The NCQG: What is it and why does it matter?

To meet emissions reduction targets, developing countries are encouraged to transition away from fossil fuels, bypass further hydrocarbon development and implement clean energy solutions across their economies.

However, these countries often lack the fiscal space to drive these programmes from their own coffers and their attraction as investment destinations doesn’t match that of developed countries, which have better access to finance. Bridging that gap and helping developing countries decarbonize and protect themselves from future damage requires climate finance, a solution that has risen up the climate agenda.

In this context, the New Collective Quantified Goal (NCQG) on climate finance has emerged as a promising framework designed to address the financial needs of developing countries in their fight against climate change. But what exactly is the NCQG and why does it matter?

The NCQG is a key element of the Paris Agreement, which was adopted in 2015 to strengthen the global response to the threat of climate change. Specifically, the NCQG aims to set a new financial target for supporting developing countries in their climate actions.

It succeeded the previous goal set in 2009 at the Copenhagen Climate Summit, where developed countries committed to mobilizing $100 billion per year by 2020 to address the needs of developing countries. However, though the world has begun to hit this number, the efficacy of these funds in driving climate-friendly development without creating debt repayment issues is very much in question, highlighting the need for a more robust and effective financial mechanism.

The NCQG is currently under negotiation and is expected to be finalized by 2025. It will define the scale of financial resources that developed countries need to mobilize post-2025, reflecting the evolving needs and priorities of developing countries in the context of climate change.

One of the primary reasons the NCQG matters is that it seeks to address the persistent gaps in climate finance. Despite recent successes in hitting the $100 billion target, those funds are set to flow back into donor countries in short order. Hence, beyond the monetary value of the NCQG, the quality of the financial instruments provided is equally important to ensure they are used most effectively and efficiently.

Meanwhile, the needs of developing countries have grown, as the High-Level Expert Group on Climate Finance estimates. These countries require significant concessional financial resources to implement mitigation and adaptation strategies, build resilient infrastructure and transition to sustainable energy systems. The NCQG aims to provide a more realistic and ambitious financial framework to meet these demands.

Developing countries, particularly small island states and least developed countries, are often the most vulnerable to climate change’s impacts. They face severe weather events, rising sea levels and other climate-related challenges that threaten their livelihoods and development. By setting a new, higher target for climate finance, the NCQG can help ensure these countries receive the support they need to build resilience and protect their communities.

The NCQG is not just about financial transfers but also about fostering a global partnership for climate action. By committing to a new collective goal, developed countries can demonstrate solidarity and responsibility in addressing a global problem affecting everyone. This commitment can enhance trust and cooperation among nations, which is essential for successfully implementing the Paris Agreement and achieving its long-term goals.

Public finance alone can’t meet the vast financial requirements of climate action. The NCQG can play a critical role in leveraging private climate finance by providing a clear signal of commitment and stability. When governments commit to substantial climate finance goals, it can encourage private investors to align their portfolios with climate-friendly projects, thereby increasing the overall flow of funds towards sustainable development.

Another important aspect of the NCQG is its potential to improve accountability and transparency in climate finance. The international community can better track and evaluate financial flows by establishing a new collective goal with clear parameters and reporting mechanisms. This transparency is crucial for ensuring that funds are used effectively and reach the intended beneficiaries, ultimately enhancing the credibility and effectiveness of climate finance efforts.

While the NCQG holds significant promise, its success will depend on several factors. Firstly, the negotiation process must be inclusive and participatory, ensuring that the voices and needs of developing countries and the private sector are adequately represented.

Additionally, the NCQG must be ambitious yet realistic, balancing the financial capacities of developed countries with the urgent needs of developing nations. The donor base is also unclear, with the status of some countries, including China and Saudi Arabia, still being hashed out. To get the NCQG off the ground, these questions must be answered before and during the 2024 United Nations Climate Change Conference (COP29).

Moreover, the effectiveness of the NCQG will rely on robust monitoring and accountability mechanisms. Without clear guidelines and transparent reporting, the new goal could face the same challenges as its predecessor. Therefore, the international community must work together to establish a framework ensuring efficient and equitable distribution of climate finance.

The NCQG on climate finance represents a crucial step forward in the global effort to combat climate change. By setting a new financial target, the NCQG aims to bridge the climate finance gap, support vulnerable communities and emerging markets, enhance global cooperation and catalyze private sector investment.

While challenges may remain, the successful adoption of the NCQG at COP29 and its implementation can significantly bolster the international community’s ability to deliver on the promises of the Paris Agreement.