Addressed to All States Party to the Convention, Mr. Simon Stiell, Executive Secretary of the UNFCCC Secretariat, and His Excellency António Guterres, Secretary-General of the United Nations
November 26, 2024
Excellencies,
We, the undersigned, write today to stress the best available climate science imperative to urgently revise and align the New Common Quantified Goal (NCQG) of Climate Finance with limiting global warming to the 1.5°C Paris Agreement goal.
Science is today clear that the legally binding limit [in the Paris climate agreement] of holding human caused global warming “well below 2°C”, actually implies 1.5°C. Defined in the Paris agreement as an aim, it is today well established that 1.5°C is a limit. Go beyond it and five large tipping point systems are likely to be crossed (Greenland Ice Sheet, West Antarctic Ice Sheet, Abrupt thawing of Permafrost, Collapse of all tropical coral reef systems and Collapse of the Labrador sea current). In addition, 1.5°C will with zero uncertainty, imply life-threatening extreme events affecting millions of people due to severely amplified droughts, floods, hurricanes, heatwaves, and fires.
The remaining global carbon budget to have a 50% chance of holding the 1.5°C limit is down to 200 billion tons of CO2. This means the budget is consumed by 2029 at current rate of emissions (approximately 40 billion tons/yr). The world has so far failed to bend the global curve of emissions, which not only means we are running out of carbon budget, we are very likely unable to hold 1.5°C without overshoot. The best IPCC scenarios (C2) that can still hold 1.5°C limit by 2100, breaches 1.5°C in 2030-2035 (i.e., in only 5-10 years time) with 30-40 years of overshoot, up to some 1.7-1.8 °C. This overshoot scenario is the best science can offer today, i.e., it requires (1) staying within the remaining carbon budget, which in turn means (2) cutting global emissions by 40-50% by 2030, to (3) reach zero by 2050.
In addition, we need to secure the carbon sinks in the ocean and in nature on land, and cross our fingers that no tipping points are crossed during overshoot (as this will likely amplify the rate of warming and create even more extreme climate impacts affecting people across the world).
The world has thus reached a point of climate emergency. We face potentially unmanageable risks, already within the next decades. Our only chance is to decisively start mitigating climate change, which require massive reductions in global emissions. The UNEP Emission Gap Report, released just before COP 29 puts the task in clear numbers. Global emissions must be reduced by 7.5% per year from now on, to have a chance of holding the 1.5°C limit. This means that the task for the world, and for climate finance, is to take approximately 3 billion tons of CO2 off the global economy in 2025. It is thus necessary to mobilise climate finance now — starting at full scale in 2025 — not “by 2035” (or “by 2030” as the Third Report of the IHLEG on Climate Finance suggests). Waiting until 2030 or 2035 to deliver full scale would be inconsistent with climate science, and very likely be path to climate disaster.
We outline below our suggestions for how to urgently align the New Common Quantified Goal of Climate Finance — in its necessary update among (groups of) developing and developed countries in 2024-2025 or at COP30 — with delivery on the 1.5°C Paris Agreement Goal (or staying as very close as possible):
1. Climate mitigation finance is paramount
Unless we mitigate at scale in this critical decade, climate adaptation costs and loss and damages will continue to escalate, both within developed and developing countries. Therefore, climate mitigation finance is paramount.
Climate mitigation helps avoid the need for climate adaptation, and helps avoid loss and damage; whilst climate adaptation only helps avoid loss and damage.
Figure 1. Climate Finance Pecking Order
Source: “COP29: The Economic Case for a New Common Quantified Goal (NCQG) of Climate Finance at Scale.”
The NCQG provision and mobilization of climate mitigation finance at 1.5°C consistent scale by developed for developing economies prevents domestic escalating climate adaptation costs and loss and damages, as well as ever greater cross-border climate adaptation finance and loss and damage needs for developing countries.
