Delivering on climate finance and long-term alignment of financial flows: NCQG and 2.1.c

E3G COP28 blog series

A sign for the UNFCCC in front of a room of people at desks. Negotiations commence in the SBs UNFCCC Plenary Room in Bonn, Germany, at the Bonn Climate Conference in 2015.
Negotiations commence in the SBs UNFCCC Plenary Room in Bonn, Germany, at the Bonn Climate Conference in 2015. Tethering UNFCCC negotiations around the NCQG to discussions on how to achieve Article 2.1.c will be essential for discussions this year. Photo by cgiarclimate on flickr.

At the Bonn climate meetings in June, negotiators will continue discussions on the so-called New Collective Quantified Goal (NCQG) for climate finance.

These meetings will focus on the quantum or amount of the goal – how much money should it aim for? – and the mobilisation and provision of financial sources – where does the money come from?

The answers are not simple. The scale of climate finance required for developing countries is in the region of trillions, not billions. Concessional public funding alone cannot match this. The existing $100bn goal has been ineffective in mobilising enough public and private finance for the climate transition. This is partly because the financial system is not fit for purpose.

For these reasons, delivering any new climate finance goal is intricately linked with the topic known by negotiators as ‘Article 2.1.c’. This article of the Paris Agreement calls for the alignment of financial flows to be consistent with the Paris Agreement and low-emission development pathways. Achieving it – essentially achieving green reform of the global financial system – would unlock an entirely new order of magnitude in finance working for climate action. This would require building on many existing initiatives and using levers, including financial policies and regulation, fiscal policy, public finance, and information instruments. Broader considerations in investment policy including overhaul of international investment treaties could also be part of the broader 2.1.c discussion.

Tethering negotiations around the NCQG to discussions on how to achieve Article 2.1.c is essential but will not be easy. Developing countries are worried about entangling the short-term need for climate finance with the long-term project of finance transition. Climate finance needs for climate action cannot wait for all financial flows to be aligned with the goals of the Paris Agreement. The NCQG should aim to only address the flow of climate finance from developed countries to developing countries. Furthermore, countries agree that there is lack of a common vision for how to set up processes to accelerate the achievement of Article 2.1.c, with many concerns about whether the UNFCCC has the mandate to shape the 2.1.c agenda in its fullest extent. Much progress is happening outside of the UNFCCC arena.

But there is no getting away from the fact that these two issues are linked. Limitations of private sector investment in the global south cannot be solved without structural changes to the economic fundamentals and institutional set up. The provision of finance – mostly grant based public finance – could be useful to building such foundations. This would, in turn, contribute to creating a suitable environment for the achievement of Article 2.1.c. It is clear that public sources alone would not be able to address current and future needs.

Instead of seeing them in tension, these two processes should work in tandem to provide a roadmap for better engagement of the private sector. Climate finance has a facilitative role to achieve Article 2.1.c. However, efforts to strengthen achievement of Article 2.1.c at the UNFCCC can be a foundational tool to allow all countries fulfil the NCQG.

So how can we make sure that efforts around implementing Article 2.1.c are harmonious with negotiations on the NCQG?

Firstly, the NCQG should focus on the needs of developing countries for climate finance. We need to ensure that the goal is set up to best respond to their needs. In setting the goal, we should consider mitigation, adaptation, and resilience needs – as well as losses and damages due to climate change.

Secondly, delivering on Article 2.1.c – aligning financial flows with the Paris Agreement – should be a tool to implement these finance commitments, but not a condition for provision of finance. It might be acceptable to incorporate some financing earmarked for the structural changes required for implementing 2.1.c. However, 2.1.c implementation should not become a hindrance on eligibility and access to climate finance. Finance institutions, multilateral development banks, and countries should not use 2.1.c as a condition for support – especially with the current lack of agreement on what it should entail.

Lastly, a distinction between provision targets for public sources and mobilisation targets for other sources of finance could be useful. The NCQG could be disaggregated. A provision target would be a more rigid goal reflecting the moral duty of wealthier countries to provide finance. In contrast, a mobilisation target could be associated with the success of implementing Article 2.1.c through Paris-aligning financial flows. The mobilisation goal could be elaborated on more also through further consideration on how to strengthen mechanisms towards delivering 2.1.c. One of the major challenges seen in the $100 billion goal was the lack of clarity on the contribution of the private sector. The NCQG could benefit from an accountability mechanism for private sector mobilisation, and from a commitment to offer all developing countries similar deals to the JET-P – country platforms. This mechanism could be made part of the transparency obligations of countries. A reporting mechanism, built bottom-up, on disclosures made in accordance with regulation in countries, is possible.

This is the third in E3G’s blog series that dives deeper into the three core issues that COP28 will have to urgently address: speeding up decarbonisation, stepping up support for the most vulnerable, and shaping up the financial system. Read other blogs here: 

  1. COP28: bend the emissions curve, build the new economy
  2. COP28: stepping up support today to avoid the worst tomorrow


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