Submission to the Eleventh Technical Expert Dialogue and Third Meeting under the Ad Hoc Work Programme on the New Collective Quantified Goal on Climate Finance

by IBON International Foundation Inc.

August 05, 2024

IBON International Foundation Inc. welcomes the opportunity to respond to the call for Parties and Non-Party Stakeholders to submit their views for the 11th Technical Expert Dialogue and the third meeting under the ad hoc work programme of the New Collective Quantified Goal on climate finance (NCQG).

The NCQG, the core of the post-2025 climate finance architecture, is crucial for meeting the financing needs of developing countries amidst the escalating impacts of climate change. While it holds significant potential, it is imperative that the NCQG builds on the previous USD 100 billion goal to ensure that it does not replicate the failures of the previous target.

Considering that the NCQG will be high on the agenda at the 29th Conference of Parties (COP29), upcoming technical dialogues and ministerials must settle the granular details of the goal, producing a substantive framework for a draft negotiating text. To this end, we would like to present the following views for consideration in the NCQG draft decision text, highlighting fundamental elements we believe are crucial for the NCQG to effectively fulfil its mandate to support the implementation of the Paris Agreement.

1. Establish an adequate quantum with new and additional finance

Drawing lessons from the previous USD 100 billion goal, which was set without accounting for the genuine needs of developing countries and communities, the quantum of the NCQG should be based on national estimates of needs indicated in the Nationally Determined Contributions (NDCs) and aligned with maintaining global temperatures well below 1.5 degrees Celsius. This is crucial, as many NDCs, whose cumulative action still sets a trajectory for global temperatures to rise significantly above 2 degrees Celsius, will require higher levels of investment to increase ambition. Other country reports, such as the second Needs Determination Report (NDR), which will be released prior to COP29, must also inform the quantum of the NCQG.

Currently, there are a number of studies that estimate countries’ climate finance needs, which could also inform the development of the NCQG’s quantum. A 2023 study suggests that, in the average scenario, annual finance for mitigation and adaptation needed through 2030 will steadily increase from USD 8.1 to USD 9 trillion. By 2031-2050, it will grow from a baseline of USD 10 trillion, considering only mitigation and adaptation costs.

In the context of financing for addressing loss and damage, additionality to mitigation and adaptation funding must also be guaranteed to avoid a diversion of funding and, in particular, a relabeling of existing adaptation finance as loss and damage finance. Midpoint estimates of economic loss and damage for 2020 were about USD 425 billion, and models indicate about USD 671 billion in economic losses and damages annually by 2030. Financing for loss and damage would, therefore, require additional financing of at least USD 400 billion per year, with the understanding that this amount will need to be increased over time.

Additionality of finance must also extend to ensuring that support for climate action is not substituted for investment in sustainable development and poverty alleviation. Contributions to the NCQG should be on top of current ODA commitments. This clear distinction between the two ensures that finance for supporting mitigation and adaptation efforts, as well as addressing loss and damage, is separate from finance aimed at broader socio-economic development goals.

The NCQG on climate finance should also be clearly distinguished from other financial flows, particularly those referenced in Article 2.1(c) of the Paris Agreement. This article addresses broader financial flows, including public and private investments, to ensure alignment with low-carbon development. Thus, Article 2.1(c) must not be integrated into the new goal, as it would impose steeper emission reductions on developing countries in order for them to access climate finance. Rather, the NCQG should only refer to finance provided by developed countries to developing countries, in line with Convention principles of CBDR-RC and equity, as well as Article 9 of the Paris Agreement.

2. Focus on Grant-Based Public Finance

Finance accounted towards the NCQG must be provided and mobilised as grants to genuinely address the needs of the frontline communities. Loans, which were the primary form of finance delivered for the previous goal, only exacerbated developing countries’ debt burdens. They undermine the principle of CBDR-RC, turning the obligatory relationship around, where developing countries are made to shoulder their climate financing needs while paying hefty interest amounts to their creditors. In addition, loans come with policy conditionalities that further erode the sovereignty of developing countries. These conditions enforce neoliberal policies that lead to the privatisation of essential services, reduced public spending on health, education, and social protection, and increased vulnerability of marginalised communities.