Even so, sufficient climate adaptation finance and loss and damage should be provided to developing countries to help them adapt to climate change and recover from loss and damages. We refer to Third Report of the IHLEG on Climate Finance for estimates of how the New Common Quantified Goal (NCQG) of Climate Finance can meet the needs for the thematic themes of climate adaptation and loss and damage.
Here we focus on how the New Common Quantified Goal (NCQG) of Climate Finance can deliver on the 1.5°C Paris Agreement goal.
2. Key Ingredients of a 1.5°C Paris Agreement Aligned NCQG of Climate Finance
The climate crisis is a fossil fuel crisis. Hence, to resolve the climate crisis, climate mitigation finance must be geared towards phasing out fossil fuels and concurrently phasing-in replacement renewable energy.
The remaining global carbon budget, of 200 billion tons of CO2, to have a 50% chance of holding the 1.5°C limit, as well as staying close, necessitates phasing out fossil fuels early. Climate mitigation finance focused solely on renewable energy addition is not good enough. Climate mitigation finance must focus on fossil fuel replacement, while ensuring sufficient scale to meet projected growth in energy demand (e.g., driven by population growth, electrification, AI, increased energy access).
The scale and timing of climate mitigation finance need must be informed by the remaining carbon budget. That is, and must be, the starting number of the calculations.
The 1.5°C (50%) remaining carbon budget requires climate mitigation finance to reach full scale in 2025, and be maintain full employment every year in this critical decade of 2025-2035.
Let’s take the power sector as an illustration of a key sector to decarbonize. By 2030, 61% of developed country power sector emissions must be abated, and by 2035, 88%. This is feasible. The UNEP 2024 Emission Gap Report finds the power sector has the highest emission abatement potential of 14.7Gt by 2035 out of the 15.3Gt 2024 power sector emissions. The power sector constitutes the largest source of global emissions; and it has proven at-scale, economically viable technologies; so it is the lowest hanging fruit to start. Decarbonizing the power sector by 2035 – alongside other carbon-intensive sectors – is not only feasible, but also necessary to limit global warming to 1.5°C (or stay very close), vital to the survival of small island states.
Figure 2. Climate Mitigation Finance to Abate Emissions in the Power Sector of Developed Countries
Source: “COP29: The Economic Case for a New Common Quantified Goal (NCQG) of Climate Finance at Scale.”
Note: The blue lines projects current policy emissions, and orange lines project net-zero-2050 pathway emissions (by Network for Greening the Financial System GCAM6.0 scenarios). The green lines are the 1.5 °C (50%) carbon budget aligned net-zero scenario (made more stringent than NGFS scenario to reflect remaining carbon budget).
In light of the best available climate science and best available climate finance evidence, summarized in part in the aforementioned paragraphs, we make the following recommendations for urgently aligning the New Common Quantified Goal of Climate Finance with the 1.5°C Paris Agreement goal.
The key recommendations are:
1. Provide climate finance at full “inner quantum’’ scale starting in 2025
2. Meet the “inner quantum’’ of public climate finance in grant-equivalent form
3. Count toward the “inner quantum’’ of grant-equivalent climate finance only
provision by developed countries; as well as any other countries contributing
toward the NCQG
4. Count toward the “outer quantum’’ of climate mitigation finance both the
provision (i.e., public finance by developed countries and other NCQG
contributors) and mobilization of climate finance (i.e., private finance and
finance from a wide variety of other sources, including alternative sources)
5. Deliver the full-scale “inner quantum’’ and “outer quantum’’ of climate
mitigation finance each year over 2025 – 2035
6. Climate mitigation finance must cover the investment costs in renewables;
and opportunity costs and just energy transition cost of fossil fuels.
The “inner quantum” (see Recommendation 1 and 3) could be provided through multilateral institutions, such as development banks, provided they are offered this as additional capital, over and beyond their current capital base.
