Fossil fuel producers to raise new climate fund
Azerbaijan, the host of COP29 climate summit, has announced a climate finance action fund (CFAF) to be raised from fossil fuel producing countries and companies in order to support green projects in developing countries as well as to help member nations keep within reach the 1.5C temperature target.
The announcement, however, drew criticism from a section of climate experts for not holding the fossil fuel industry accountable for denying and delaying climate action. COP29 is set to be held in Baku between November 11 and 22 this year.
Azerbaijan will be the founding contributor, COP29 president-designate Mukhtar Babayev said on Friday. Members will commit to transfer annual contributions as a fixed-sum or based on volume of production in their countries or companies, a statement by the COP29 Presidency said.
CFAF will be a catalytic public-private partnership fund, mobilising the private sector and de-risking investment. It will also contain special facilities with concessional and grantbased support to rapidly address the consequences of natural disasters in the developing countries in need.
The fund will become operational at the conclusion of the initial fundraising round, which aims to attract $1 billion, and when at least 10 contributing countries commit as shareholders.
“We have assessed the shortcomings in financial markets and carefully listened to the concerns of communities. This will be the first fund with both fossil fuel producing countries and companies across oil, gas and coal. It will be the first to both provide investment and to address the consequences of natural disasters. And it will be the first to receive annual transfers from its contributors,” COP29 chief negotiator Yalchin Rafiyev said.
“We also have given special attention to accessibility and speed when addressing the consequences of natural disasters and to ensuring that shareholdaging ers collectively make decisions.”
According to the plan announced by Azerbaijan, a gasrich country on the Caspian Sea, 50% of the CFAF will be directed towards climate projects in developing countries that rely on support, across mitigation, adaptation, and research and development. These will promote the adoption of clean energy technologies, improve energy efficiency, strengthen climate resilience of vulnerable populations, and facilitate the development of cutting-edge technologies.
Another 50% of the contributions will be allocated to helping member nations the meet the Nationally Determined Contributions (NDCs) to keep the 1.5C temperature target within reach. The CFAF would dedicate 20% of the revenues generated from investments to a Rapid Response Funding Facility (2R2F) for helping the most vulnerable countries respond to climate disasters.
“All developing countries can access this fund,” Babayev said on Friday.
The fund will be headquartered with its secretariat in Baku, and its board of directors will include representatives from contributors, and an independent audit committee will publish quarterly data including financial reports and project evaluations. Shareholders will collectively make decisions and a working group is being established with international financial experts to further develop the management model and funding mechanism.
“Azerbaijan has committed to leading by example, it is working to submit a 1.5-aligned NDC, and the COP29 Presidency is encourall Parties to come forward with similar plans,” the statement by the COP29 Presidency said.
There are already some funds under the United Nations financial mechanism. The Global Environment Facility (GEF) has served as an operating entity of the financial mechanism since the Convention’s entry into force in 1994.
At COP16, in 2010, parties established the Green Climate Fund (GCF) and the next year they designated it as an operating entity of the financial mechanism. Parties have also established the Special Climate Change Fund (SCCF) and the Least Developed Countries Fund (LDCF) — both managed by the GEF — as well as the Adaptation Fund (AF) established under the Kyoto Protocol in 2001.
But the fund announced by Azerbaijan is parallel to the UN platform. At COP28 last year, the UAE announced a US$30 billion commitment to a newly launched catalytic climate vehicle, ALTÉRRA by the UAE, that will drive forward international efforts to create a fairer climate finance system.
“These funds are also about messaging of the COP28 Presidency. It remains to be seen if these provide high interest loans or actually help developing countries,” an observer, requesting anonymity, said.
The announcement, however, came under criticism from certain climate experts over a range of issues.
“The announcement of a new fund undeniably puts a spotlight on the fossil fuel industry’s role in the climate crisis. However, its proposed design dangerously grants a social licence for the ongoing extraction of gas, oil, and coal. This is far from the robust accountability we have long demanded to hold the fossil fuel industry responsible for denying and delaying climate action,” Harjeet Singh, Global Engagement Director for the Fossil Fuel Non-Proliferation Treaty Initiative, said.
The COP29 Presidency’s plan for the climate summit this November lacks the ambition to phase out fossil fuels and falls massively short in supporting a just transition for developing nations, he added.