The fossil fuel and carbon trading industries may be among the few groups to be able to claim any substantial success at COP29 in Baku. Developed countries committed to less than a quarter of the estimated climate finance needed by 2035, much of it likely to take the form of loans rather than grants. Some of it will probably come from a new UN carbon trading mechanism which will offer polluters a cheap and convenient way to avoid making substantial cuts in their emissions. The COP could not even agree to mention fossil fuels in their final documents. Climate committed governments and financial institutions must avoid the temptation of using the Baku failures and the unfavorable geopolitical context as an excuse to go slow on climate action. Instead, they must step up their efforts to shift finance from fossils to sustainable energy.
COP29 staggered to an exhausted and disappointed conclusion 35 hours after its scheduled end (1). Despite widespread recognition that developing countries need at least $1 trillion in climate finance annually by 2030 (2), developed countries offered just $300 billion. (3) To add insult to injury, this “new collective quantified goal on climate finance” (NCQG) does not need to met until 2035. Existing pledges to increase climate aid were already estimated to reach $200 billion by 2030. (4) Add in inflation and this $300 billion is not much more than business-as-usual.
Given the debt burden of poorer countries, the financial reality that adaptation projects rarely generate revenues to repay loans, and the moral reality that developed countries are responsible for most historic emissions, the bulk of climate finance must come as grants. (5) Yet the Baku agreement allows Northern countries to meet the $300 billion goal via public and private sector loans and vague “alternative sources” — presumably meaning carbon offsets. The agreement also leaves “climate finance” undefined, allowing governments to continue their past practice of putting a climate label on any funds they wish. (6)
The agreement vaguely “calls on” a total of $1.3 trillion to be provided by 2035 for “climate action” in developing countries. (7) But there is no clarity on how this sum will be raised and likely the trillion dollar gap between the two finance numbers is to be filled by private investors and carbon offsets. But governments are unlikely to force investors to produce these funds, and even the carbon trading industry places the size of the global offsets market at only $100 billion by 2030. (8)
The problem is not the availability of funding: in 2022 fossil fuel subsidies and public financing exceeded $1.7 trillion. (9) This could all be redirected to climate finance. Taxes on billionaires, as promoted by Brazil, (10) and on fossil fuels and financial transactions, as proposed by the Global Solidarity Levies Task Force (11) headed by France, Barbados and Kenya, could also raise hundreds of billions of dollars.
Offsetting never dies: The CDM reborn
One supposed success from Baku was the approval of rules for the two global carbon offsetting schemes proposed in Article 6 of the Paris accord. (12) The Article 6 schemes follow the model of the Kyoto Protocol’s market mechanisms, in particular the Clean Development Mechanism (CDM). (13) This was promoted with much of the same rhetoric surrounding Article 6, including claims of unlocking huge financial flows for emissions abatement in developing countries.
The supposedly high quality, additional and certified offsets created under the CDM, each claimed to represent a ton of CO2 not emitted, turned out to almost all be bogus. Most were created from renewable energy and hydropower projects that were already built and so offered no additional emission reductions. (14) Much of the finance generated was captured by the myriad consultancies, banks and brokers involved in creating and trading fictional emission reductions and promoting their use. (15)
The new offsetting mechanisms are a country-to-country scheme under Article 6.2 and a project-based program under Article 6.4 called the Paris Agreement Crediting Mechanism (PACM). The International Emissions Trading Association (IETA), once a staunch proponent of the CDM, “warmly welcomed” the completion of the Article 6 rulebook. (16) Others see deeply flawed rules that are likely to repeat the debacle of Kyoto’s trading mechanisms. (17) The Article 6 schemes are based on the same flawed concepts as the CDM, will be implemented by many of the same developers, consultants and brokers — and will even allow the use of old CDM credits.
The fossil fuel industry’s dead grip in Baku
The fossil fuel lobby succeeded in keeping the words “fossil fuels” out of any COP final declaration until Dubai last year. While it appeared that this dam had finally been broken at COP28, negotiators at Baku were unable to agree on a statement that would have repeated the offensive F-words from Dubai. This was reportedly a direct result of the efforts of Saudi Arabia, aided by the Azeri hosts. (18) This is nothing new: the Saudis have pushed back against progress at the UN climate talks since their inception in the early 1990s, (19) working hand-in-glove with OPEC, private oil companies, and often the US and other petrostates. The Saudi’s efforts were particularly brazen in Baku, with reports that they secretly obtained editing privileges to a final draft of the final NCGQ declaration. (20)
The setbacks in Baku underscore the political barriers to climate action. Governments and financial institutions that profess a commitment to climate goals must show leadership by taking unilateral actions to shift finance from fossil fuels to zero-carbon solutions. While it is vital to support multilateral processes, climate leaders must not follow a lowest common denominator position dictated by fossil fuel interests.
