New era of climate finance: key to success of COP29 and future initiatives

Climate finance has become a key aspect of global efforts to combat climate change. Ahead of COP29 in Baku, discussions on this issue are set to touch on two important components that require the integration of a broader global financial framework. Fiscal constraints continue to put pressure on states' ability to allocate resources for development and climate action. To address these constraints, an effective public debt management framework must be put in place to enable countries to better cope with financial challenges.

Furthermore, a new climate finance target is needed, but its implementation will not be complete without enhanced support from multilateral development banks. Such banks can provide low-cost and long-term financing, which is vital for the transition to a low-carbon economy.

Climate finance: sources and instruments

Climate finance includes the utilization of a variety of financial resources and instruments to support action on climate change. These investments are necessary for the transition to a low-carbon global economy and to help societies adapt to the impacts of climate change. Funding can originate from a variety of sources—public or private, national or international, bilateral or multilateral.

It can be implemented through different instruments: grants, donations, green bonds, shares, debt swaps, guarantees, and soft loans. These funds can be used for both mitigation and adaptation and resilience building.

Multilateral funds for developing countries

Developing countries can access several multilateral funds, such as the Green Climate Fund (GCF), the Global Environment Facility (GEF), and the Adaptation Fund (AF). These instruments were established under the UN Framework Convention on Climate Change and are designed to support low-income countries in their climate initiatives.

Azerbaijan's new initiative: Climate Finance Action Fund

Azerbaijan proposes at COP29 to establish a $1 billion Climate Finance Action Fund (CFAF). This fund will be capitalized by contributions from fossil fuel-producing countries and oil, gas, and coal companies. Azerbaijan intends to become one of the founders of the fund, and at the moment the number of shareholders includes ten countries.

The fund will be aimed at financing climate projects in developing countries that need support to fulfill national commitments to keep global warming within 1.5°C. The CFAF will be a public-private partnership that will mobilize private investment and reduce risk in climate projects.

Leaders' views on the need for climate finance

US Presidential Deputy Special Envoy for Climate Affairs Sue Biniaz told Trend in an exclusive interview that climate change mitigation, adaptation, and finance will be a priority for the US at COP29. In particular, Biniaz emphasized the importance of the trilateral event of the US, China, and Azerbaijan on non-carbon gas emissions. This event will be one of the key events at the Leaders Summit on the first two days of COP29.

Biniaz noted that one of the priorities for the US and other participants at COP29 will be the issues on the agenda.

“These are the mandatory topics that need to be addressed at COP29. Moreover, there are several other topics that we are actively discussing, which are called the action plan. These are not issues that are strictly governed by negotiations among 200 countries. They can be discussed among smaller groups of countries, or they can be announced by one or more countries. Within the action plan, Azerbaijan has its priorities, and we are participating in some of them; they will be our priorities. The US will also have its own priorities for COP. Some of them are on mitigation, some of them are on adaptation, and some of them are on financing. In particular, we will have a trilateral event with China and Azerbaijan on non-carbon gas emissions. That will be one of the high-level events in the first two days at the Leaders' Summit. Our other focus is on the US Center. Every year at COP we organize our own expo where we present a lot of activities. This year, I think we will present about 50 events organized by the US. It's a chance to showcase what the US is doing domestically, what our subnational governments, cities, and states are doing, and what we are doing internationally with other countries,” she explained.

The executive director of the International Energy Agency (IEA), Fatih Birol, said in an interview that climate finance is the “nerve center” of all climate issues.

“Let me give you the context. This year, about $2 trillion will be invested in clean energy financing around the world. That's not good enough, but it's encouraging. However, the problem is that about 85 percent of that $2 trillion is invested in the developed economies and China. Only 15 percent is invested in developing countries, where more than two-thirds of the world's population lives. So, there is a serious problem here. We have to come up with a mechanism where parties agree to guarantee clean energy financing for developing countries. Because if we can't do that, we have no chance of meeting our climate goals,” the IEA executive director said. He pointed out that the problems cannot be solved by increasing climate finance in advanced economies and China alone. “There is a huge amount of emissions happening in Asia, Africa, and Latin America. So for me, this is a critical issue. Both COP29 and COP30 should focus on finance. I believe that besides the COP29 presidency, the Brazilian G20 presidency this year should work to get the necessary funds for developing countries,” Birol said.

Birol also stated that in addition to COP29 and COP30, the Brazilian G20 Presidency should pay special attention to the issue of climate finance.

Learnings from COP28: Loss and Damage Fund

The importance of climate finance was exemplified by the COP28 initiative, which formally established a Loss and Damage Fund to support vulnerable countries suffering from the impacts of climate change. The UAE, Germany, the EU, Germany, Japan, the UK, and the US have already pledged to contribute significant sums to this fund, demonstrating the global community's willingness to address adaptation to changing climate conditions.

Together with the discussion of these issues at the upcoming COP29, funding will be a key factor in determining the success of future climate efforts, especially in low-income countries that are most vulnerable to climate change.