Apart from placing emphasis on grants, the NCQG should be fulfilled primarily through public financing since there is currently little evidence that relying on private finance will meet the scale and urgency of climate action in the world’s poorest countries. Central to the private sector is the guarantee of profits, often channelling funds into projects that eventually intensify resource extraction and environmental degradation. Private finance tends to favour low-risk investments in more stable countries while leaving behind poorer countries, such as Least Developed Countries, that need greater attention. In fact, developing countries typically rely on public financing since high borrowing costs and elevated risk perceptions, often due to vulnerability to climate shocks, make private investments difficult to access.

Instead, assessed budgetary contributions should be the main source of climate finance. This amounts to changes in developed countries’ funding priorities and policies to free up trillions of public money that are spent on the wrong priorities in today’s crisis-ridden world. And a combination of other sources of finance can be put in motion to generate new streams of revenue. This could include, inter alia, redirecting military budgets, shifting fossil fuel subsidies, reforming world trade rules, waiving patents on climate technologies, cancelling debts, and taxing wealthy polluters.

3. Developed countries must take the lead in providing climate finance

The CBDR-RC principle maintains that countries’ respective climate finance payment responsibilities depend on their historical responsibility, as well as their capacity to pay. Developing countries are the least responsible for the emergence of climate change, yet are also the least capable to address it. Therefore, the responsibility to provide climate finance to meet the NCQG falls squarely on developed countries who are overshooting their fair share of carbon emissions and have greater fiscal space to provide climate finance. This responsibility is further enshrined in Article 9 of the Paris Agreement.

Rather than relying on voluntary contributions, the NCQG should have clear mechanisms to compel developed countries to pay their fair share of the goal. This could include establishing a binding agreement specifying enforceable targets for contributions for each developed country based on their historical emissions, degree of responsibility, and current economic capacity. To reinforce this dynamic, a robust system for tracking and reporting climate finance contributions should be put together. This is to ensure that developed countries report their contributions, including assumptions, methodologies, and definitions used. Such information must be open to civil society and independent monitoring bodies to scrutinise in order to ensure accuracy and compliance with commitments.

4. Ensure transparency, accountability, and equitable representation in management of climate finance

The texts of the NCQG should include language emphasising transparency, accountability, and equitable representation as principles for the management and control of climate finance. Transparency in the governance of climate funds means that information is accurate, comprehensive, and timely. Accountability demands the existence of an accessible redress mechanism to enable countries or affected citizens to challenge climate funding decisions or climate finance project implementation. Equitable representation goes beyond a focus on proportion but should demonstrate a definitive break with existing donor-recipient relationships, wherein developing country governments and peoples should have sovereign control over funds. In particular, funding decisions must be devolved to local levels, where programs and strategies can be deliberated on with the democratic participation of communities. This will provide more space for communities through their organisations to access finance and identify, define, implement, and evaluate programs, projects, and activities related to addressing climate change.

5. Set a dynamic and flexible time frame

In light of the unpredictable nature of climate impacts, it is imperative to structure the NCQG to be responsive to the evolving needs of developing countries. To accommodate increasing financial needs and ensure alignment with key climate processes, there must be a five-year review cycle, beginning in 2030. This period will allow for regular adjustments and will facilitate alignment of the NCQG with the next round of NDCs in 2030 and the Global Stocktake in 2028. The outcomes of these processes will inform the updating of the NCQG by 2030, ensuring the goal supports the updated ambitions of developing countries and tailored to the actual needs of developing countries.

Furthermore, a robust adjustment mechanism should be established. Consultations should be conducted to engage a wide range of stakeholders, including developing country governments and civil society organisations, to provide input on financial needs and priorities. Moreover, the allocation of climate finance should be flexible, allowing for reallocation based on the outcomes of these assessments and consultations, thereby enabling effective responses to emerging challenges.