Germany’s role in the negotiations on the new climate finance target NCQG

Photo: S. Minninger, Brot für die Welt

The New Collective Quantified Goal (NCQG), i.e. the new climate finance target to be adopted by the international community at the Climate Change Conference in Baku, Azerbaijan (COP29) in November 2024, is a central and hotly debated topic on the international stage, as a recently published article by the Heinrich Böll Foundation analysed in detail. With a view to the climate negotiations starting today, the article takes a closer look at Germany’s role in particular and what options there are for the German government to advance the negotiations.

International climate finance: a question of global justice

One thing is clear: additional funding is needed to achieve the goals of the Paris Climate Agreement. Who pays is also a fundamental question of justice – especially for the countries of the Global South. The countries of the Global North, including Germany, are primarily responsible for historical and current emissions and are therefore also currently primarily responsible for the climate crisis. The countries of the Global North are also held responsible for the current post-colonial economic and financial system, from which the industrialised nations benefit greatly – while the countries of the Global South are fighting for better access to financial markets, seeking a way out of debt and demanding fairer trading conditions and a stop to the exploitation of raw materials as well as more rights to co-determination. The Global South is therefore not primarily concerned with ‘financial aid’, but also with direct compensation and systemic change in the global financial system. Accordingly, the issue of climate finance is also of concern to international financial institutions such as the Bretton Woods Institutions where the reform of development banks and the International Monetary Fund, a new approach to debt and a fairer tax system are currently being discussed.

Germany’s role in the NCQG negotiations

The Federal Foreign Office, which is in charge of international climate negotiations and therefore also of the NCQG, must play a central role and, with a sure instinct for foreign policy and a willingness to compromise, identify possible ways to move the deadlocked negotiations on the NCQG forward. So far, however, Germany’s negotiating strategy for the NCQG still leaves many questions unanswered and it is not yet clear which approach the German government is taking to overcome the deep rifts in the NCQG negotiations.

The Member States of the European Union (EU) speak with one voice in the climate negotiations and formulated their common position even before the COP. Germany is therefore not negotiating as an independent actor, but as part of the EU alliance. However, Germany’s voice carries great weight in the EU’s position-building process. As a country that pays its so-called ‘fair share’, i.e. its fair share of the current climate finance obligations of 100 billion US dollars annually, Germany can exert some pressure on other industrialised countries to increase their contribution.

In the past, Germany, together with Canada, for example, has often presented itself as a bridge builder. It remains to be seen whether Germany will be able to take on this role again in the negotiations on the NCQG due to the unclear and tense budget situation and corresponding uncertainty regarding its own future international climate finance commitments. There are currently assumptions that Germany could reduce its international climate financing of around 6 billion euros from the previous year due to the current budget situation – and since the collapse of the coalition last week these questions have gained momentum. This would further worsen the already deeply damaged relationship of trust between the so-called donor and recipient countries and have a negative impact on the negotiations on the NCQG.

The NCQG structure needs clear goals for system change

The rifts between the camps are wide: industrialised countries, including the EU, reject clear sub-targets and the inclusion of climate-related loss and damage and see the goal rather in an onion structure with a small core of public loans and grants forming the foundation, surrounded by larger outer layers of mobilised private capital, domestic funds and further global climate investments. The onion structure is strongly criticised by some countries of the Global South, as it dilutes the responsibility of the Global North and also prioritises debt-generating financing elements and poses the risk that everything possible will be included in the NCQG quantum without more financing actually reaching the countries of the Global South and without taking into account the necessary systemic changes in the international financial system.

As a compromise, Germany could position itself in favour of a clearly defined, ambitious core target for public grant equivalents and underpin the outer layers of the onion with elements that initiate systemic change. This could be achieved, for example, with commitments to redirect fossil fuel subsidies towards sustainable projects, the introduction of tax measures that better reflect the polluter pays principle and by increasing the participation of the Global South in international financial institutions. Germany should also clearly advocate for thematic sub-goals in the NCQG to ensure that sufficient funding is made available for adaptation and climate-related loss and damage.

Compromises on the issue of the donor base

One of the biggest priorities of Germany and some other industrialised countries is to expand the donor base for international climate financing and to oblige rich oil states and emerging economies such as China to make contributions. Some industrialised countries are even conditioning their own future financing contributions on the expansion of the donor base. The Group of 77 plus China (G77+) is opposing the enormous pressure to renegotiate the division between developing and industrialised countries agreed in 1992. They fear that this could weaken the financial responsibility of historical and current major donors among the industrialised countries. For them, the NCQG is not the right place to re-discuss this central agreement of the UNFCCC and they question the narrative and chain of reasoning of some industrialised countries.

