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In line with global green transition aims, pressure is increasing to support developing countries around the globe to tackle climate change and develop their renewable energy capacity. The COP29 host country Azerbaijan is now in charge of setting up a new climate fund, aimed at encouraging fossil fuel producers to support low-income countries battling with the effects of climate change.
Fossil-fuel-producing countries and companies will be encouraged to invest in the new Climate Finance Action Fund, which will provide finance for low-income countries to develop renewable energy projects and build resilience to the impacts of extreme weather. The chief negotiator for the COP29 presidency, Yalchin Rafiyev, stated, “Traditional funding methods have proven to be inadequate to the challenges of the climate crisis, so we have decided on a different approach. The fund will be capitalised with contributions from fossil-fuel countries and companies and will catalyse the private sector. Any developing country will be eligible [to receive money from] the fund.”
While the fund is expected to support some of the countries most affected by climate change to tackle to effects, as well as develop their green energy capacity, contributions will be voluntary. There is no mechanism planned to force fossil fuel producers to contribute; a scheme that many environmental campaigners have been pushing for. Li Shuo, an expert on climate negotiations at the Asia Society Policy Institute, said that the proposal was an “empty shell” until there is money in the fund and Azerbaijan “has also set itself a daunting task of soliciting the support of some of the least progressive countries in global climate action.” However, this is still a major move by the COP29 organisers to encourage fossil fuel producers to take responsibility for their role in the climate crisis and mitigate the global impact of their greenhouse gas emissions.
The government of Azerbaijan aims to collect at least $1 billion from 10 countries and big companies to establish the initial fund. The fund headquarters will be in the capital city of Baku, with a board established from representatives from the contributors, making it independent of development banks. The fund will not provide financing for any fossil fuel projects, including gas – which is often seen as a “transition fuel”. Profits from fund-financed projects will go back into the fund to support other climate efforts.
If established, contributors will provide annual transfers to the fund and 20 percent of the revenues generated from investments would go to a Rapid Response Funding Facility to help some of the world’s most vulnerable countries respond to climate disasters. It is thought that the fund would be more flexible than funds from multilateral development banks, allowing stakeholders to decide on which projects to invest in.
The government of Azerbaijan is expected to establish a working group of economists and sectoral experts to develop a formula for potential donors to agree on how much they will contribute and a process for how developing countries can access the fund. The UN’s climate chief Simon Stiell, stated, “Progress in Baku isn’t just about green new numbers. It’s about improving climate finance delivery so that it meets developing countries needs now and in the future.” Azerbaijan, a major gas producer, is expected to contribute to the fund, although the government has not yet disclosed how much it will invest.
While many environmentalists see the fund as a first step, they warn that the fund must not distract from the need for fossil fuel producers to decarbonise and curb oil, gas and coal production in favour of greener alternatives in the coming years. Climate groups, such as Oil Change International, emphasise that contributions from oil companies must not provide Big Oil with more decision-making powers. Oil Change International stated, “A $1 billion voluntary climate fund that gives polluters decision-making powers is greenwashing.”
Several countries around the globe have called for greater funding from rich countries and fossil fuel producers to support a green transition and mitigate the effects of climate change. A handful of the richest countries in the world are responsible for the largest proportion of greenhouse gas emissions. Many low-income countries believe that calls from Western governments and organisations to undergo a global green transition are unrealistic for poorer countries, which need high levels of foreign investment to establish a green energy sector and avoid committing some of the major mistakes of the past as they undergo industrialisation. Developing countries often have limited access to energy, and, according to the OECD, many are being asked to prioritise a low-carbon transition over economic growth as they choose between economic development and a green transition.
The introduction of a Climate Finance Action Fund could be the first step towards helping low-income countries develop their renewable energy capacity in support of a global green transition and tackle the effects of climate change. However, as it relies on voluntary contributions, it is still unclear how effective the fund will be. Contributors to the fund will lead the way in accepting responsibility for the world’s greenhouse gas emissions and help mitigate the impact on several countries around the globe.
