Climate finance talks at the Bonn Climate Conference on Tuesday ended in a stalemate as countries failed to make any concrete progress on the issue.
It has been at the centre of discussions in Germany with nations needing to agree on the New Collective Quantified Goal (NCGQ) at COP29 in Baku this November. This is the amount of money developed countries need to mobilise each year from 2025 to support climate action in developing nations.
But there have been serious disagreements over how much this should be, who should be prioritised for finance, what form this money takes and what counts as a ‘developed’ country.
“Proper progress is urgently needed at the UNFCCC climate negotiations this week as, with each day passing, the talks are turning into a cesspit of inaction,” an update by the Climate Action Network said on Monday.
Countries on both sides of the negotiations expressed disappointment at the halfway point to COP29.
Which countries should contribute?
Securing contributions for climate funds has long been a sticking point of negotiations like this.
Some, like Norway, argue that countries with high emissions and economic capacity like China or petrostates should be a part of the group that contributes. Currently, they define themselves as developing nations under the Paris Agreement meaning they don’t have to provide money to the funds.
The US is also among the countries that have argued the pool of donors should be expanded to include emerging economies.
On the other side of this debate, the topic of who should get the funds is another sticking point. Many developed countries like the US reportedly believe it should go to those most vulnerable to the impacts of climate change - the least developed countries (LDCs) and small island developing states.
But developing countries say they should all be eligible for funding.
Should climate finance come in the form of funds or loans?
Developing countries have also contested what actually constitutes climate finance. They say loans shouldn’t be counted under developed countries' contributions.
A recent report from the Organisation for Economic Co-operation and Development (OECD) found that developed countries met their $100 billion (€93.2bn) a year promise in 2022 with the “largest year-on-year increase observed to date”. However, 69 per cent of these funds were provided in the form of loans.
Groups including the Alliance of Small Island States (AOSIS) and the LDCs say this just increases the debt burden of the most vulnerable nations.
“From our point of view, it’s justice, it’s reparations, it’s rich countries responsibility,” climate activist and observer at the Bonn conference, Harjeet Singh said at a press conference.
“Whereas they look at it as another moneymaking opportunity. The OECD report actually tells you that story.”
Newly released figures from the Centre for Global Development (CGD) shared with Carbon Brief suggest that the $100 billion goal may have also been met by relabelling existing aid.
The expectation is that developed nations should have been providing “new and additional” funds on top of what they already provide. But CGD claims at least $6.5 billion (€6.4 billion) of the record increase in climate aid in 2022 was diverted from other aid development programmes.
They say this may have allowed rich nations to reach their climate targets despite slashing overall budgets for foreign aid.
World Bank agrees to host loss and damage fund
After years of debate, a loss and damage fund was agreed at COP27 in 2022 - a financial mechanism designed to provide crucial support to vulnerable nations facing the brunt of climate-related challenges.
Last year, countries including Italy and the Netherlands started to pledge money for this fund.
While talks were ongoing in Bonn, the board of the World Bank approved a plan on Tuesday for it to act as the interim host for loss and damage funds. It has said it will keep the intermediary fund for four years with a board that is independent of the bank and has its own governance structure and control over financing decisions.
The World Bank said it was a “major milestone on the path towards operationalising the fund, in collaboration with the board of the fund for responding to loss and damage”.
“This was an important step forward in the implementation of commitments made at COP28,” the COP28 presidency added in a social media post.
But this has also been a point of contention for developing nations with concerns that developed countries, including the US which appoints the president of the World Bank, could have too much influence.
What does this mean for COP29?
With many major money decisions to be made, COP29 in Azerbaijan this November has already been dubbed the “finance COP”.
Countries will to continue discussions on reaching a new climate finance deal after finally meeting the $100 billion pledge. The NCGQ is expected to go beyond the original goal with $100 billion the lowest amount and be based on the real-world needs of countries impacted by climate change.
It won’t be surprising if many of these arguments resurface once again in Baku.
All that wordsmithing did little to build consensus around the most contentious issues.
"Delegates in Bonn made some good headway cutting down the negotiating text for the new climate finance goal, but all that wordsmithing did little to build consensus around the most contentious issues," says Gaia Larsen, director of climate finance access at the World Resources Institute.
"While at times negotiators showed a willingness to work toward landing zones, they mostly continued to reiterate opposing views on the big-ticket items like who pays, how much money the goal aims for and what’s the right balance of different types of financing."
Larsen adds that the sheer number of unresolved issues currently sets us up for a "fraught two weeks in Baku" later this year.
