Finance is the headline issue for climate politics in 2023. As the 27th Conference of Parties (COP27) to the United Nations Framework Convention on Climate Change provided no concrete outcome on climate finance, there is a lot riding on the Bonn Climate Change Conference in Germany, scheduled from June 5-15, 2023. 

While the $100 billion climate finance goal — first pledged in 2009 — may be met this year, discussions on its successor, the New Collective Quantified Goal (NCQG) on climate finance, will continue at Bonn, where the Sixth Technical Expert Dialogue (TED) will deliberate on the “quantum” of money for the new goal as well as “mobilisation and provision of financial sources”.

According to an estimate by the Organisation for Economic Co-operation and Development, a total of $83.3 billion was provided to developing and emerging economies in 2020 — $16.7 billion short of $100 billion. 

The $100 billion goal was not a negotiated goal, it was conceptualised in a somewhat arbitrary fashion by developed country leaders and does not reflect the true financing needs developing countries face today. 

The Stern-Songwe report of 2022 estimated that $1 trillion per year will be needed in external climate finance by 2030 for emerging and developing economies other than China. The UNFCCC Standing Committee on Climate Finance estimated the needs of developing countries to be from $5.8-11.5 trillion.

The NCQG is expected to be operational by 2025 and will be designed to consider the needs of developing nations.  At COP26 in Glasgow, an ad hoc work programme for the NCQG for 2022-24 was set up. Under this programme, Parties agreed to have four TEDs annually through 2024 to guide the technical work to inform political deliberations at COP.

At COP27, experts lamented the fact that instead of discussing substantive matters like the quantum of finance, the final cover text included procedural details only. It called for the need to significantly strengthen the ad hoc work programme, given the climate emergency. 

It also noted that NCQG should build on lessons learned from the $100 billion per year target. The co-chairs of NCQG were asked to develop a work plan to outline the preliminary topics for each TED in 2023. This was published on March 28, 2023. 

The fifth TED was conducted on March 8-10, 2023. Parties discussed the potential options for the framing and structure of the NCQG.

What will be discussed in Bonn?

The sixth TED will be held on June 12 and 13, 2023 at the Bonn climate conference. The theme will be “quantity, mobilisation and provision of financial sources”. 

Several Parties have submitted their views ahead of the discussions. India, on behalf of the Like-Minded Developing Countries (LMDC) bloc, has said that quantity should be determined based on the needs and priorities of developing countries using a bottom-up approach. Quantity deals with actual figures such as the amount of funds. 

The Least Developed Countries (LDC) bloc has also called for the need to determine the quantitative target. They added that developing countries’ Nationally Determined Contributions (NDC) and National Adaptation Plans (NAP) can provide a benchmark for computing country needs and quantum of finance. The bloc has also asked for finance for loss and damage to be addressed as part of the new goal and included in 2023 NCQG deliberations. 

Civil society organisations have asked for the new goal to be needs-based and science-based. They added that future climate finance should not be in the form of debt-inducing loans and that debt cancellations should be treated as an innovative source of climate finance.

It is clear that discussions on the NCQG must progress with ambition this year. The new figure should be based on evolving climate science and the needs of developing countries. It must be tied to specific results and outcomes to be achieved in a time-bound manner. 

There is also a need for a roadmap on delivery to ensure accountability and transparency. Delays in delivering the updated NCQG figure in the post-2025 period will severely impair climate action in developing countries. 

In 2020, according to OECD, 70 per cent of the $83.3 billion in climate finance was provided to developing countries as concessional and non-concessional loans, while only 26 per cent was in the form of grants (approximately $17.9 billion). 

The currently evolving debt crisis in the Global South underlines the urgent need for more grant-based climate finance, without which developing countries will be pushed deeper into debt, negatively impacting their development.

If you can’t define it, you can’t measure it

In India’s submission to the ad-hoc work program on NCQG on the work plan for 2023, the country has asked for a clear definition of climate finance. It is hard to fathom that there is no universally accepted definition of climate finance. Without it, tracking climate finance flows is challenging. 

It is up to each donor country to label any funds as climate finance. According to the UNFCCC Standing Committee on Finance, climate finance is that which “aims at reducing emissions, and enhancing sinks of greenhouse gases and aims at reducing vulnerability of, and maintaining and increasing the resilience of, human and ecological systems to negative climate change impacts”. 

But there is no standard, internationally agreed definition of what can be counted as climate finance or even what should be reported as “new” or “additional” climate finance. A clear definition is needed so that there is accountability, transparency and traceability of financial flows from developed to developing countries.

Beyond climate finance

Through the UNFCCC multilateral process, the spotlight must be on finance in various concrete forms this year — filling up a loss and damage fund, concessional finance for the energy transition and decarbonisation in developing countries, more financing for adaptation and progress on the NCQG towards an ambitious new goal reflective of the true needs of the developing world. 

Beyond climate finance, urgent attention must be directed to other financial barriers that are hindering the green transition in developing countries. Around 93 per cent of the most climate vulnerable countries are already in debt-distress or face a high risk of being in debt-distress, according to Action Aid. 

The International Energy Agency stated that the high cost of capital and rising borrowing costs reduce the economic attractiveness of clean energy investment in developing countries, even if they possess rich renewable resources. 

This conversation was catalysed in 2022 by the tabling of the Bridgetown Agenda, which put forth a package of proposals. The COP27 cover decision called for reform of multilateral development banks “to define a new vision and commensurate operational model, channels and instruments that are fit for the purpose of adequately addressing the global climate emergency”. 

Climate was a key issue of focus at the Spring Meetings of the International Monetary Fund and the World Bank. Demands must be scaled up at the Summit on a New Global Financing Pact to be hosted by France on June 22-23, where CSE will be in attendance. 2023 has to be all about the money.