The minimum floor (set by the climate mitigation finance needs in the power sector) to align the NCQG of climate mitigation finance with the 1.5°C Paris Agreement goal is:
- Inner quantum: $256 billion per year
- Outer quantum: $958 billion per year (~$1 trillion a year)
- Private finance and finance a wide variety of sources: $702 billion per year
- Source of inner quantum: solely paid for by developed countries (not: a wide variety of sources, including public and private, bilateral and multilateral funding, including alternative sources)
- Quality of inner quantum: grant-equivalent climate finance only
- Start date of developed countries’ and NCQG contributor countries’ payment: in 2025 (at full scale of $256 billion per year)
- Time period: 2025-2035
Unfortunately, the current NCQG agreement by proposing that developed country parties at least “$300bn a year by 2035, be made up from a wide variety of sources, including public and private, bilateral and multilateral funding, including alternative sources’’ is completely inconsistent with the Paris Agreement aim and 1.5°C limit.
Article 7 of the NCQG agreement text additionally: “calls on all actors to work together to enable the scaling up of financing to developing country Parties for climate action from all public and private sources to at least USD 1.3 trillion per year by 2035.” This is in line with the Third Report of the IHLEG on Climate Finance’s 2035 recommendation. But it does not come fast enough ($1 trillion by 2030 as the IHLEG suggests, and earlier as we suggest), and it is unreasonable to expect this “outer quantum” to be mobilized without a commitment of public (grant-equivalent) climate finance for the “inner quantum.” The public inner quantum commitment should start in 2025 to stand a chance in the years running up to 2030 to mobilize the full amount. In fact, it is completely incoherent to allow both the “inner quantum” (Article 8 of the NCQG agreement text) and the “outer quantum” of the NCQG to rely on private and public (and other) climate finance sources. The whole idea at the outset of the NCQG negotiations was to let the “inner quantum” consist of public climate finance only: to mobilize private finance, prop up Multiateral Development Banks (MDB) balance sheets with new capital for climate, and compensate for fossil fuel early closure.
In what follows we will briefly explain the rationale behind our key recommendations, and why the current NCQG agreement falls deeply short:
- Provide climate finance at full “inner quantum’’ scale starting in 2025
To limit global warming to 1.5°C (or stay close), the bulk of emission mitigation must be done prior to 2030 and prior to 2035. Therefore, NCQG climate mitigation finance must be offered at full scale, starting in 2025. Unfortunately, the recommendation of the Third Report of the Independent High-Level Expert Group (IHLEG) on Climate Finance to make developed countries provide $500 billion by 2030 (and mobilize $1 trillion in total) is inconsistent with the 1.5°C goal of the Paris Agreement. The bulk of emission mitigation must happen already between 2025-2030 to limit global warming to the 1.5°C — vital to small island states survival, and avoiding the worst, and possibly catastrophic — consequences of climate change. change.aaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa
- Meet the “inner quantum’’ of public climate finance in grant-equivalent form
Public climate mitigation finance – the “inner quantum’’ – provided by developed to developing countries must cover grants to close fossil fuels early (accounting for the opportunity costs of fossil fuels and just transition costs), and grant-equivalent climate finance to mobilize private finance and other sources of finance to pay for the investment costs in renewables, as well as complementary technologies such as batteries and grid extension. Currently, the cost of capital in many developing countries is prohibitively high. Public grant-equivalent climate finance is thus needed to lift private finance’s risk-adjusted return above their hurdle rate to unlock private finance. For both early fossil fuel phase-out and for concurrent renewable phase-in, we thus need grant-equivalent climate finance. Whilst concessional finance can contribute toward the NCQG of climate mitigation finance, it is only admissible to be counted in grant-equivalent form toward meeting the “inner quantum’’ of climate finance provision by developed countries (and any other NCQG contributors) to developing countries. As Oxfam’s 2023 Climate Finance Report points out, the factual amount of concessional support provided by developed countries is the grant-equivalent support. Counting concessional finance toward the NCQG “inner quantum’’ fulfillment at notional value vastly overstates this. aaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa - Count toward the “inner quantum’’ of grant-equivalent climate finance only provision by developed countries; as well as any other countries contributing toward the NCQG
The inner quantum should not be met, as suggested, by “a wide variety of sources, including public and private, bilateral and multilateral funding, including alternative sources;’’ it should be met by public climate finance only. As noted, public climate finance could be provided through multilateral institutions, such as development banks, and other deployment funds provided they are offered this as additional capital, over and beyond their current capital base. The “inner quantum” of public climate finance must be additional to Official Development Aid (ODA). aaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa - Count toward the “outer quantum’’ both public climate finance provision and the mobilization of private and other sources of climate finance for mitigation
The outer quantum is the sum of the inner quantum (see point 2) and any private climate finance and other sources of finance it mobilizes (e.g., through blended finance approaches and guarantees). aaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa
Points 5-6 have already been explained:
- Climate mitigation finance must be provided and mobilized at the full-scale “inner quantum’’ and “outer quantum’’ of climate mitigation finance each year over 2025 – 2035.
