OPEC Fund Quarterly - 2024 Q3

OPEC FUND QUARTERLY 3 2024 The OPEC Fund for International Development

The COP29 climate conference must be an enabling COP

UN Climate Chief Simon Stiell

As deadlines loom, nations must find compromises on climate finance Towards a Cleaner World?

INTERVIEW SABINE GABER How the Austrian Development Bank is championing sustainability

OPEC FUND CLIMATE ACTION First report showcases successful delivery of ambitious plan

The OPEC Fund Quarterly is published four times a year by the OPEC Fund for International Development. The OPEC Fund works in cooperation with developing country partners and the international development community to stimulate economic growth and social progress in low- and middle-income countries around the world. The organization was established by the member countries of OPEC in 1976 with a distinct purpose: to drive development, strengthen communities and empower people. The OPEC Fund Quarterly is available free. If you wish to be included on the digital distribution list, please contact us via opecfund.org . Back issues of the magazine can be found on our website. The contents of this publication do not necessarily reflect the official views of the OPEC Fund or its Member Countries. Any maps are for illustration purposes only and are not to be taken as accurate representations of borders. Editorial material may be freely reproduced, providing the OPEC Fund Quarterly is credited.

EXECUTIVE EDITOR Nadia Benamara EDITOR Axel Reiserer EDITORIAL TEAM Angus Downie, Valerie Herzog, Howard Hudson, Nicholas K. Smith, Julia Zacharenkova PHOTOGRAPHS Abdullah Alipour Jeddi, Carlos Opitz (unless otherwise credited) PRODUCTION Iris Vittini Encarnacion DESIGN Robin Turton, More Tea Design Ltd PRINTED IN AUSTRIA Print Alliance HAV Produktions Gmbh This publication is printed on paper produced from responsibly managed forests.

PUBLISHERS The OPEC Fund for International Development Parkring 8, A-1010 Vienna, Austria Tel: (+43-1) 51564-0 Fax: (+43-1) 51392-38 www.opecfund.org

FRONT COVER ILLUSTRATION: artflare/Adobe Stock; klyaksun/Shutterstock; rhoeo/Adobe Stock; Robin Turton

CONTENTS

5-41

COP29 Special Feature: Climate finance – Who should contribute, and how?

6-9 A brief history of climate change 10-13 Good COP, bad COP: Successes and setbacks of the previous 28 COP conferences 14-15 What to expect from COP29 16-21 “Bigger, better, faster”: The OPEC Fund’s Climate Action Plan 22-25 Scaling up nature-based solutions: How a new partnership strengthens climate resilience and biodiversity conservation 26-29 Extreme heat: Dangerous urban heat exposure has tripled since the 1980s, with the poor most at risk 30-31 Heat stress in Baku, Azerbaijan: The City of Winds feels the heat 32-33 Heat stress in Medellín, Colombia: The City of Eternal Spring no longer lives up to its name 34-35 C limate change, price inflation and poverty: A complex interplay 36-37 Book Review – Adaptation or bust: Survival of the Greenest by Amir Lebdioui 38-39 Game Review – Daybreak : Think you can solve the climate crisis? You have two hours 40-41 Climate action in the age of TikTok: Raising awareness and inspiring action

Daybreak Game Review 38–39

IN OTHER SECTIONS...

In the Field 42-43

Events 50-53 50

The OPEC Fund in the Philippines and Thailand: Developing opportunities in a region of huge potential Development News 44-45 New OPEC Fund projects in Nepal, Rwanda, Somalia, Türkiye, Uganda and Uzbekistan Spotlight Interview 46-49 Sabine Gaber, Austrian Development Bank (OeEB): “In development finance, there is room for cooperation but also competition”

The OPEC Fund at the IAEA General Conference Madagascar clean cooking agreement; Ecuadorian art exhibition Loan signing with Armenia’s Evocabank OPEC Fund President attends Saudi Fund’s 50th anniversary The Back Page 54 “You will one day shape the future” The OPEC Fund hosts the Vienna Energy Scholar Programme