South-South cooperation between emerging economies and other countries of the Global South will play an important role in meeting the 1.5°C target and in dealing with climate impacts. In fact, such South-South co-operation is essential on the path to a low-emission and climate-resilient world. Some newly industrialising countries and other countries of the global South are already entering into such South-South cooperation – but are not yet obliged to make these financial flows transparent. These countries are therefore also questioning the term ‘expansion’ of the donor base, as the term ‘expansion’ neglects current South-South climate finance flows. As a possible compromise, Germany could advocate for China and other countries of the Global South that already provide climate finance to make these financial flows more transparent.

At the same time, progress in the NCQG negotiations must not be jeopardised by making the expansion of the donor base a condition for further payments and calling into question the general commitment to climate finance under the Paris Agreement. Even though various studies have made it clear that the current division of the UNFCCC into industrialised and developing countries is outdated, this should not be renegotiated as part of the NCQG. Too much would be at stake and risk a successful NCQG agreement. Such a renegotiation has implications for the entire UNFCCC and cannot be decided in the NCQG. The worst possible outcome would probably be to no longer have a firmly defined donor base at all and to build everything on a voluntary basis.

It is therefore important that Germany exerts pressure primarily on those countries that do not fulfil their fair share of climate financing. Germany should take on the role of a bridge-builder within the EU and in talks with other industrialised countries in order to explore possible compromises between the hardened fronts of the G77+ and the industrialised countries. The creation of enemy stereotypes, purely defensive positions and polemical debates will only deepen the rifts in the negotiations on the donor base in the NCQG. Geopolitical disputes should be kept out of the negotiations on the NCQG and its donor base.

Ensure an ambitious NCQG total

When negotiating the total amount of the NCQG, in addition to the amount of the figure, the main question is: total amount for what exactly? (see also here). Various voices repeat how important it is to learn from the experience of the 100 billion target – which in the end only reflected a last-minute political compromise and was not needs-orientated. On the other hand, many negotiating groups have remained surprisingly tight-lipped about a possible NCQG quantum prior to the COP.

Germany and the EU have not yet proposed a quantum. Proposals from the negotiating groups of various developing countries have so far ranged between 1 trillion and 1.3 trillion US dollars annually in grant equivalents and private financing. The USA has remained vague, but has spoken of a lower limit of 100 billion US dollars. International civil society puts the Global North’s climate debt at 5 trillion a year. The scientific calculations of climate financing requirements reflect the political debate in terms of methodology and applied parameters. For example, the needs report of the UNFCCC’s Standing Committee on Finance (SCF) speaks of an annual need of between USD 655 billion and USD 1.27 trillion. A study on compensation for atmospheric appropriation, on the other hand, speaks of USD 6.85 trillion per year. It is clear that ultimately the political decision on the NCQG quantum also depends on other parameters such as the structure, the sources and donors of funds and the proportion of grant equivalents.

Germany should recognise that the future annual need for international climate finance is in the trillions, that a significant increase in grant-based climate finance is necessary to meet the needs and demonstrate responsibility, and that there are proposals for instruments to generate these additional funds. It is important that all negotiating groups express their vision for the quantum (amount and corresponding parameters) as soon as possible so that possible compromises can be identified and the mistakes made during the negotiation of the previous target (100 billion target) can be avoided.

Can Germany help to bridge the gaps?

The rifts in the international negotiations on the NCQG are deep. In addition to the aspects mentioned above, quality issues such as the recognition of loans and improved direct access to climate financing and its alignment with human rights standards also play a role. This makes hopes of a positive outcome for the NCQG low among some stakeholders. Clinging to privileges, power and dominance in the international financial system and failing to recognise the responsibility that has grown over time will condemn the NCQG to failure. Germany must show that it takes into account the legitimate concerns of the countries of the Global South in the international climate finance debate. It must constructively explore possible compromises that show the countries of the Global South that their concerns and positions are being taken seriously. This also means that Germany must exert pressure on other EU states and industrialised countries that are currently standing in the way of this compromise by taking a strongly defensive stance and watering down their own responsibility.

Guest article by Romie Niedermayer, Climate Delegation