New Climate Financing Targets Present Opportunity for the Gulf
Following two weeks of COP29 negotiations, exhibitions, and panel events, delegates representing governments around the world reached a major consensus. Most significantly, they agreed wording on a new climate financing target for developing countries, international carbon market standards, and a support programme for national adaptation plans (NAPs) for the least developed countries.
These three key victories for the climate agenda present great opportunities for the Gulf states, particularly Saudi Arabia, the United Arab Emirates, and Qatar—collectively referred to as the Gulf 3—to play a leading and supportive role in investing in a 1.5C-aligned and resilient future, which was the fundamental aim of the 2015 Paris Agreement.
At the 2009 Copenhagen Climate Summit (COP15), developed countries agreed to mobilise $100 billion of annual climate financing for developing countries by 2020. This target was unfortunately never met, with the deadline extended to 2025 during the Paris Agreement signifying a commitment to updating the target to increase its ambition by the end of the decade. This brings the focus to 2024’s negotiations, which culminated in this target being updated to $300 billion annually by 2035.
This target and metric are highly contested. Developing countries want to increase the target further as their financing needs are much greater than this amount. The Overseas Development Institute has estimated that the need is closer to $1.3 trillion per year by 2035, which is the new cumulative goal. Moreover, much of this financing is currently provided in the form of debt rather than grants, adding to existing debt obligations, which is especially challenging for small and developing nations.
The new agreement requires the 24 developed nations, across Europe, the United States, Japan, Australia, and New Zealand, to deliver on this target. A broader climate financing target of $1.3 trillion has also been set by 2035, and “voluntary” contributions from countries outside the original 24 are allowed to be included in this figure.
Fossil-fuel-dependent states, including the Gulf 3, have faced criticism for their role and influence over the talks, but the opportunity remains for them to contribute further, as part of this new metric for South-South financing.
Documenting and disclosing existing investment flows can build transparency and show the world that the Gulf 3 are serious about contributing to global climate finance flows. Once this reporting infrastructure is in place, the next opportunity for the Gulf 3 would be to demonstrate their leadership and commitment to South-South climate financing by increasing financial flows from the baseline to help meet the $1.3 trillion annual funding target by 2035. Alongside the likes of China and Korea, this effort will help to further increase South-South climate financing.
According to the World Investment Report released earlier in 2024 by the UN Conference on Trade and Development, foreign direct investment outflows from the Gulf 3 totalled some $38.2 billion in 2023, down from its peak of $58.2 billion in 2022. While a more detailed breakdown of the share of these investments that can be considered climate financing and the proportion allocated to other developing countries is not available, this demonstrates the scale of capital available from the Gulf 3 for this opportunity.
A significant chunk of this financing came from Saudi Arabia’s sovereign wealth fund, known as the Public Investment Fund (PIF), with some $620 billion in assets under management. Of the thirteen “vital and strategic" investment sectors PIF has identified for the upcoming five years, seven are crucial to climate financing going forward: food and agriculture, metals and mining, transport and logistics, automotives, real estate, construction and building, utilities and renewables.
A similar sector focus can be seen in the investment portfolios of the UAE and Qatar. The Abu Dhabi Investment Authority (ADIA), Mubadala Investment Company (MIC), Emirates Investment Company (EIC), and Qatar Investment Authority (QIC), which boast a combined portfolio of $1.8 trillion, are responsible for driving investments that can help to fill this global green financing gap. In particular, the Abu Dhabi Fund for Development has a designated mandate for concessional and sustainable financing to local and global emerging economies.
COP29 also led to defined rules for both Article 6.2 and 6.4 in relation to carbon markets. The International Emissions Trading Association estimates this can raise $1 trillion of additional financing for developing countries by 2050, by channelling funding into nature-positive projects, particularly in developing nations. Article 6.2 defines the framework for countries to make bilateral agreements to exchange and trade carbon credits. Article 6.4 creates a centralised international carbon market, supervised by the UN who then validates, issues, and verifies carbon credits.
The defining of Article 6.2 and 6.4 market mechanisms means that legal and regulatory frameworks now exist for the Gulf 3 to partner bilaterally and multilaterally with countries around the world to improve the supply and demand for these carbon credits, working towards a high-quality and high-price carbon credit market.
In Baku last month, Saudi Arabia’s PIF launched a carbon credit exchange called the “Regional Voluntary Carbon Market Company,” with the auctioning of 1 million tons of carbon offset credits. Last year, the UAE Carbon Alliance announced targets to buy USD450m of Africa’s carbon market initiative, with the UAE additionally considering developing its own Emission Trading System. At the same time, Qatari firm Emsurge has announced a public-private partnership to fuel its own carbon market development.
The outcomes of COP29 present a critical opportunity for the Gulf 3 to align their financial resources with global climate goals. By scaling investments through sovereign wealth funds like PIF, ADIA, and QIC, these nations can help close the global climate financing gap and drive South-South cooperation. Transparent documentation and a commitment to increasing flows will showcase their leadership in building a resilient, 1.5C-aligned future.
Photo: WAM