EDITORIAL

BAKU OR BUST

Dear Reader, T he famous poem “An die Nachgeborenen” (To those who follow in our wake) by Bertolt Brecht includes the verse: What times are these, in which A conversation about trees is almost a crime For in doing so we maintain our silence about so much wrongdoing! Today, when we wish to deflect conversation to an innocuous subject, trees – or nature in general – are no longer the go-to topic. One look out of the window may be enough to glimpse the impacts of climate change: record floods, hurricanes of unprecedented ferocity, catastrophic droughts and wildfires brought on by heatwaves – the disasters are coming thick and fast and ever more dramatic. Trees, by the way, play a key role in this: Deforestation contributes 12–20 percent of global greenhouse gas emissions, according to a study by the London School of Economics. As a result of deforestation and degradation, some tropical forests now emit more carbon than they capture, turning them from carbon sinks into carbon sources. This is one challenge the representatives of almost 200 nations, thousands of organizations large and small as well as tens of thousands of other delegates are facing at this year’s UN Climate Change Conference – universally referred to as COP29, in November 2024 in Baku, Azerbaijan. Two years ago, COP27 saw a historic agreement on the creation of a loss and damage fund to compensate climate- vulnerable countries. Last year’s COP28, for the first time, called on all

countries to “transition away” from fossil fuels. This year’s summit is not expected to deliver breakthroughs, but rather to pave the way for upcoming decisions. UN climate chief Simon Stiell has dubbed the conference an “enabling COP.” The big question, as so often, is money. For the first time in 15 years, countries will have to agree on a new global finance goal, the so-called New Collective Quantified Goal (see p.14), updating the US$100 billion target of annual spending set in 2009 and finally met in 2022. While it is widely understood that the US$100 billion “floor” is insufficient, estimates of how much is needed vary widely and range from US$500 billion to US$2.5 trillion, according to the Organisation for Economic Co-operation and Development. These are staggering amounts. But what is also clear – and now largely undisputed – is that inaction is the most expensive option of all: A new study by the International Institute for Applied Systems Analysis finds that if global warming reaches 3°C, global GDP will fall by as much as 10 percent (see p.18). That equals more than US$10 trillion, based on last year’s global economic output. Against this backdrop the Baku summit has already been called the “finance COP.” Discussions will not only focus on the new cumulative target, but also who the donor base and recipients will be, how much will come from public and private sources and whether it will be in the form of grants or loans. Negotiations in the run-up to COP29 saw no convergence of positions (see p.14). Azerbaijan, as holder of the

conference presidency, will have to pull all available diplomatic strings to secure an agreement. Another key topic in Baku will be the looming deadline for countries to submit their new Nationally Determined Contributions, outlining how they will curb emissions. These must be renewed every five years, with the next round due in February 2025. COP29 will be a crucial moment for countries to raise the bar and hold each other to account. “The speed of the leader determines the pace of the pack,” the US philosopher Ralph Waldo Emerson once noted. As in previous years, the OPEC Fund will demonstrate its commitment to climate action with a strong presence at the event. COP29 will also be the perfect stage to launch two new reports, one on climate finance and the other on clean cooking. The OPEC Fund is resolutely pursuing its Climate Action Plan with the target to commit 40 percent of all new financing to climate-related investments by 2030. To date, delivery is ahead of schedule and target. With this issue of the OPEC Fund Quarterly we aim to provide an overview of the challenges we are facing, but also to highlight the manifold responses to the global threat of climate change. Real change, as always, begins with education: We recommend our review (see p.38) of the boardgame Daybreak, where participants have two hours to save the planet. COP29, in contrast, is set to run for 11 days. We wish you an interesting read.

