The new UN climate finance goal: will the EU deliver what’s needed for a fair, ambitious and balanced new collective quantified goal?
Svea Koch and Mariya Aleksandrova
in: Hackenesch, C., Keijzer, N., & Koch, S. (Eds., 2024). The European Union’s global role in a changing world: Challenges and opportunities for the new leadership (IDOS Discussion Paper 11/2024). IDOS.
State of play
When the next European Commission takes office this autumn, the negotiations of the new UN climate finance goal (New Collective Quantified Goal on Climate Finance (NCQG)) will be in full swing. Under the UNFCCC (United Nations Framework Convention on Climate Change) and the Paris Agreement, developed countries are obliged to provide developing countries with financial assistance to address mitigation and adaptation to climate change, with a current commitment of USD 100 billion per year between 2020 and 2025. In November 2024 at COP 29 in Baku, a new commitment replacing the USD 100 billion target building on the needs of developing countries is to be agreed so that this will guide the financial contributions by the EU to fulfil their share of the obligations. These needs of developing countries for mitigation, adaptation and loss and damage are estimated to be in the trillions, so that a minimal increase of the previous USD 100 billion target is largely considered insufficient. Yet, while the NCQG is still in its negotiating phase, it is already clear that it will not only entail a new quantum but also address issues around the quality of and access to climate finance, instruments, sources and guiding principles and, as such, give new impetus into providing a clearer picture of what counts and what does not count as climate finance.
So far, the negotiations of the NCQG have seen entrenched positions from developed and developing countries. Divergences centre around the quantum that developed countries are expected to contribute (“putting money on the table”); debates on the extension of the contributor base of climate finance (referring to growing emissions of emerging economies); the climate finance instruments (grants versus loans ratio and the degree of concessionality of climate finance); the need to better define and account for climate finance; for funds to be additional to official development assistance (ODA); and whether or not to include finance for Loss and Damage under the NCQG.
The European Union (EU)’s role in international climate finance is ambiguous in many respects. On the one hand, the EU prides itself on being the world’s biggest contributor of public climate finance. In 2022, when developed countries for the first time reached their USD 100 billion climate finance target, the EU collectively contributed EUR 28.5 billion from public sources and mobilised EUR 11.9 billion of private finance (European Council, 2023). At the same time, the climate finance burden is unequally distributed within the EU. Frontrunners such as Germany provided up to 0.15% of gross national income (GNI) as climate finance (counted on grant-equivalent terms and as part of ODA), whereas other member states have contributed far less (e.g. Italy, Spain, Portugal, Austria or Greece) (CAN, 2024). The quality of the finance provided plays a significant role, too. Even though around half of the EU’s funding is provided as grants, the rest is provided as loans, with varying levels of concessionality. The EIB (European Investment Bank)’s share of concessional loans, for instance, decreased significantly between 2017 and 2021, that is, this part of the EU’s climate finance is provided on near market-based terms (Climate Action Network Europe, 2024). Developing countries, in turn, face a severe debt crisis and highlight that servicing climate-related debt has become so overwhelming that the necessary investments into addressing the climate crisis cannot be made.
When the EU now turns to developing countries (in particular the high-emitting ones) and calls on them to also contribute to the costs of the climate crisis, it also needs to close the gaps in its own ranks. Within the framework of the UNFCCC, such a mechanism is discussed under the header of “burden sharing” in order for countries to contribute their “fair share” of the collective obligation to provide climate finance. The unequal performance within the EU in this respect puts the EU in a difficult negotiating position to call for emerging economies’ contribution to climate finance under the NCQG. In view of the US elections in November, adopting a burden-sharing mechanism would even serve the EU’s interests as it could concentrate on its own ascribed contributions rather than having to make up for the failures of other countries in achieving a collective target.
Internal and external influences
Internal political dynamics in Europe are currently at odds with the EU’s ambition to more strongly position itself internationally and geopolitically. In many member states, the budget situation is challenging due to the subsequent crisis situations of the past decade and modest GDP (gross domestic product) growth. What is more, the European elections have confirmed the rise of populist and right-wing parties and their increasing influence in many member states as well as in the European Parliament. These parties position themselves strongly around a patriotic and nationalist narrative that either criticises international spending altogether, or demands a stronger conditioning of such spending to curb migration flows to Europe. A broad and shared political understanding – across all parties – of the obligations under the UNFCCC and the Paris Agreement and the required public funding to meet the needs of developing countries to address climate change mitigation, adaptation and loss and damage under the principle of “the polluter pays” seems distant in this current political climate.
Even though the exact nature and ambition of the NCQG is still to be determined, it is already clear that any new quantum will require the additional and concerted efforts of all developed countries to provide more public climate finance, and according to the demands of developing countries, also more grant-based finance. Achieving this in the current political climate is a mammoth task, which is why European diplomats and negotiators focus on additional and alternative financing sources (European Commission, 2024).
Under the UNFCCC, the EU is keen to focus on Art. 2.1c, which aims to align all financial flows with a pathway towards low emissions and climate-resilient development, a demand that has been rejected by developing countries under the framework of the NCQG negotiations. Outside the UNFCCC, there are debates on fiscal policy instruments or new taxes (carbon pricing, taxes on aviation, fossil fuel profits, the “super-rich”, etc.), debt restructuring (debt-for-climate swaps), the use of IMF (International Monetary Fund) Special Drawing Rights, or instruments to de-risk climate investments, where the EU collectively still has to position itself. Developing countries also point to the large public sums invested to subsidise fossil fuels (the EU provided EUR 123 billion of such subsidies within its own borders in 2022 according to the European Environment Agency) and on this basis do not accept the argument that public resources are scarce.
