The recently concluded UN COP29 climate conference held in Baku did not deliver significant improvements in mitigating climate change on a broader scale. Expectations for major policy decisions were low, partly due to the host country, Azerbaijan, being a major oil producer.
The most attention during the conference was given to a climate finance pledge, which, after lengthy negotiations, was increased from the current $100 billion to $300 billion.
Although the pledge was tripled, the final sum did not satisfy all participating nations. Developing countries, led by India, deemed the solutions entirely inadequate. By 2035, they had hoped for funding as high as $1.3 trillion.
Notably, countries like Saudi Arabia and China were still absent from the group of nations providing funding to developing countries, a point that Finland's Minister of the Environment, Kai Mykkänen (National Coalition Party), strongly criticized in an interview with Suomen Kuvalehti.
New payment obligations for Western countries
If the United States potentially withdraws from the agreement, the majority of the agreed funding will fall on the EU. The U.S. has been falling short of its own UN-calculated climate finance target by an estimated $18–37 billion annually.
The EU, on the other hand, already supports adaptation and mitigation efforts in developing countries with approximately $30 billion annually and has allocated around $633 billion for its own climate actions for the 2021–2027 period.
Despite these significant financial flows, mitigating climate change would require even more funding, as estimates suggest that by 2030, the total needed financing could amount to as much as $90 trillion.
Currently, global climate investments in mitigation and adaptation amount to roughly $600–700 billion per year, according to the European Commission—clearly insufficient despite the new commitments.
Compensating for damages does not slow down climate change
In practice, the financing mechanism will have developed countries compensate developing nations for the costs of damages caused by climate change, including contributions from private funding.
While it is humane to compensate vulnerable regions for the costs of climate change, poorly executed climate finance pledges risk becoming a new form of development aid that does not actually slow the progression of climate change.
Currently, less than one-third of climate finance is directed toward adaptation efforts in developing countries, according to an OECD report. These funds are used to make infrastructure such as roads, buildings, and drainage systems more climate-resilient.
Another major challenge is that tens of billions of dollars in climate funding go unused, according to the international charity Oxfam. This is due to poor allocation and cumbersome bureaucracy.
Global financing mechanisms should, above all, prioritize solutions that slow climate change. By doing so, the need for compensating damages would also decrease. Without sufficient funding for sustainable solutions, the costs of damages are likely to escalate even further.
Much-needed decisions for carbon sinks
After nearly a decade of negotiations, an international market mechanism under Article 6 of the Paris Agreement has finally reached consensus among participating countries.
The mechanism for carbon markets now allows countries involved in the Paris Agreement to take climate actions beyond their own borders. This decision also expands opportunities for businesses seeking to offset their carbon emissions by purchasing carbon sink credits from voluntary carbon markets.
International market mechanisms will have standards overseen by the Paris Agreement’s monitoring body. Practices in the carbon sink sector have varied among different actors, but with the new regulations, responsible and impactful players will stand out in the way they deserve.
Fair rules will ensure healthy market competition, which we at Carboreal greatly appreciate. As the market grows with clearer regulations, we believe the demand for carbon sinks will also increase, as the long-standing uncertainty in this area fades. The sooner concrete guidelines are established, the better it will be for mitigating climate change.
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