COP29 dampens these prospects, according to Mohanty, who is also the global sector head of climate change and sustainability at IPE Global, an international development organization.