- Climate mitigation finance must cover the investment costs in renewables; and opportunity costs and just energy transition cost of fossil fuels.
3. There is a Strong Economic Case for a New Common Quantified Goal (NCQG) of Climate Finance at Paris Aligned Scale
“Let’s dispense with the idea that climate finance is charity. An ambitious new climate finance goal is entirely in the self-interest of every nation, including the largest and the wealthiest”
— Simon Stiell, Executive Secretary of the UNFCCC (Opening Speech COP29;
November 11, 2024)“Climate finance is not charity. It’s an investment”
— António Guterres, Secretary-General of the United Nations (COP29 Speech;
November 12, 2024)“Our economic survival depends on unlocking green capital”
— Christine Lagarde, President of the European Central Bank (Financial Times;
November 12, 2024)
Climate finance at scale by developed to matching developing countries needs is not just a moral obligation (e.g., through Article 9 of the Paris Agreement), or charity, it is in the economic interest of developed countries, and indeed the world as whole, particularly developing countries. See Figure 3.
To meet climate mitigation finance needs of developing countries (as per UNFCCC 1992 definition) to implement mitigation aligned with the 1.5°C Paris Agreement goal (or staying very close), we estimate that developed countries must provide – as a minimum floor (set by the power sector 1.5°C aligned decarbonization needs – an “inner quantum” of $255.9 billion of grant-equivalent climate finance a year, starting in 2025, over the period 2025-2035.
With such climate mitigation finance provision (assuming $1 dollar of public climate finance can mobilize $3 dollars of private finance for phasing in renewables, and the public sector covers the costs of early closure), we estimate that it can annually mobilize $702 billion dollars of private finance and finance from other sources.
In total the “outer quantum” of public and private climate mitigation finance provision and mobilization, reflecting developing countries’ 1.5°C Paris Agreement aligned mitigation needs, must be set at $957.9 billion (~ $ 1 trillion) a year.
In total, at a minimum, developed countries must provide a grant-equivalent “inner quantum” of public climate mitigation finance of $2.8 trillion over 2025-2035, and provide and mobilize an “outer quantum” of $10.5 trillion over 2025-2035.
This is fiscally affordable to developed countries (so do not let them tell you it is not) at only 0.5% of their annual GDP. This is less than the official development aid (ODA) norm from developed countries at 0.7% of annual GDP.
Climate finance provision (through the inner quantum) at needed 1.5°C-or-close Paris Agreement aligned speed and scale, is not only fiscally affordable to developed countries, but also in there squarely in their economic interest. The net economic benefit to developed countries of providing climate finance at the necessary scale is between $5.1 and $41.1 trillion. This represents an economic return on climate mitigation finance investment of between 180.2% and 1457.2%. These economic benefits are based on a reasonable range of the global social cost of carbon (i.e., the climate damages from emitting one extra ton of CO2e) of between $190/tCO2 (The Biden Administration Estimate) and $1056/tCO2 (Bilal and Kanzig, 2024), and a developed country share of the global SCC of 48% (Ricke et al. 2018).
