COP29 must deliver a step change for climate finance – the UK must step up

We are in a climate emergency. 

This is the critical decade where all the action must be taken to limit global temperature rise to 1.5°C. There is no ‘safe’ level of climate change, lives and livelihoods are lost every day – evident this week with at least 214 people killed during flash floods in Spain and at least 136 people dead or missing as Tropical Storm Trami hit the Philippines – every 0.1°C of further heating increases the loss of life, poverty, and devastation across the planet. We have to act now.

The response needed is unprecedented, extraordinary, once in a generation. The only possible comparisons are abolishing slavery or rebuilding Germany after the War. At the time, no country had the money lying around to do these things. But humanity agreed we must, such was its importance to our collective futures – just like the climate emergency.

Climate Justice

Those countries with world leading economies, built off the back of a colonial past and fossil fuel-based development responsible for the climate emergency, must go further and fastest on ending fossil fuels. They must provide the finance needed in the majority world, who have done the least to cause climate change. We broke it – and got wealthy doing so – it’s basic fairness we pay to fix it. 

Instead, the costs of climate change are falling on those who can least afford it and are most marginalised. As the fifth largest historical emitter and the sixth largest economy in the world, the UK has to step up.

Climate change costs

The estimated costs of addressing climate change in the Global South are between $1tn and $10tn a year. The actual costs will depend on how quickly the Global North ends its dependence on fossil fuels. Each moment of delay costs more in every sense of the word. 

Yet the world continues to spend at least $2.6tn (2.5% of global GDP) a year on subsidies that drive global heating and destroy nature, and governments continue to provide billions of dollars in tax breaks, subsidies, and other investments that directly undermine progress. Inadequate taxation of fossil fuel profits means that the five largest oil companies paid out $100bn to reward investors in 2023 – the hottest year on record – the same amount as the entirety of the climate finance goal for the Global South saw that same year. The problem is not that finance is lacking, but that it continues to flow to fund harm not solutions. Political will is crucial to change that.

The Polluters Pay Principle

Globally, trillions of dollars are available for climate finance if governments end harmful subsidies and appropriately tax the greatest polluters and most wealthy in our society. Oxfam research shows that reasonable measures to make polluters pay could have generated £23bn in the UK in 2022 for climate action at home and overseas, without unfairly costing UK households. 

The excess profits of the five largest oil and gas companies amounted to an estimated $134bn in 2022, yet in the same year the Treasury provided around £3.35bn of public money for producer subsidies and the lucrative Energy Profits Levy investment allowance. The oil giant Equinor – with 2023 profits of $10.371bn – was expected to receive around £3bn in tax breaks from the Rosebank oil field development, even though it would not lower household bills or secure energy independence. 

Debt and climate change

Currently, 93% of the 63 countries most vulnerable to climate change related disasters are already in or at risk of debt distress. The Global South pays more in debt repayments than they receive in ODA and climate finance, yet the majority of climate finance is from loans not grants, exacerbating the debt and poverty cycle. At the same time, debt keeps countries trapped in fossil fuel production and prevents the climate action needed.

It is unjust, unsustainable, and leaves those who have been made most vulnerable to climate change impacts by the actions of the Global North to disproportionately bear the costs of climate change. A different approach is clearly needed.

Private finance doesn’t deliver what’s needed

At first glance, private investment may seem like a viable solution to plug finance gaps, but it comes with serious limitations. The private sector has proven inadequate in addressing loss and damage and enabling adaptation, especially for the most marginalised, and faces major constraints on effective mitigation, particularly in the energy sector. 

Profit-driven private capital tends to prioritise quick returns rather than long-term investments for the public good. This is a dangerous misalignment considering the structural changes needed to address the climate emergency and deliver climate justice. 

From exacerbating inequality to encouraging greenwashing and false solutions, private investment skews climate finance away from the communities of the Global South, and instead flows toward wealthier areas with better returns. Relying on private investment to meet climate finance goals leaves critical needs in the Global South underfunded or entirely neglected.

The NCQG at COP29

COP29 has to deliver a completely new approach to financing the climate emergency for this crucial decade of action, and provision of public grant finance has to be at the core to break the cycle of poverty, deliver climate justice, and enable the action needed to collectively secure all our futures. 

But this is not the approach being taken by developed countries in the negotiations, who want to only tweak the system that is failing, rather than deliver – and adequately finance – transformative action.

The NCQG replaces the $100bn a year (2020 to 2025) climate finance goal. Lessons that must be learnt from the old goal are:

• Needs-based: $100bn was a political compromise and not based on the needs of the Global South, leaving vast unmet needs and increasing vulnerability.
• Grant-based / Justice-based: The majority of climate finance has been loans not grants, exacerbating the debt and poverty trap, and meaning that those least responsible for climate change are the ones bearing its costs.
• Provision-based: $100bn was a mobilised finance goal, a black box of assumptions that did not deliver for developing countries, rather than a clear and transparent fulfilment of developed countries obligations under the UNFCCC to provide climate finance. As such there has been a lack of transparency about what ‘counts’ as climate finance and no accountability for failures to deliver. 
• Additionality: Climate finance was meant to be “new and additional” to ODA, recognising that climate change was a new and additional challenge the Global South faces that is not of their making. Instead, most climate finance is just double counted ODA; money developing countries would have received anyway, forcing choices between climate action and other pressing development and humanitarian priorities, instead of adequately and fairly funding both.
• Addresses impacts: The majority of climate finance has been for emissions reductions and low carbon development in middle-income countries, rather than adaptation and addressing loss and damage in the countries and communities suffering the worst impacts of climate change.

That is why CAN-UK is calling for an NCQG that creates a new approach to financing the climate emergency by providing:

• A transparent public grant finance provision core of $1tn, in the context of a larger mobilisation goal.
• Subgoals for mitigation, adaptation, and loss and damage, to ensure transparency, build trust, and create accountability for all areas of climate action needed.
• Climate finance that is additional to existing ODA commitments.
• A ratchet mechanism, reviewing needs and financing gaps every 5 years.
• Polluters pay taxes and redirection of harmful subsidies by developed countries to generate new public grant finance.

UK Credibility

We are yet to see a clear offer from the new UK government on climate finance ahead of COP29. None of the harmful policies or positions of the last government have been scrapped – there has been no reversal of the cut to UK ODA or last year’s climate finance accounting changes (itself effectively a £1.6bn cut). 

Worse, last week’s Budget reduced ODA for this year and next from 2023 levels, and made no unequivocal recommitment to the existing (inadequate) climate finance commitment. The UK’s commitment to £11.6bn over five years is all double counted ODA, providing nothing new or additional for recipient countries, though it is at least majority grant finance. 

So far we have not seen a fresh approach by the new government to the NCQG negotiations, in which developed countries, including the UK, have not been propositional or ambitious enough in discussing the scale of public grant finance needed and the need for it to be additional to ODA commitments.

There is a real opportunity ahead of COP29 for the new government to rebuild trust with Global South partners and demonstrate climate leadership by adopting clear and tangible policy changes and negotiating positions on public finance.

COP29 will be the first test of this government’s climate leadership ambitions on the global stage. Clear commitments that restore trust, lead by example, and contribute to financing climate action globally, will be the benchmark against which the UK will be judged. The Budget hasn’t put the UK in a strong position going into COP29, so there is a real urgency to hear more from the government on scaling up public grant finance provision and implementing the fair polluter pays measures that can make this happen.

Notes: To find out more about CAN-UK priorities for the UK Government at COP29, please read the CAN-UK COP29 briefing available here.