By Ana Malamud
Achieving a carbon-neutral future comes with a hefty price tag, requiring vast financial resources. Key questions dominated the debate at COP29: Should nations like China and the Gulf states start contributing? Should private investors also help fund the transition? And how much money is truly enough?
Historical Emitters Should Bear the Cost
To this day, most of the money funding the energy transition comes from developed countries’ budgets. Article 9 of the Paris Agreement states that “developed country parties shall provide financial resources to assist developing country parties”. This commitment traces back to 1992, under the UN Framework Convention on Climate Change, where it was agreed that money should flow from those who are better off to those who are in most need of aid.
Why would wealthy countries tie their hands with such restricting legal obligations? The answer lies in history. The Industrial Revolution, which powered their prosperity, also made them the world’s largest cumulative contributors to CO2 emissions. Consequently, it seems only fair that they shoulder the expense of fixing the problem. Meanwhile, many developing nations lack the resources to adapt to climate change.
However, the landscape has shifted. Today’s biggest emitters—China, Russia, or Brazil—are not legally required to provide financial assistance. Instead, the responsibility rests with the 23 nations that were classified as "developed" in 1992. This raises a pressing question: Can this small group of countries fund the entire energy transition?
The challenge is further complicated by the economic strains rich countries are facing. Jonathan Beynon, from the Center for Global Development, states that “Public budgets are under pressure in most developed countries”. That stress was exacerbated by COVID-19 and the conflict in Ukraine. Deficits have soared to historic highs, and therefore “prospects for […] increases in climate finance look limited”.
Funding is very needed, but the contribution gap looms large. Two main alternatives took centre stage during the summit: Expanding the list of countries annually contributing and relying more on private investments.
Expanding the List of Contributing Countries
The global economic landscape has drastically changed since 1992. There are countries that, at the time, were in dire need of development but are now enormous economic players and CO2 emitters. China, Brazil, India or Russia are examples of those large polluters. Additionally, wealthy countries like South Korea and Chile, along with oil-rich Gulf states, were excluded from the list of formal contributors but nonetheless have the capacity to be one.
The European Union talks of “evolving” responsibilities, stating that “the collective goal can only be reached if parties with high greenhouse gas emissions and economic capabilities join the effort.” Likewise, the other burdened countries, like the US and Japan, have also pushed to expand the pool of countries funding the effort. It has been widely argued that a new category of “net recipients” that both give and receive could be created, thus departing from the rigid dichotomy of providers and recipients.
Nonetheless, and not surprisingly, the G77 and China, a group of 134 developing countries, firmly opposed such proposals arguing that the legal mandate is clear and “not negotiable”.
Private Investment instead of Solely Public Funding
Climate finance encompasses more than just the transfer of public funds to developing countries. US climate envoy John Kerry has consistently highlighted the importance of private sector involvement, asserting that “no government in the world has enough money to solve the climate crisis.” A world of blended finance, where there are both private and public contributions to the transition, was the picture proposed by developed nations.
Unsurprisingly, the rest of the countries rejected it. Least Developed Countries, for instance, accused wealthy nations of attempting to “dilute their responsibilities”. The fact is that a shift towards private finance, despite being a legitimate way out of the problem, is unbeneficial to receiving countries. Joe Thwaites captures this dilemma: “We often hear two things – you hear the private sector is amazing, entrepreneurial, innovative…and then you also hear, oh boy, the private sector isn’t going to invest in developing countries because it’s too risky.”
While private finance can undoubtedly contribute to climate solutions, it responds to the logic of profit. As a result, it tends to favour wealthier nations, which offer low-risk stable legal environments. This leaves countries that need help the most without the necessary support. Similarly, private money disproportionately flows into profitable clean-energy projects, while critical areas such as climate adaptation or loss and damage go underfunded. Once again, pouring money into those areas is not financially attractive. That may be the reason why 98 per cent of adaptation finance in 2019 and 2020 came from public sources.
Not only do public and private loans respond to different incentives; but they also have different terms and conditions. Public loans are usually concessional, offering lower interest rates, longer grace periods, and extended repayment terms. This makes them far more borrower-friendly, as their priority is social and environmental benefits, not just financial returns. Therefore, they are the most secure option for receiving countries. Not in vain India called on rich nations to pledge 600 billion dollars a year solely in grants.
However, wealthy countries have emphasized the “important role of the private sector,” and the significance of “innovative financial instruments” to meet the necessary financial targets.
The Path to Agreement: Balancing Clashing Interests
At first, a sum of 250 billion dollars a year was put onto the table by developed nations. A rallying cry of “no deal is better than a bad deal” rose among activists in the corridors, which led to readjustment. Fierce debate, countless draft texts, last-minute amendments, and even walkouts from least-developed nations because, as Cedric Schuster from the Alliance of Small Island States claimed “we don’t feel that we are being heard”, dominated the scene.
Trump’s reelection was used by rich countries in their favour to rush a deal. As Leon Sealey-Huggins put it “People [were] saying: ‘Well, you better take this money, because when Trump comes, you’re not going to get any money”. And thus, as the clock ticked, Giulia Saudelli reported that there was a feeling of time “play[ing] against the most vulnerable countries”.
A Bittersweet Deal
Finally, a deal was reached: It scales up the sum of 100 billion dollars annually to 300 billion, and also looks forward to eventually attaining a 1.3 trillion dollar figure from all actors and both public and private sources. It also “encourages” developing countries to contribute to climate finance “on a voluntary basis”.
Yet, many nations from the Global South expressed profound disappointment. “It’s a paltry sum [that] will not address the enormity of the challenge,” remarked India’s delegate Chandni Raina, also criticizing the “unwillingness of the developed country parties to fulfill their responsibilities.”
In truth, the deal struck in Baku, Azerbaijan, left no party entirely satisfied. Negotiating among 196 countries is an extraordinary challenge. Summits like these often serve as mirrors of globalisation itself—a “compression chamber” where differences and competing interests are exposed, creating inevitable tensions. The fact that consensus was reached at all is no small feat. While imperfect, it reflects the complexities of multilateral action in the face of a shared, urgent issue.
Sources: OECD, Oxfam, World Bank, Climate Home News, The Guardian, DW, BBC, Reuters, CNBC, Financial Times, Paris Agreement (2015), United Nations Framework Convention on Climate Change (1992), Carbon Brief, Submission by Hungary and the European Commission on behalf of the European Union and its Member States, G77 and China Submission for the 11th Technical Expert Dialogue (TED) and the Third meeting of the ad-hoc work program on the New Collective Quantified Goal (NCQG), TWN Info Service on Climate Change (Oct22/01).
Written by Ana Malamud
Edited by Nina Gush & Sarah Valkenburg
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