Overview
Today's Deep Dive is 1,399 words and a 9-minute read.
Last week, the 29thannual Conference of Parties (COP) to the UN Framework Convention on Climate Change, most commonly called COP29, kicked off in Baku, Azerbaijan. A much smaller conference than last year’s high-profile COP28 in the UAE, or next year’s 30thanniversary summit in Brazil, the meeting is nonetheless generating controversy and climate agreements – although potentially more of the former. Widely referred to as the “climate COP,” the summit’s topline agenda item is formalizing and drumming up new commitments for climate finance. While there have already been some successes – such as formalizing a long-awaited UN framework for carbon credit trading – significant agreements are yet to be made before the summit concludes at the end of the week, and political divisions are bubbling under the surface.
Baku Achieves Article 6 Carbon Market Goal
In the first half of COP28, member states formalized a long-awaited agreement to establish a UN-backed platform for trading carbon credits between countries. Carbon credits – standardized, tradable units of carbon emissions, representing in this instance an amount of carbon emissions reduced, avoided, or removed (the same terminology is used for carbon allowances in cap and trade systems) – have long been an element of the global green transition plan, but their implementation has usually been flawed. The first UN-backed carbon credit trading platform, the Clean Development Mechanism (CDM), was established by the Kyoto Protocol in 1992 and phased out in the 2010s after analysts found myriad issues with the program: most projects selling carbon offsets on the CDM overestimated their emissions reductions, and one study even argued that the CDM may have increased emissions by six billion tons. In the last several months, doubts have emerged about voluntary trading of carbon credits as well, as several nongovernmental monitoring organizations have walked back their support for credits, saying that most offsets on the market today are ineffective.
The new Article 6 carbon market (named for Article 6.4 of the Paris Agreement) has been in the works for nearly a decade, and aims to address the concerns around efficacy and transparency that have thus far plagued carbon credit trading efforts. The platform will allow the trading of carbon credits between countries, allowing higher-polluting, generally higher-income countries to purchase certified carbon credits (representing tons of emissions avoided or reduced) produced by renewable or conservation projects in lower-income countries. Observers are excited about a properly executed carbon credit trading platform: the sale of carbon credits will make it much easier for developed countries to meet their emissions reductions targets, while funneling billions (the president of COP29 estimated $250 billion a year) to lower-income countries for use in climate responses and climate adaptation.
Despite this finalization, details must still be worked out – largely technical concerns around the details of trading credits. As always, some have criticized the platform and the process: environmental activists often consider carbon credits a “license to pollute,” while some involved say the way that the agreement was voted upon violated sovereignty for states who had previously rejected discrete elements of the agreement. Nonetheless, the agreement is a landmark achievement for the global effort to reduce carbon emissions, and will begin taking practical shape in the coming year.
On the Docket This Week
The topline item for Baku – widely referred to as the “finance COP” – is finalizing an agreement on a “new collective quantified goal” (NCQG) for climate finance. In 2009, COP countries aimed for industrialized nations to collectively supply developing nations with $100 billion a year by 2020 to put towards addressing and adapting to climate change (a goal that was met fully just once, in 2022). By 2015, however, member states agreed that $100 billion a year was insufficient in addressing and reversing the escalating effects of climate change, and agreed to set a new goal by 2025. The number widely being floated is $1 trillion per year, a lofty goal that brings with it myriad technical and political areas for disagreement.
First, countries will need to agree on an exact dollar amount. The $1 trillion number is based on several scientific estimates for funds needed, but different countries have proposed different amounts – the Like-Minded Group of Developing Countries (LMDC), a WTO voting bloc of developing states, has called for a flat $1 trillion per year, while the African Group has called for graduating targets moving from $800 billion in 2025 to $1.5 trillion by 2030, and Pakistan has topped the charts with a $2 trillion per year proposal. Developed countries have mostly declined to set a number yet, with the US calling a $1 trillion goal unrealistic, as most government budgets are under pressure. Members will also have to decide where the money comes from: funds from the Article 6 carbon market will likely count towards the total, but developing countries have largely called for the rest of the money to come from public grants and loans from governments and multilateral organizations, while developed countries envision a mix of public and private funds. Another point of contention is a timeline for compliance with the NCQG; some states argue for a five-year deadline to get money moving quicker, while others suggest a 10-year deadline with a five-year check-in (the same five-year cycle that the global stock take and national climate plans are on).
Perhaps most centrally, there are significant divisions over which countries should contribute the money and which should get it (a common division in UN climate mechanisms, like the Loss and Damage fund). When the UNFCC was established in 1992, countries were split into Annex II nations (comprising developed, higher-emitting states like the US, Japan, Canada, and those in the EU) and non-Annex II (developing, lower-emitting states). Since 1992, non-Annex II states like China and India have made significant strides in industrialization and development, and these states now make up almost 75% of global emissions, per Climate Watch analysis. Under 1992 classifications, states like the UAE, Singapore, and, most controversially, China would be recipients of climate financing, rather than donors, despite their wealth and relatively large contributions to global emissions. Metrics for deciding who should fall on which side of the equation are fuzzy and hotly contested, with geopolitics playing a significant role. Developed countries have largely declined to put a number to the NCQG until this matter is settled.
Also on the horizon for summit attendees is continued political turbulence, potentially limiting the ability of the attendees to finalize further agreements. French delegates to the conference walked out last week over a longstanding geopolitical divide over the Azerbaijan-Armenia conflict (French President Macron had already announced he would not attend), and European Commission President Ursula von der Leyen had opted not to attend altogether, officially citing work forming the new European Commission but likely reflecting growing European protests over Azerbaijan’s human rights record. Participant countries and activists are decrying the recent trend of hosting the summit in countries whose economies comprise large oil and gas industries, and a letter is being circulated that is signed by the former UN chief Ban Ki-moon and former UN climate secretary Christiana Figueres and calls for a “fundamental overhaul” of the “broken” COP system away from negotiation and towards implementation. Observers expect more political squabbles as the COP enters its endgame.
Key Takeaways
Despite the relatively smaller media spotlight – COP28 was bigger, and New York Climate Week and the biodiversity COP in Colombia last month better-covered – Baku’s “finance COP” has nonetheless been the site of significant announcements and significant disagreements. The establishment of a UN-backed carbon trading market is a boon for both developed and developing countries, as well as companies looking to invest in a high-quality carbon offset industry, either by purchasing reputable credits or offering them. NCQG discussions will likely conclude with at least the formal announcement of a new goal number, if not much else. This COP is the final one for establishing the NCQG ahead of the 2025 deadline, but likely the majority of the details will be left to formalize later – a negative for countries and activists who had hoped new climate financing would start flowing quickly. Below it all, geopolitical divisions will continue to bubble up, showing cracks in climate financing negotiations and general attendance. Implementation is, as always, an open question – UNFCC agreements are rarely fully financed, and the world is already anticipating that incoming President Trump, for example, will take a different policy approach to climate change and global climate efforts.
