Trump Win Sets Back Climate Finance Hopes for Baku

The upcoming COP29 UN climate conference in Baku, Azerbaijan, November 11-22, will offer a clear indicator of whether the world is taking the climate crisis seriously enough. Even before Donald Trump became U.S. president-elect, advance signs were not encouraging for the world’s 29th such meeting since 1972. Now things look even worse. He is likely to withdraw the U.S. from most UN climate efforts, as he did last time.

This is being called the “finance COP,” because the single most important hoped-for outcome has been for the world’s richer countries to agree to pay more to assist poorer ones to mitigate climate change and assist in adapting to its effects. The so-called New Collective Quantified Goal (or NCQG, in UN acronym-speak) will signify how much money should flow annually between such countries.

The goal replaces a previous one proposed by Hillary Clinton and agreed by the world’s nations at COP15 in 2009 in Copenhagen. It said that by 2020, $100 billion in climate finance should flow annually from rich to poor countries. That goal was finally met in 2022.

The need now, however, is in the trillions. Developing countries are by definition growing, as they must. That means their demand for energy and electricity is also surging. The single most critical factor in determining whether the world can meet its ambitious climate goals set in Paris in 2015 is whether or not poor countries meet growing energy needs with renewable sources that don’t emit CO2.

But despite plunging costs of key renewables, it is still often cheaper for poorer countries to burn coal, gas, or oil for electricity. Some have their own fossil sources. More importantly, up-front costs of installing large renewable energy systems are usually much higher than fossil ones. Also, it costs dramatically more to finance renewables in developing countries than in developed ones–interest rates can be more than double. So if such projects are not subsidized, in many cases they won’t happen, especially in the poorest countries. A key way to incentivize commercial climate finance is to “blend” in a layer of first-loss finance from nonprofits, development banks, or governments. Such monies are counted against climate goals.

Up until now less than 20% of funds for the existing $100 billion goal have come from private commercial sources. One way COP negotiators may aim to move the needle, given Trump’s win means U.S. government contributions could plunge, is to up their assumptions about how much can be garnered from private investors. That may not be irrational, because there is definitely lots of money to be made in developing country energy, especially if those “first losses” are covered.

Developing countries want every rich one to significantly up its commitments at Baku. A huge question is how much can be expected from China, technically in UN terms itself still “developing.” Before the election, many thought if the U.S. upped its ambitions, China might feel pressured to ante up as well. That hope is now dashed.

That there hasn’t been more progress on the NCQG in advance worries Rob Moore, associate director of E3G, a global environmental policy advocacy group. “There needs to be a real step change in the level of support,” he said, optimistically, at an E3G seminar in advance of Baku (and before the election). He also noted that despite extensive pre-COP negotiations between countries, it isn’t even yet clear what a compromise would look like.

Developing countries want every rich one to significantly up its commitments at Baku. A huge question is how much can be expected from China, technically in UN terms itself still “developing.” Before the election, many thought if the U.S. upped its ambitions, China might feel pressured to ante up as well. That hope is now dashed.

An early indication of what to expect in Baku came at the recent meetings of the World Bank and IMF in Washington. While climate finance needs were much discussed, new commitments to contribute money were few. Nonetheless, in a post-election interview with the New York Times’ David Gelles, World Bank chief Ajay Banga said he didn’t think it given that the U.S. would walk away from climate finance entirely.

Things aren’t even quite what they seem with the earlier $100 billion goal. Not only was it met several years late, but it never got adjusted for inflation. Had it been, it would now be around $140 billion, and far from met.

Plenty of other issues are on the table in Baku, but without an ambitious NCQG, “it’s hard to see how the year ahead will be a success,” said E3G’s Moore.

#COP29 #ClimateFinance #e3G