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Dramatic increase in climate finance is crucial for achieving the goals of the Paris agreement

World Resources Institute’s Sustainable Finance Center manager Natalia Alayza discussed the New Collective Quantified Goal (NCQG) on climate finance in the final part of Fingo’s On the road to COP29 -webinar series. This year, the international community is expected to set a new goal on climate finance, which is crucial in meeting the goals of the Paris agreement. However, the negotiations will not be easy. Fingo summarized the webinar into four short questions and answers.

  • What exactly is the NCQG, and why is it important?

When countries adopted the convention on climate change in 1992, developed countries agreed to support developing countries’ climate action by providing finance. In 2009, developed countries committed to mobilizing 100 billion dollars climate finance annually by 2020. This goal was later extended to 2025.

After 2025, the new climate finance goal, the NCQG, will come into effect and continue from the floor of 100 billion. Therefore, the new goal should be decided in COP29 at the latest. These negotiations come at a moment when climate finance must increase dramatically to achieve the goals of the Paris agreement and meet the needs in developing countries that are particularly acute.

  • What will be the key elements of the new climate finance goal?

The NCQG is not only about quantity but also other crucial components.

Firstly, countries have different views on the timeframe of the goal, which could vary from short to medium and long term. Each has its justifications. For example, longer timeframes give providers more time to mobilize the necessary finance flows and reform financial architectures. On the other hand, shorter timeframes could better account for changing institutions and election cycles. Some suggest a timeframe tied to specific goals or outcomes, such as net-zero targets.

The second and one of the most relevant elements is the scope, which links to Paris Agreement articles 9 and 2.1c. Developing countries see the NCQG as embedded in article 9, which states that developed countries are responsible for providing climate finance to developing countries.Developed countries think the NCQG should have a multi-layered approach considering article 9 and article 2.1c, which states that all finance flows should be consistent with the Paris Agreement. How the NCQG is interpreted under these articles will impact its other elements.

The third element is the categories or sub-targets that the NCQG should fund. As climate negotiations have evolved, a third pillar of climate finance has emerged alongside adaptation and mitigation: loss and damage (L&D). Developing countries see that the NCQG should include L&D and reflect their priorities and needs. Developed countries, in turn, have mainly highlighted mitigation and adaptation regarding the NCQG.

The fourth element is the contributor base. Developed countries emphasize that the world has changed and economies evolved in the past decades: thus, the contributor base should be broadened from what was agreed upon in the 1990s. Developing countries see that the NCQG does not have the mandate to expand the base, as article 9 of the Paris Agreement already specifies the contributors.

The fifth element is quantity. There are different assessments of the financial needs regarding mitigation, adaptation, and L&D. The estimated numbers are significant and notably higher than 100 billion dollars. However, discussions around the quantity need to be narrowed down, depending largely on the categories included in the NCQG.

There is also a need to ensure that the quality of climate finance is improved. This includes the predictability, effectiveness, and concessionality of the finance flows and access to financial instruments. For example, loans have been the main instrument through which the 100 billion goal has been mobilized, despite many developing countries suffering from debt distress.

The final element is transparency. Countries have a common understanding that the NCQG should have certain transparency arrangements, building on existing mechanisms to avoid reporting burdens. However, the nuances of these arrangements are not agreed upon: for example, there are still differing views on the definition of climate finance and common monitoring mechanisms.

  • There seem to be many open questions, and most of the issues discussed above are interdependent. Where should we start untangling the NCQG and building common understanding?

One step forward could be to narrow down conversations and decide on specific elements where there is potentially already some common understanding, such as transparency and the timeframe. Once these are settled, the focus can shift to the more political questions. Among the political elements, the scope should be the first to be narrowed down, as it impacts many other elements.

  • What could the NGOs do to ensure a successful new goal on climate finance?

One of the most important roles of NGOs is to share their thoughts on how to address these open questions and suggest bridging options for each element, while also working to bring countries together. We do have technical expert dialogues, webinars, and other channels for exchanging views, but increased political engagement is crucial. We need to understand what this additional political engagement could be. NGOs should leverage different spaces for discussion and aim to inform the draft negotiation texts of the NCQG. So, think creatively, propose options under the elements, and create political engagements – all of this is needed already months before COP29 itself.

You can find Natalia’s full working paper on the NCQG here.