Figure 3. The Economic Case for a New Common Quantified Goal (NCQG) of Climate Finance at Scale by Developed Countries (UNFCCC, 1992) to Developing Countries (UNFCCC, 1992)
Source: “COP29: The Economic Case for a New Common Quantified Goal (NCQG) of Climate Finance at Scale.”
These economic benefits to developed countries are not abstract. Climate mitigation finance at scale in developed countries is essential to avoid escalating climate damages and adaptation costs at home in developed countries. Already in 2024, climate losses are exceeding $300 billion, based on the hurricane Milton and Helene in the United States and Valencia floodings in Europe alone. $300 billion is already 3x bigger than the floor of a $100 billion of climate finance developed countries provide to developing countries today. Already today, the economics of at scale climate mitigation finance provision thus works out, and this will only become more stark in the future. The climate finance developed countries provide through the “inner quantum” is far smaller than the economic losses they will otherwise suffer at home through escalating climate damages and rising adaptation costs (climate adaptation also has limits). Domestic climate policy in developed countries, even if 1.5°C aligned, is not at all enough to shield them from escalating climate damages and adaptation costs from rapidly rising emissions in developing countries. NCQG climate mitigation finance at speed and scale is also essential to avoid escalating loss and damages and adaptation costs in developing countries – who are already suffering the brunt of climate change impacts.
This linked table shows how – assuming a “inner quantum” burden-sharing agreement for each developed country relative to its GDP – the annual $255.9 billion “inner quantum” of public climate finance provision can be met, and shared among developed countries. This table shows both how much climate finance each developed country currently provides to developing countries, and how much they would need to increase this, as a minimum floor, to align their climate finance provision with the Paris Agreement goal of limiting global warming to 1.5 °C.
4. Without an NCQG at the necessary scale delivered in 2025, developing countries cannot update their Nationally Determined Contributions (NDCs) in 2025 to align with the 1.5 °C Paris Agreement goal
The United Nations 2024 Emission Gap Report shows that the current nationally determined contributions (NDCs) imply global warming of 2.8 °C by the end of this century. This is outside “the corridor of life.” NDCs are only updated once every five years. The following update will be 2030, when we will be out of the remaining 1.5 °C (50%) carbon budget at the current rate of emissions. Hence, unless developed countries provide a New Common Quantified Goal of Climate Finance at full scale (i.e., $256 billion of grant-equivalent climate finance at a minimum) starting in 2025, the best available climate science imperative of limiting global warming to 1.5 °C – vital to small island nations, and to the world as a whole – will be out of sight. This underscores the urgent need to revise the NCQG in 2024-2025 among developed and developing country (groups).
Figure 4 shows why the New Common Quantified Goal of Climate Finance provision and mobilization by developed countries is essential to implement 1.5 °C aligned Nationally Determined Contributions (NDCs) in developing countries. It provides a recipe for how to match the NCQG climate finance to 1.5 °C aligned NDC implementation. Country-level climate mitigation finance needs for developed countries to implement 1.5 °C aligned NDCs, particularly, for the power sector can be found here: “COP29: The Economic Case for a New Common Quantified Goal (NCQG) of Climate Finance at Scale.” It also explains the steps of Figure 4 to implement and finance NDCs.
Figure 4. Using the New Common Quantified Goal of Climate Finance provision and mobilization to implement 1.5 °C aligned Nationally Determined Contributions (NDCs) in developing countries.
Source: “COP29: The Economic Case for a New Common Quantified Goal (NCQG) of Climate Finance at Scale.”