Axel Reiserer, Editor

SPECIAL FEATURE

Baku, the capital of Azerbaijan, is hosting the UN Climate Change Conference in November 2024. The expectations are high, the to-do list is long and the global needs are urgent. But can the international community deliver? We take a close look at key challenges and issues COP29

COP29

A BRIEF HISTORY OF CLIMATE CHANGE It has been a constant companion of our planet – but never has humankind’s impact on the environment posed such dangers By Axel Reiserer, OPEC Fund

C limate change is as old as the history of the Earth. One of the foundation blocks of world literature, the Epic of Gilgamesh from ancient Mesopotamia (c. 2100 BCE), is a prime example. Its central character is King Gilgamesh, ruler of Uruk. As he seeks immortality, he meets the boatman Utnapishtim, who warns him that the gods are preparing a terrible flood: “Tear down thy house, build a ship; abandon wealth, seek after life; scorn possessions, save thy life. Bring up the seed of all kinds of living things into the ship which thou shalt build.” Written on tablets that date back to around 650 BCE the story has inspired many religions and belief systems:

Rulers who enjoyed divine favor were blessed with predictable rains and golden sunshine that allowed for bumper crops, while those out of favor were punished with violent storms or no rainfall at all. Frankopan speaks of “efforts to make sense of climatological shocks.” Of which there were many, as he notes in his latest book The Earth Transformed , a retelling of human history along climatological and environmental disasters. The examples are numerous. More than 4,000 years ago in Mesopotamia – the area today made up of Iraq, northeast Syria and southeast Türkiye – the Akkadian Empire became known as the first empire in history. It reached its peak between the 24th and 22nd centuries BCE. It boasted all the trappings of an advanced civilization with a governmental system, urbanization, a diversified economy and records in cuneiform, a logo-syllabic writing system. It was in this writing system that the Epic of Gilgamesh tells one of the most famous natural disaster stories in human history: a great and ancient flood, which can also be found in many world

“The ‘mandate of heaven’ that

gave imperial rulers the authority to rule was in part linked to notions of morality – but was most bluntly manifested by benign climate conditions.”

angering the gods provoked punishments that brought environmental consequences. The historian Peter Frankopan noted: “The ‘mandate of heaven’ that gave imperial rulers the authority and legitimacy to rule was in part linked to notions of morality – but was most bluntly manifested (or otherwise) by benign climate conditions.”

, Historian

Tribunes de la Presse

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“Rulers who enjoyed divine favor were blessed with predictable rains and golden sunshine... while those out of favor were punished with violent storms or no rainfall at all.”

Illustration: klyaksun/Shutterstock; yaron/Adobe Stock; Kudryavtsev/Adobe Stock; Robin Turton

religions. Yet it wasn’t a flood that led to the downfall of the Akkadian Empire. Despite its high level of development, it collapsed rather abruptly and without foreign influence. Scholars attribute the demise to a sudden change in climate patterns across the region, with rapidly increasing aridity and a once-in-a-century drought. The archaeologist Harvey Weiss writes: “After four centuries of urban life, this abrupt climatic change evidently caused abandonment, regional desertion and the collapse of the Akkadian Empire. Synchronous collapse in adjacent regions suggests that the impact of the abrupt climatic change was extensive.” More climate and environmental seismic changes, both literal and figurative, fill the history books. The eruption of Mount Vesuvius in 79 CE, when the Roman Empire was in its heyday, destroyed Pompeii, Herculaneum and other sites and released so much ash “that some of it reached Africa and Syria and Egypt, filling the air overhead and darkening the sun,” as the writer and eyewitness Pliny the Younger reported. His uncle Pliny the Elder – who died at the scene while attempting a rescue mission – is the author of the 37-volume Natural History , testament to how much the interplay between civilization and nature already preoccupied the Romans. In later centuries, a deterioration of climatic conditions directly contributed to the fall of the superpower. As arguably the first global empire in

history, the Romans connected societies by land and by sea as never before, with the unintended consequence that germs capable of causing pandemic events moved freely and at an unprecedented speed. The Antonine Plague (165 to 180 CE), brought to Rome by armies returning from Asia, was probably the global debut of the smallpox virus. Despite severe losses the empire

because of climate change. The Mayan civilization in Mesoamerica (comprising the modern day central to southern Mexico, Belize, Guatemala and parts of Costa Rica, El Salvador, Honduras and Nicaragua) lasted for some 3,000 years. Agriculture was the cornerstone, with great cities being built as the population grew. Religion was an important part of Mayan life, with sacrifice a regular ritual

Depictions of the deities Lamassu, which originate in the ancient text the Epic of Gilgamesh

