A price tag for climate?
The possibilities of the New Collective Quantified Goal for climate finance
By Sabrina Bachrach Fri, Jan 31, 2025
The already unavoidable impacts of climate change manifest in various ways: escalating insurance premiums due to climate disasters, surging food inflation, rising transportation costs caused by drought-induced lower river levels, and declining productivity. Now, there’s a unique threat that’s raising the price tag of climate change.
The atmosphere, like other natural resources, has been victim to a flawed economic assumption: it has been treated as waste-bin for a carbon-driven economy.
Industry has long operated as if the atmosphere has the unlimited capacity to absorb greenhouse gas emissions. However, with the likely locked-in 1.5-degree Celsius scenario until 2040, the true costs can no longer remain externalities. Governments and businesses will have to face the pressing task of pricing environmental losses into our global economic system.
Without adaptation, climate change could drop global gross domestic product (GDP) by up to 5.1 percent annually by 2050. To put this into perspective, five years ago, the global GDP loss from the COVID-19 pandemic was approximately 3.5 percent.
While these numbers are clearly significant, the cost behind each percentage lost is staggering. Each percentage point of global GDP is estimated at roughly one trillion dollars. The magnitude of economic risks is immense. If climate action is not taken at scale, the world stands ready to lose trillions.
The economic and financial implications of climate change demand unprecedented investments across all sectors and regions of the world. But with investments come opportunities. The climate transition presents an opportunity market that could lead to a low-carbon and climate-resilient development that leaves no one behind.
Setting a price on the unpriceable: The New Quantified Collective Goal
At the Climate Conference in Baku (COP29) in November 2024, global leaders sought to quantify the climate finance needs of developing countries. According to estimates cited in the negotiations, developing countries require between an annual $584 billion to address climate change. Of that, adaptation finance needs account for over half of that—rising to $387 billion each year.
After intense negotiations, parties agreed to mobilize at least $1.3 trillion in climate finance per year under the New Collective Quantified Goal (NCQG). However, this number becomes more complicated when you ask one simple question: who will pay for it?
Under the terms of the agreement, developed countries will collectively contribute at least $300 billion annually. This is not enough and disappointing in the face of the exacerbating climate impacts in developing countries. At the same time, this might be the most ambitious goal that developed countries could agree on as the geopolitical system shifts to more conservative governments who are largely turning countries inwards, weakening multilateral processes. Nevertheless, this pledge must be transformed into clear commitments. This $300 billion must be an additional commitment, and not simply re-labeled funding reassigned from existing development finance budgets.
With the United States leaving the Paris Agreement yet again, it will be a challenge to reach that $300 billion target. While some developing countries like China may support with voluntary climate finance, if the target is not met, it could further polarize relations between developed and developing countries.
What’s behind the
$300 billion target?
The climate finance target—or quantum—was first defined in 2009 and set at $100 billion per year. In 2015, this target was reaffirmed under Article 9 of the Paris Agreement. It calls on developed countries to “provide financial resources to assist developing country parties.”
So, while many critics argue that the new $1.3 trillion benchmark still falls short of financing needs, the NCQG tripled current government commitments.
We must reimagine the private sector’s role
The remaining one trillion dollars falls to the financial sector. From multilateral development banks (MDBs) to local financial institutions, the private sector actors are expected to contribute. This is an important signal that the private sector has a responsibility and role in climate finance. On the other hand, these actors have largely acted on the sidelines of negotiations. There is a clear risk that this goal will be independently set, and their roles will remain undefined in the upcoming Bakú-Belem Roadmap. The capacity of an international process to do that is inherently limited. That’s why regional, national, and subnational financing plans are critical: they connect this global financing goal with on-the-ground needs.
It is also essential to reimagine the role of non-state actors. While the negotiation process and the technical dialogues on the NCQG were open to non-state actors, they were often still excluded. Few actors realized that they had the option to react to different text versions throughout the negotiations. Further, even when they were aware, many did not have the capacity to engage. The gap is even wider for small, developing country-based financial institutions. Without the access and resources, advocacy can be near impossible. While some financial institutions made official submissions to the process, the numbers were low. for advocacy.
Essentially, the real ability of the private sector to inform official pledges and goals remains low. In parallel, it has proven difficult for governments to translate the immense importance of this agreement to actors outside of the negotiations. This must change, especially as the impetus of climate finance rapidly shifts to those same private sector actors.
What’s next? The road from Baku to Belém
One of the key outcomes of the agreement is the “Baku to Belém Roadmap to 1.3T.” Essentially, it’s a roadmap that will outline a structured pathway to implement the NCQG. It was initially developed in Baku and is set to be finalized and implemented in Belém, Brazil during COP30. The plan is to break down how countries can mobilize resources to reach this agreed-upon target, identify mechanisms for increasing financial flows, and ensure alignment with National Climate Plans (NDCs and NAPs).
Mobilizing the necessary climate finance will require a diverse coalition of local and international financial actors. However, to be effective, each must understand their role and take responsibility for delivering on commitments. This roadmap presents an opportunity for financial institutions to demonstrate leadership and proactively shape climate finance solutions, despite challenges in the current policy landscape. Ultimately, climate risks are financial risks. The financial institutions who take on this challenge this might be able to build a favorable competitive advantage.
The good news is that many of the necessary financial mechanisms already exist, offering a strong foundation for scaling up investments in climate resilience.
Ultimately, the NCQG agreement does not fully meet the financial needs of developing countries. Nevertheless, it delivers a crucial message: collaboration, innovative financial instruments, and a commitment to equitable climate action are essential to meet the financing needs of developing countries for a net-zero, climate resilient and sustainable pathway.