Balancing these opposing demands will also be key from a geopolitical point of view. The climate negotiations under the UNFCCC are one of the most prolific international negotiations, and considered key in keeping communication channels open between otherwise rivalling countries (such as China and the United States). Climate finance plays a crucial role in this respect for developing countries and is widely perceived as a “make-or-break” element that not only has the potential to derail negotiations, but also to significantly undermine trust and progress on other climate-related matters. In this vein, the European support for the establishment of the Loss and Damage fund at COP 27 in Sharm- El-Sheikh, was likely also geopolitically motivated as countries in the Global South were reluctant or sceptical to share the West’s condemnation of Russia’s war of aggression against Ukraine in the UN General Assembly (see Koch et al., 2022). The EU’s current position, not to include Loss and Damage in the NCQG, in turn causes great incomprehension on the part of vulnerable developing countries.
For the NCQG negotiations, but also its implementation afterwards, the EU needs to walk a fine line between tight budgets and internal political quarrels around the future of the European Green Deal which also determines the EU’s international climate leading role (see Section 10 on climate and energy policy in this publication) and its geopolitical ambitions which require the EU to more strongly position itself as a reliable and trustworthy partner for the Global South.
Looking ahead
The negotiations of the NCQG and its subsequent implementation are a critical moment for the EU and its self-proclaimed international climate leadership role. The EU’s negotiating position, in particular calls for an extended contributor base, need to be matched up with higher ambitions to engage on the needs and positions of developing countries and higher climate finance contributions by all member states. The new climate finance goal, after all, requires a paradigm shift in climate finance that the EU has so far been reluctant to accept. This relates to demands from developing countries to better define climate finance and demarcate it from other sources of public finance along with improving its accounting and reporting (with necessary adjustments in the OECD/DAC (Koch & Aleksandrova, 2023)). It also relates to a needed clarification of how ODA and climate finance are envisioned to co-exist in the future, given that the increases in climate finance have led to a crowding out of aid for other purposes in many respects.
Different levels of economic development require different funding arrangements, and it is difficult to explain to the European voter, why large middle-income countries such as India or Indonesia are not only the largest recipients of European climate finance but should also continue to benefit from grants rather than concessional loans in the future. The increased differentiation between countries with higher and lower economic development in terms of the amount and kind of climate finance they will receive is something the group of G77 + China also cannot avoid accepting. Such differentiation needs to go hand in hand with greater support to the least developed countries (LDCs) and small island development states (SIDs) regarding both the funding levels for adaptation and loss and damage they receive, and the acknowledgements of their negotiating positions. The way the EU is playing it right now leads to a hardening of the fronts and a strengthening of the bloc formation (developing versus developed countries) that the EU has been so eager to break up in recent years.
With the upcoming elections in the United States and a possible backlash in global leadership on climate issues, the EU is particularly challenged to live up to a global climate leadership role. This not only relates to the internal political debates on the future organisation of the European Green Deal and the necessary decisions to achieve climate neutrality by 2050, but also to its international climate policies and diplomacy.
- At the UNFCCC level, EU support for a successful outcome of the NCQG at COP29 is crucial and requires more flexibility regarding the EU’s current negotiating positions: Setting an ambitious target for the better quality of climate finance (including the willingness to define climate finance with regard to levels of concessionality and additionality), and capturing loss and damage finance needs along with the climate change mitigation and adaptation targets, could help bring developed and developing countries’ positions closer together.
- At the EU level, the next European Commission should draw up a roadmap of how the EU will plan and achieve its contributions to the NCQG. To that end, the EC should not only address questions of how to bring in line the Global Gateway’s focus on climate and energy with international commitments but also focus more strongly on its coordinating role to pursue joined “Team Europe” pledges in the climate negotiations. This also entails achieving a fairer burden-sharing within the EU and improving the quality and concessionality of climate finance provided by individual member states.
References
CAN (Climate Action Network) Europe. (2024). Assessing international climate finance by the EU and member states: Key insights for shaping the new climate finance goal. https://caneurope.org/report-assessing-international-climate-finance-by-the-eu-and-member-states-key-insights-for-shaping-the-new-climate-finance-goal/
European Council. (2023, 23 November). Climate finance: Council approves 2022 international climate finance figures (Press release). https://www.consilium.europa.eu/en/press/press-releases/2023/11/23/climate-finance-council-approves-2022-international-climate-finance-figures/
European Commission, Directorate-General for Climate Action, Luis Iglesias, R., Mastrogregori, E., Soriano Redondo, I., et al. (2024). Scoping study of innovative sources of international climate finance. Final report. Publications Office of the European Union. https://data.europa.eu/doi/10.2834/525788
Koch, S., & Aleksandrova, M. (2023). The future of climate and development finance: Balancing separate accounting with integrated policy responses (IDOS Policy Brief 19/2023). IDOS. https://doi.org/10.23661/ipb19.2023.v2.0
Koch, S., Keijzer, N., & Bauer, S. (2022). The EU in Sharm-El-Sheikh. Good cop at a bad COP? (Blog). IDOS. https://blogs.idos-research.de/2022/11/24/the-eu-in-sharm-el-sheikh-good-cop-at-a-bad-cop/