Photo: Xxxxx

recovered, but never regained its previous commanding dominance. Then, in the mid-third century, a mysterious affliction of unknown origin called the Plague of Cyprian (c. 249- 270) sent the empire into a tailspin. The historian Kyle Harper writes: “Humans shape nature – above all, the ecological conditions within which evolution plays out. But nature remains blind to our intentions, and other organisms and ecosystems do not obey our rules.” Rome was not the only great civilization that fell (at least partly)

to appease and nourish the gods and keep the land fertile. However, sometime around 900 CE things started to go wrong. Overpopulation put a massive strain on resources. The consequence was increased competition, which led to violent conflict over scarce resources. An extensive period of drought that ruined crops and cut off water supplies led to the fall of this ancient civilization: Within a couple of generations, swaths of central Mayan lands were all but abandoned.

CLIMATE CHANGE

4,000 years of civilization and climate change

The Akkadian Empire The Epic of Gilgamesh , written around 2000

BCE, tells of a great and ancient flood – but scholars instead attribute the demise of the Akkadian Empire to a sudden change in climate patterns across the region, with rapidly increasing aridity and a once-in-a-century drought.

The Roman Empire The eruption of Mount Vesuvius in 79 CE destroyed Pompeii and Herculaneum. A study of tree rings published in the journal Science provides evidence of climate shifts in the region between 250 CE and 550 CE – likely contributing to the fall of the empire.

Photo: BlackMac/ Adobe Stock

Mayan civilization Around 900 CE, drought and the resultant scarcity of food and water combined with overpopulation to doom this 3,000-year old civilization. Greenland’s Norse colony The “Little Ice Age” (1500–1850) had a big impact on Greenland’s settlers in the 15th century. As the climate cooled in the North Atlantic, attempts to use the sea as a source of food failed and the Norse colony was abandoned.

The Khmer Empire In the early 13th century drought and flooding damaged the kingdom’s water infrastructure. This, along with widespread tree-felling, created rain runoff. Consequently, the build-up of sediment in the canal network eventually destroyed the system.

The Industrial Revolution Since the invention of the steam engine in the 1760s and the spread of modern industrial processes across the globe, pollutant gases have had a profound warming effect on the Earth’s atmosphere.

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Another example comes from Southeast Asia. The iconic Angkor Wat temple complex was built in the early 12th century CE in the capital of the Khmer Empire, first as its state temple and later as a mausoleum. The kingdom reached its greatest territorial extent under King Jayavarman VII who defeated the Chams and conquered large parts of their territory (in what is now central and southern Viet Nam). But only a hundred years later the Khmer Empire was in a death spiral. What had happened? Though historians have identified a number of reasons (external threats, religious strife, internal destabilization), ecological failure and breakdown of infrastructure are seen as major catalysts. Periods of drought led to decreases in agricultural productivity and monsoon floods damaged the water infrastructure. To adapt to the growing population, trees were cut down to clear space for more rice fields. That created rain runoff carrying sediment to the canal network and damaged the system until it became inoperable. Climate change also had its hand in developments on the other side of the world: In Greenland, an island in the far North Atlantic, some 5,000 Viking settlers lived for around 500 years until the “Little Ice Age” during the early 15th century disrupted their lives. Temperatures dropped, reducing substantially the productivity of farms and making it harder to raise livestock. When attempts to use the sea as a source of food failed, the Norsemen eventually had to abandon their colony. The natural cycle of climate change is an ongoing and unavoidable part of life. When the Earth was created some 5 billion years ago the young sun was shining 30 percent weaker than it does today, writes the climatologist Dirk Notz, University of Hamburg. Nevertheless, the infant Earth was sufficiently warm to allow the existence of liquid water. That changed about 650 million years ago, when the Earth was covered in ice for many millions of years. When volcanic eruptions led to the emission of greenhouse gases, the Earth was able to warm again: Some 100 million years ago, when the dinosaurs dominated the biosphere, the average global temper- ature was about 14°C higher than today.