Concluding Note
In closing, let us reiterate that the current New Common Quantified Goal (NCQG) of Climate Finance agreement proposing that developed countries would provide at least “$300bn a year by 2035, be made up of a wide variety of sources, including public and private, bilateral and multilateral funding, including alternative sources’’ is completely inconsistent with the Paris Agreement aim and 1.5°C limit.
The best available climate science and best available climate finance necessitate that the New Common Quantified (NCQG) Goal of Climate Finance update is made sufficiently more ambitious to seek to align with the Paris Agreement goal of limiting global warming to 1.5°C: see our recommendations. While climate adaptation and loss and damage needs must be met, climate mitigation finance is paramount to limit global exposure to unchecked climate change.
We call for an urgent revision of the New Common Quantified Goal of Climate Finance. We are on a current 2.8°C trajectory, and 2°C Goal of the Paris Agreement is not good enough. It is vital to small island nations, and the world, to deliver on the Paris Agreement goal of 1.5°C. Every 0.1°C counts.
SIGNATORIES
Prof. Dr. Johan Rockström, Director of the Potsdam Institute for Climate Action Research, Professor in Earth System Science at the University of Potsdam.
Prof. Dr. Alissa M. Kleinnijenhuis, Visiting Assistant Professor of Finance at Cornell University, Imperial College London.
Prof. Dr. Patrick Bolton, Professor of Finance and Economics at Imperial College London, former President of the American Finance Association.
Prof. Dr. Peter Tufano, Professor of Finance at Harvard University, former Dean of the Saïd Business School at the University of Oxford.
Lisa Sachs, Director of the Columbia Center on Sustainable Investment.
Jeromin Zettelmeyer, Director of Bruegel.
Prof. Dr. Marcin Kacperczyk, Professor of Finance at the Imperial College London.
Michael Wilkins, Executive Director of the Centre for Climate Finance and Investment, Imperial College London Business School.
Dr. Gernot Wagner, Climate Economist at the Columbia Business School, Columbia University.
David Carlin, Founder of D. A. Carlin and Company, former Head of Risk of the United Nations Environment Programme Finance Initiative (UNEP FI).
Prof. Dr. Beatrice Weder di Mauro, Professor of International Economics at the Graduate Institute of Geneva, President of the Centre for Economic Policy Research (CEPR), Co-Director of Hoffman Centre for Global Sustainability.
Dr. Anastasia Pappas, Founder and Director, E-Axes Forum.
Prof. Dr. Alexander Wagner, Professor of Finance at the University of Zurich and Swiss Finance Institute.
Dr. Bob Litterman, Founding Partner of Kepos Capital in New York, Board of Directors Member at the World Wildlife Fund (WWF).
Prof. Dr. Simone Tagliapietra, Senior Fellow at Bruegel and Professor of EU Energy and Climate Policy at the European University Institute and Johns Hopkins University.
Prof. Dr. Franklin Allen, Professor of Finance and Economics at Imperial College London, Executive Director of the Brevan Howard Centre, former President of the American Finance Association.
Prof. Dr. Nuno Fernandes, Professor of Finance at IESE Business School, Managing Partner Odgers Berndtson Board Solutions.
Prof. Dr Ulrich Volz, Professor of Economics and Director of the Centre for Sustainable Finance, SOAS, University of London.
Prof. Dr. Viral Acharya, Professor of Economics in the Department of Finance at New York University, former Deputy Governor of Reserve Bank of India.
Prof. Dr. Antonio F. Sarmiento Galán, Researcher and Coordinator of the Global Warming Group at the Instituto de Matemáticas, Universidad Autonoma de Mexico (UNAM).
Prof. Dr. Luis Tamayo Pérez, Professor of the Postgraduate Degree in Philosophy, Faculty of Philosophy and Letters, Universidad Autonoma de Mexico (UNAM).
If you would like to add your name in support, please contact in**@****es.org clearly stating your affiliation.