COP seeks backers and targets up to one billion euros

The International Climate Action Network is one of the environmental associations that believes that, "at the very least”, annual funding of one billion dollars a year in public subsidies should be agreed to support developing countries. "We know that this is a figure that seems excessive, and for example the European Union is only aiming for a doubling of this funding, but this is a credible figure given the global needs for mitigation and adaptation,” explains Francisco Ferreira, president of the Portuguese association Zero.

But the truth is that even the current figure of 100 billion dollars, agreed at the COP in 2009 to be implemented by 2020, was only reached - and surpassed - in 2022, when developed countries managed to raise 115.9 billion, according to the Organization for Economic Cooperation and Development (OECD). Public funds supported 80% of the total.

For Portugal's environment minister, Maria da Graça Carvalho, who is representing Portugal at the COP in Baku, Azerbaijan, the result should be "at most” a doubling of the current 100 billion, despite recognizing "very great needs”. In her opinion, the effort should focus on "drawing the attention of countries that are not contributing at the moment” because, with a broader donor base, "each year we could increase the amount and there would be more to share the effort”. He believes it's important not to set a figure without having defined this base first.

Each year the amount could increase and there would be more to share the effort [if the base of donors is broadened]

PSD MEP Lídia Pereira, who will chair the delegation representing the European Parliament at COP29, believes that "more than setting new values, the important thing is to ensure that all parties comply with their commitments and that those who pollute the most are responsible for contributing”. For the MEP, expectations seem to be even lower: "any figure that is set lower than the current figure of 100 billion euros will be a failure,” she says.

But this "big” target is not the only one at stake. The Loss and Damage Response Fund (LDRF), created at last year's COP, is expected to be operationalized. At the same time, the Global Adaptation Goal (GGA) must be operationalized by 2025. Reports from the Intergovernmental Panel on Climate Change (IPCC) and the United Nations Environment Program (UNEP) indicate that the global cost of adaptation alone should exceed 140 to 300 billion annually by 2030, just for developing countries, says Paulo Rosa, senior economist at Banco Carregosa.

Maria da Graça Carvalho believes that the focus should be on fattening up the global target (NCQG) and that the other objectives should be incorporated into it, so that there is "greater management flexibility”. Francisco Ferreira argues that "it could be an advantage” to incorporate the Loss and Damage Fund as a sub-objective within the scope of the NCQG, "since it would share the same monitoring mechanism”

China, the Middle East and private individuals called upon to contribute

Faced with the difficulty of financing the climate cause, the various parties involved in the discussion point in the same direction: China and the Middle East. Lídia Pereira believes that it is "unreasonable” for countries such as China, India or Saudi Arabia to take refuge in the status of developing countries and not contribute. China and Saudi Arabia are "developing countries that not only have responsibilities in terms of emissions, but are also considered emerging economies, with the financial capacity to make large contributions”, Francisco Ferreira points out. "It's not easy to negotiate with countries like China, but I think it's the responsibility of countries that have achieved great economic growth, and that have partnerships with poorer countries like those in Africa, to contribute,” says Maria da Graça Carvalho.

[China and Saudi Arabia] are developing countries that not only have responsibilities in terms of emissions, but are also considered emerging economies with the financial capacity to make large contributions.   

Apart from the question of funders, it's important to reflect on the division between public and private funding. "If we want to discuss increasing the totals, we can only do so by also increasing the amount from private sources,” warns Lídia Pereira.

"Financing the NCQG from 2025 onwards will require a combination of public funding, mobilizing the private sector and adopting innovative ways of raising and applying funds,” explains Paulo Rosa, senior economist at Banco Carregosa. Although, "probably”, the public contribution of developed countries will continue to bear the lion's share of financing, "as the private sector is more focused on investing in climate action mitigation projects (e.g. renewable energies, energy efficiency), this area can be strongly reinforced by private capital, through tax incentives and green bonds”, considers the economist.

As the private sector is more inclined to invest in climate action mitigation projects (e.g. renewable energies, energy efficiency), this area can be strongly reinforced by private capital.

In the view of Camille Leca, head of ESG [sustainability] at Euronext, the private sector will serve above all to accelerate investment and innovation, while public funding is "essential” to support risk mitigation, "creating an environment conducive to private involvement”. When it comes to loss and damage, a "more challenging” objective, public funds and solidarity contributions should be the most frequent, adds Paulo Rosa.

Still on the type of funding that makes sense, Francisco Ferreira says that it should be based on grants and not loans, ensuring long-term support so that countries can adapt to climate change without adding to their debt burden, and safeguarding the well-being of populations and biodiversity.

In line with the "polluter pays principle”, Zero suggests creating new sources of funding, such as taxes on the fossil fuel industry and other sectors with high emissions. In Lídia Pereira's opinion, the carbon emissions market "is an intelligent and effective way of finding alternative financing” to public funding for the climate transition.

Innovations such as voluntary carbon markets, impact investing and climate insurance can play transformative roles.   

Euronext's ESG manager also sees room for "innovative mechanisms” such as mixed financing, green bonds and financial instruments linked to sustainability. "Innovations such as voluntary carbon markets, impact investing and climate insurance can play transformative roles, if well integrated,” she adds. He also argues that "a balanced allocation between immediate needs and long-term sustainability will help to maximize the impact of the funds”.