“Regionally, changes in climate have most likely repeatedly contributed to the disappearance of ancient cultures, but globally the development was able to continue.” Dirk Notz, Climatologist, University of Hamburg

Photo: Muratart/Shutterstock

Industrialization and the triumph of the automobile, powered by the internal combustion engine, changed the world – and further increased the burning of fossil fuels: In 1927, carbon emissions from fossil fuel burning and industry reached 1 billion tonnes per year for the first time worldwide. Despite various efforts to reverse the trend it continues: In 2006, carbon emissions from the same sources reached 8 billion tonnes per year. The consequences are clear. The Intergovernmental Panel on Climate Change (IPCC) says: “Human activities have warmed the Earth’s climate by more than 1°C since the late 19th century, and the effects on our climate are unprecedented.” An increase of 1.5°C could put between 20 and 30 percent of animal species on the fast track to extinction. If the planet warms by an average of 2°C the consequences will include a devastating loss of coral reefs, loss of habitats for many insect species and more than a third of humanity exposed to extreme heat at least once every five years, according to the Australian Climate Council. Extreme weather events, floods and droughts will threaten millions with famine, massively increasing migratory pressures. These are stark warnings and the clock is ticking. Professor Notz notes: “Climate change and disease evolution have been the wild cards of human history.” The challenge humankind is now facing was captured by the Scottish writer Robert Louis Stevenson: “Life is not a matter of holding good cards, but of playing a poor hand well.”

As climate change has always been a feature of the evolution of our planet, it is quite unusual that for the past 10,000 years climate conditions on Earth have been so stable. In fact, this stability was the precondition for the development of modern civilization: agriculture, settlements, trade, migration, communities. Professor Notz: “Regionally, changes in climate have most likely repeatedly contributed to the disappearance of ancient cultures, but globally the development was able to continue.” What is new – and today widely accepted – is the impact of humankind on climate change. Since the 1760 invention of the steam engine fired off the Industrial Revolution, ever-increasing amounts of polluting gases have been pumped into the atmosphere, triggering an unprecedented rate of warming. This has not gone unnoticed: Following scientific examinations of climate change by pioneering scientists, in 1824 the French physicist Joseph Fourier became the first to describe the Earth’s “greenhouse effect.”

GOOD BAD

COP29 TIMELINE

As the UN Climate Change Conference COP29 approaches, a look back at the progress and setbacks of the previous 28 conferences By Nicholas K. Smith, OPEC Fund

BERLIN, GERMANY The parties agreed that prevailing efforts to combat climate change were inadequate. The resulting Berlin Mandate locked the world into a political process for countries to agree on binding targets. 1995

I n retrospect, 1995 was a big year. That’s when the Internet jumpstarted the Information Age, “Toy Story” became the first full-length computer-animated feature, and five major hurricanes pounded more than US$12 billion in damages across the Caribbean. Also that year, Germany’s environment minister, a then little-known Angela Merkel, opened the first Conference of the Parties of the United Nations Framework Convention on Climate Change – later to become (almost) a household name as COP. All these events had something to say about our

world, whether technological, cultural, political or environmental. Yet it is that last one that has become the defining feature – and struggle – of humanity. That meeting in Berlin was the first of the annual COPs, which have since evolved into major international events attracting tens of thousands of people. According to one estimate, more than 97,000 badges were issued to attend COP28 in person when held in Dubai last year. With the world turning its attention to COP29 in Baku, Azerbaijan, it’s as good a time as any to take a look back at some of the highlights from Berlin 1995 to Baku 2024.

COP1

Photo: UNFCCC

COP3

KYOTO, JAPAN The adoption of the landmark Kyoto Protocol, which established binding targets for developed countries to reduce the greenhouse gas emissions that cause global warming. Fearing those reductions would “seriously harm the economy,” the USA did not ratify the treaty. The agreement, however, primarily focused on emission cuts for developed countries, while developing countries were not subject to emission commitments.

Photo: Aflo Co. Ltd. / Alamy Stock Photo

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COP, COP

Photo: UNFCCC

COPENHAGEN, DENMARK Leaders agreed on the Copenhagen Accord that provided for explicit emission pledges by all leading economies – including, for the first time, China and other major developing countries. Developed countries agreed to the goal of mobilizing US$100 billion annually by 2020 to support climate actions in developing countries. The goal was finally met for the first time in 2022.

