New report recommends COP29 negotiations on climate finance should focus on mobilising $1 trillion per year for developing countries by 2030

Negotiations about climate finance at the COP29 United Nations climate change summit in Baku, Azerbaijan, should be focused on mobilising $1 trillion per year by 2030 in external finance from all sources for the investments necessary by emerging market and developing countries (EMDCs) other than China to deliver the Paris Agreement, and about $1.3 trillion by 2035, according to a new report published today (14 November 2024) by the Independent High-Level Expert Group on Climate Finance.

The report warns: “Any shortfall in investment before 2030 will place added pressure on the years that follow, creating a steeper and potentially more costly path to climate stability. The less the world achieves now, the more we will need to invest later. Delayed action means we will need to mobilise even larger sums in shorter timeframes to catch up on critical targets. Additionally, investment needs for adaptation and resilience, as well as loss and damage and restoration of nature, will rise sharply as climate and nature risks escalate.”

The Group, co-chaired by Amar Bhattacharya, Vera Songwe and Nicholas Stern, has been supporting the deliberations on the climate finance agenda under successive COP Presidencies since COP26. The group was tasked to help develop and put forward policy options and recommendations to encourage and enable the public and private investment and finance necessary for delivery of the commitments, ambition, initiatives and targets of the Paris Agreement, reinforced by the Glasgow Climate Pact, the Sharm el-Sheikh agenda, and the COP28 Global Climate Finance Framework. This is the third report published by the Group.

The report is published as countries negotiate at COP29 a “new collective quantified goal” (NCQG) for financial support for developing countries beyond 2025, in response to a decision made at the COP21 United Nations climate change summit in Paris in 2015. Countries agreed that the new goal should be set before 2025 from “a floor of USD 100 billion per year”.

The report will be officially launched at COP29 at a special event with Simon Stiell, the Executive Secretary of the United Nations Framework Convention on Climate Change, on Thursday 14 November 2024.

The new report concludes: “We estimate that the global projected investment requirement for climate action is around $6.3–6.7 trillion per year by 2030, of which $2.7–2.8 trillion is in advanced economies, $1.3-$1.4 trillion in China, and $2.3–2.5 trillion in EMDCs other than China. These latter countries will account for almost 45% of the average incremental investment needs from now to 2030 but they have been falling behind, especially Sub-Saharan Africa. For 2035, we estimate global investment requirements for climate action to be around $7–8.1 trillion per year, with advanced economies needing $2.6–3.1 trillion, China $1.3–1.5 trillion, and EMDCs other than China requiring $3.1–3.5 trillion. These needs are our estimations of what is required for delivery on the Paris Agreement, and the investments will also make a vital contribution to sustainable growth and the achievement of the Sustainable Development Goals.”

The authors write: “External finance from all sources, international public and private along with others, will need to cover $1 trillion per year of the total investment need by 2030 and around $1.3 trillion by 2035”. They add: “We argue that cross-border private finance can meet about half of these needs given the changing nature of investment opportunities.”

The authors point out that the figures contained in the report imply “a more than fourfold increase in total climate finance and a more than sixfold increase in external finance by 2030” to achieve the goals of the Paris Agreement. They warn: “To emphasise, these are the investment levels that are necessary for delivery on the Paris targets. They are analytical deductions in relation to our estimates of what is needed, not a ‘first bid’ in a negotiation.”

The report argues: “Different sorts of investment need different sources of finance and thus the composition of the different sources of the $1 trillion per year in external finance by 2030 is of great importance, and so too is the cost of capital. For example, private finance will be the main source of investment in infrastructure for renewable energy generation. Thus the $1 trillion in external finance for EMDCs other than China is much broader in scope than the commitment by developed countries at COP16 in 2010 to mobilise $100 billion per year by 2020 for developing countries.”

The report concludes that “advanced economies need to demonstrate a credible commitment, including through the NCQG, to provide and mobilise the finance needed for climate action in developing countries”.

It states: “This would entail a tripling of the $100 billion annual commitment made at COP16 for 2020, and reaffirmed and extended to 2025 at COP21 in 2015. Other stakeholders also need to come forward with ambitious commitments, including the MDBs, the private sector, and developing countries that are in a position to provide support. Indeed, cooperation between developing countries (‘South–South cooperation’) is already making a significant contribution and there is great scope for enhanced support and financing from leading developing countries.”

It finds that, of the projected investment needs of around $2.4 trillion per year in 2030 for EMDCs other than China, around $1.6 trillion is for the clean energy transition, $0.25 trillion for adaptation and resilience, $0.25 trillion for loss and damage, $0.3 trillion for natural capital and sustainable agriculture, and $0.04 trillion for fostering a just transition.

The report’s authors state: “The large and rapid scale-up of finance to support a big investment push can only be achieved by harnessing all pools of finance.”

They suggest: “Domestic resources, which currently account for around 70% of climate finance, can reasonably finance $1.4 trillion per year of the total investment need of $2.4 trillion by 2030 and $1.9 trillion of the total investment need of $3.2 trillion by 2035.”

The report also states: “Bilateral climate finance from advanced economies, which currently amounts to $43 billion per year, needs to double or more, given the central role that it plays in building trust and financing the most difficult needs.”

It states: “While bilateral contributions from developed countries are a small component of total climate financing, they are critical to building trust, meeting some of the more difficult needs, and leveraging other sources of finance.”

The report argues that the multilateral development banks (MDBs), including the World Bank, “should come forward with a commitment and plan to triple lending capacity by 2030 as part of the NCQG, with each MDB doing its part, which will require shared commitment and leadership from shareholders”.

It states: “MDBs have embarked on a coordinated programme of reform to implement the agenda of ‘better, bigger and more effective MDBs’. While all MDBs have made progress on the reform agenda, the pace and ambition fall short of what is needed. From the perspective of climate action, there are three areas where progress is not yet sufficient to produce transformative change: systematic engagement on system reforms and scaling up investment at the country level, including through more proactive engagement in country platforms; expanding lending capacity; and catalysing private finance, including through tapping long-term institutional capital.”

The report calls for the “unlocking of climate investment at scale” and highlights that “country platforms led and owned by countries with the involvement of all stakeholders including development finance institutions (DFIs) and the private sector, can create the basis for more purposeful and accelerated action to unlock investments and mobilise the financing that is needed.”

The report notes that “innovative solutions need to be pursued actively” to fill the current gap in concessional financing. It states: “One such solution is international taxation of high-emitting sectors, which has the potential to raise significant amounts of revenue that could be used to fill the climate financing gap. At COP28, the Global Solidarity Levies Task Force was launched to explore new avenues for international taxation to finance climate action and sustainable development, including the taxation of international shipping, aviation, fossil-fuel levies and a financial transactions tax. It will be important to broaden the coalition of countries and build consensus on proposals that can attract support by COP30.”

The report also states: “The voluntary carbon market (VCM) also has the potential to generate much-needed revenues for priority elements of the transition in EMDCs. The VCM has suffered from major setbacks and poor market sentiment. Parties have just reached consensus at COP29 on the standards for Article 6.4 of the Paris Agreement, which can generate new momentum.”

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