Energy Transition Committee (ETC) latest publication: ‘NDC, NCQG and financing the transition’
LONDON, Oct. 24, 2024 /PRNewswire/ — Climate finance will be a key topic at COP29, with new collective quantitative targets being proposed, particularly for the flow of finance from high-income to low-income households. (NCQG) will be discussed. income country. However, the term “climate finance” is often used vaguely and broadly to cover several different challenges and priorities.
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The Energy Transition Commission’s (ETC) latest publication ‘NDC, NCQG and transition financing’ therefore clarifies the nature and scale of the different types of financing required and brings the NCQG debate to a useful conclusion. We suggest four principles to guide you. We also discuss the important role that modern National Defined Contributions (NDCs) can and should play in unlocking financial flows.
NCQG and NDC
The Paris Climate Change Agreement included a commitment for high-income countries to agree on the extent to which they would financially support low-income countries on mitigation and adaptation. The NCQG will replace the current $100 billion annual target for climate finance flows from developed countries to developing countries, which was agreed in 2009 but consistently not achieved until 2022.
NDCs are an important mechanism established by the Paris Conference, through which countries commit to voluntary domestic action to reduce emissions, in line with the global goal of keeping global warming below 2°C. Masu. Countries are required to submit a ratcheted NDC every five years.
The current NDCs (submitted in 2020), even if implemented, put the world on track to overshoot 2°C of warming by 2050. Raising ambition in the next round of NDCs is therefore critical, but achievable. Because dramatic cost reductions in key technologies (particularly solar power, wind power, and battery storage) will enable countries to rapidly reduce emissions while continuing to meet growing demand for affordable energy. It’s from. use.
“COP29 discussions on the NCQG need to start with a clear definition of the very different category of ‘climate finance’ and recognition of the different appropriate sources of finance. And whatever conclusion the NCQG discussions reach, countries should use modern, more ambitious NDCs to help unleash climate change. While private finance plays a key role in financing mitigation capital investment, it is also essential that development banks play a more effective role in supporting the flow of capital to low- and middle-income countries. It is. ” – Adair Turner, Chair of the Energy Transition Committee.
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“Through frameworks such as the NCQG and NDC, countries can set ambitious targets, supported by policies that attract large-scale investment from the private sector, and address significant financing needs for climate change mitigation and adaptation. Multilateral development banks are essential to provide affordable finance to decarbonize energy systems and develop countries, while ensuring that economic growth is aligned with the transition to clean energy. Aims to build national climate resilience. ” – Nicholas Stern, Director of the Grantham Climate Change Institute.
“Climate change finance” – the need to clarify categories, quantities and potential sources
The term “climate finance” is often used without distinguishing between the types of finance required, which are financed in very different ways. The ETC overview clearly distinguishes between:
Capital investments needed to establish zero-carbon energy systems and mitigate climate change around the world. These investments will average approximately $3 trillion per year through 20501. Most of this investment is financed by private institutions and provides investors with attractive rates of return if appropriate real economic policies are in place. Multilateral development banks (MDBs) and other public financial institutions must also play an important role in supporting financial flows to low- and middle-income countries.
Concessional or subsidy payments can be made to reduce emissions in certain regions, particularly to close coal-fired power plants early, end deforestation, and fund carbon removal. Although it may be necessary, this may not provide a return on investment. These payments could come from carbon offset markets, philanthropic funds, or intergovernmental donations. ETC estimates that $300 billion is needed annually in these types of payments, but actual payments are unlikely to reach this scale and require other measures, such as strong policies, to achieve emissions reductions. Measures are required.
Investments in adaptation, such as flood management and coastal protection, to address the already inevitable effects of global warming. Songwe Stern’s 2022 report suggests that amount could reach $250 billion annually in low- and middle-income countries. Although a significant portion will be financed from domestic resources (particularly in middle-income countries), loans provided by MDBs and concessional payments and subsidies from high-income countries play an important role.
Payments to help low-income countries cope with the loss and damage already caused by climate change. The Songwe-Stern report estimates that these costs for low- and middle-income countries could reach $200 billion to $400 billion annually by 2030. At COP27 in 2022, the principle was agreed that high-income countries should contribute to meeting these costs.
Optimal results from NCQG discussions at COP29
There is wide disagreement about what the NCQG should cover. Some countries believe that “loss and damage” payments should be included, while others argue that the focus should be on mitigation and adaptation finance. India and some Arab countries are pushing for bigger numbers, above $1 trillion a year, but high-income countries have yet to commit to numbers above $100 billion a year. Furthermore, many of these high-income countries believe that the definition of contributing countries should be expanded to include countries with high per capita emissions, such as Saudi Arabia, the UAE, and China.
Given these differences in the run-up to COP29, there is a risk that no agreement will be reached, or that the resulting agreement will use ambiguous language that is open to different interpretations.
ETC’s focus and expertise are relevant to mitigation challenges, and we believe that the NCQG will have the greatest impact on global mitigation efforts if it includes:
the different types of investments/payments required, the sources of funding that can meet this need (e.g. private finance, MDB financing, or concessional/grant financing), and what is covered by the NCQG heading figures. Let me be clear.
The very large financial flows needed to support mitigation in low- and middle-income countries (e.g., approximately $900 billion per year) and the important role that MDBs must play, including facilitating private financial flows. focus on important roles. Several reports have already outlined what must be done to enable MDBs to play a larger and more effective role.2 Analysis should now be replaced by action.
Expanding the definition of contributing countries to include at least China and high-income oil and gas producing countries such as Saudi Arabia, the UAE, and Qatar. This is because these countries have high per capita emissions and low capital costs.
Strong support for new funding sources including:
NDC key priorities
Most of the capital investments to promote mitigation are financed by private institutions (or state-owned enterprises operating in a market-competitive manner). However, governments have a responsibility to encourage that investment through well-designed policies. A clearer and more ambitious NDC could also help by providing certainty about future targets and supporting policies. ETC recommends that the next round of NDCs:
Set more ambitious emissions reduction targets to reflect technological advances and cost savings that have already taken place, and align NDC targets with existing policy commitments.
It defines strong links between goals and supporting policies and serves as a comprehensive roadmap for implementation.
Includes absolute or equivalent emissions targets for specific sectors and covers all greenhouse gases.
Identify the broad balance of investments and potential funding sources required to achieve emissions reductions.
Download the briefing note: https://www.energy-transitions.org/publications/ndcs-and-finding-the-transition/
Note to editor
1 In its 2023 report, Financing the Transition, ETC estimates that $3.5 trillion per year is needed in climate mitigation investments between now and 2050. This is offset by an average annual reduction of $0.5 trillion in fossil fuel investments, net. 3 trillion dollars a year.
2 See, for example, Independent Expert Group (2019), Transforming financial systems for people and planet. Blended Finance Taskforce (2021), Better Finance, Better World. European Investment Bank (2022), Multilateral Development Banks Joint Report on Climate Change Finance. OECD (2022), Multilateral Development Finance 2022; International Finance Corporation (2023), Mobilizing Private Finance by Multilateral Development Banks and Development Finance Institutions.
NDC, NCQG, and Funding the Transition: Unlocking Flows for a Net-Zero Future builds on previous ETC work, including Funding the Transition and Credible Contributions. It is based on analysis developed in extensive consultation with ETC members from industry, financial institutions, and environmental advocacy groups, and constitutes the collective view of the Energy Transition Committee. However, members should not be assumed to agree with all findings or recommendations.
ETC is a global coalition of leaders across the energy industry committed to achieving net-zero emissions by mid-century. For more information about ETC, please visit https://www.energy-transitions.org.
Source Energy Transition Commission