MONTREAL, CANADA As the Kyoto Protocol entered into force, more than 10,000 delegates attended one of the largest climate change conferences ever. The Montreal Action Plan aimed to “extend the life of the Kyoto Protocol beyond its 2012 expiration date and negotiate deeper cuts in greenhouse gas emissions.” 2005

COP15

COP11

COP16

11 2010 CANCÚN, MEXICO The Cancún Agreements formally established the Green Climate Fund within the UN framework. The fund’s goal is to help developing countries with financing for actions that adapt and mitigate the effects of climate change. Throughout subsequent COPs, though, progress was slow in getting the facility off the ground.

THE COP JOURNEY

COP17

DURBAN, SOUTH AFRICA The Durban Platform for Enhanced Action called for a future legally-binding treaty to address global warming. This future treaty would be defined by 2015 and go into effect by 2020. Crucially, the Durban Platform sought to correct a shortcoming of the Kyoto Protocol by including developing countries in the emission cut obligations.

2012

COP18

DOHA, QATAR Under the Doha Agreement, the CO2-cutting Kyoto Protocol was extended by eight years to 2020. However, given the absence of binding targets for countries like the USA and Canada, as well as heavy emitting developing countries that were outside the scope of the Kyoto Protocol like China and India, the extension had only limited impact.

Photo: UNFCCC

2015 PARIS, FRANCE In perhaps the most consequential conference, delegates drafted the Paris Agreement, which aims to keep the global rise in temperature to no more than 2°C, while encouraging the far-preferable 1.5°C increase above pre-industrial levels. Under the Paris Agreement, countries would stick to their Nationally Determined Contributions to cut greenhouse gas emissions that contribute to global warming. UN Secretary General Ban Ki-moon celebrated the agreement as “a resounding success.”

COP21

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Photo: UNFCCC

GLASGOW, UNITED KINGDOM The Glasgow Climate Pact called for a “phase-down of unabated coal power” after the language was changed from “phase out” due to resistance from coal- reliant countries like China and India. Over 100 nations pledged to cut 30 percent of their emissions of methane and more than 130 nations, together possessing 90 percent of the world’s forests, agreed to reverse deforestation by 2030.

Rebecca Alitwala Kadaga, Ugandan First Deputy Prime Minister (left) and Ursula von der Leyen, President of the European Commission, sign a partnership agreement at COP27

2022 SHARM EL SHEIKH, EGYPT A US$100 billion “loss and damage” fund was agreed on, which would provide funding to developing countries most at risk to climate change. Such a fund would provide support to countries that may not have contributed the most to climate change, but suffer the most serious consequences. The OPEC Fund presented its Climate Action Plan and launched with the Arab Coordination Group a US$24 billion climate commitment.

COP26

COP27

Photo: Fora do Eixo; https://creativecommons.org/licenses/by-sa/2.0/

COP28

Photo: DOERS/Shutterstock

DUBAI, UNITED ARAB EMIRATES Against the backdrop of the hottest year on record (a record broken year after year), nearly all 200 nations in attendance approved a roadmap for “transitioning away from fossil fuels in a just, orderly and equitable manner” with the aim of achieving net zero carbon emissions by 2050. The OPEC Fund signed climate-relevant cooperation agreements with numerous partners, among them ADB, IAEA, IRENA and WFP.

COP29 PREVIEW

WHAT TO EXPECT FROM COP29 Last year’s conference in Dubai was hailed as “the beginning of the end” of the fossil fuel era. So what happens after the end? By Axel Reiserer, OPEC Fund

T he outcome of the UN Climate Change Conference COP28 in Dubai in December 2023 was hailed by many as historic. Almost 200 nations agreed on a roadmap for “transitioning away from fossil fuels.” UN Climate Change Executive Secretary Simon Stiell urged to convert the agreement into action: “Now all governments and businesses need to turn these pledges into real- economy outcomes, without delay.” Intense preparations are expected to lead to concrete results at COP29 in Baku, the capital of Azerbaijan, from November 11 to 22. Although the country is a major oil producer, it is suffering itself from impacts of global warming and has made “green growth

Intergovernmental Panel on Climate Change, for instance, speaks of a range from US$5-9 trillion. While it is widely understood that the floor of US$100 billion is insufficient, there is no agreement how much should be provided and by whom. Currently, only countries that were classified as developed in 1992, when the UNFCCC was signed, need contribute to climate finance for the developing world. But the world has changed enormously since then. China, for instance, is now the world’s biggest emitter by far – and also the world’s second largest economy. Yet, China and other countries that have significantly improved their economies over the past few decades carry no obligations under the UNFCCC. Thus, the G7, an informal forum of the world’s leading economies, are calling on China, Saudi Arabia, South Korea and others to contribute to climate financing. But both sides are far apart: After the most recent round of talks in late August failed to reach agreement the UN published a document suggesting seven options. While developed nations claim that tight fiscal spaces make huge increases in public funding unrealistic, vulnerable and developing countries want to go far beyond the current US$100 billion-goal. One option, reflecting the Arab countries’ position, sets out a target for developed countries to provide US$441 billion each year in grants, combined with an aim to mobilize a total of US$1 trillion in funding from all sources, for the period 2025-2029. Meanwhile, the EU is pushing for a global climate- funding target of more than US$1 trillion

While Babayev called on all parties “to strive for the highest possible ambition,” he also stated clearly: “Our top negotiating priority is agreeing a fair and ambitious New Collective Quantified Goal on climate finance (NCQG) adequate to the urgency and scale of the problem, taking into account the needs and priorities of developing country parties.” The NCQG was introduced in 2009 when developed countries agreed to collectively mobilize US$100 billion annually by 2020 for climate action in developing countries. The goal was finally met in 2022, when US$115.9 billion were raised. A new NCQG is to be agreed at COP29 and negotiators not only

a priority for Azerbaijan for the decades ahead,” says Mukhtar Babayev, Minister of Ecology and Natural Resources and President-Designate of the world’s largest and

have to increase the total amount of climate finance by a large margin, but also specify the timeframe and terms of its provision, what the finance will support,

most important climate change conference. His ambition is to use the

Mukhtar Babayev, Minister of Ecology and Natural Resources and President-Designate of COP29

event as a springboard to “demonstrate how the country turned the economy to the green direction.” In a letter to the United Nations Framework Convention on Climate Change (UNFCCC), Minister Babayev set out his presidency’s priorities and work plan based on the two pillars of “enhancing ambition” and “enabling action” in order to turn the vision “In Solidarity for a Green World” into reality.

how it will reach the communities that need it most and how climate finance will be measured. First rounds of negotiations showed the parties far apart. The Independent High-Level Expert Group on Climate Finance says that emerging markets and developing countries, excluding China, need to invest up to US$2.4 trillion a year by 2030 to meet climate and nature goals. But estimates vary widely: The

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each year to which China should also contribute, a demand Beijing still rejects. Despite the differences Minister Babayev said: “We have come a long way.” As a contribution Azerbaijan launched the Climate Finance Action Fund (CFAF). The facility will serve as a vehicle to channel investments to developing countries and will be capitalized with contributions from fossil fuel producing countries and companies. CFAF will become operational at the conclusion of an initial fundraising round, which seeks to raise US$1 billion, and once 10 countries have committed to becoming shareholders. Tied closely to the outcome of the climate finance negotiations is the debate on how to fill and formalize the setup of the Loss and Damage Fund agreed at COP28. It was established to provide crucial support to vulnerable nations facing climate-related challenges. The COP29 presidency seeks

Azerbaijan’s Minister of Ecology, Mukhtar Babayev, presents his country’s plans for COP29

progress: “Particularly in Small Island Developing States and Least Developed Countries mechanisms for financial support are essential, and we must act without delay,” Minister Babayev wrote. Another important topic at COP29 will be the finalization of efforts to make Article 6 of the Paris Agreement operational. Under this provision, countries are able to transfer carbon credits earned from the reduction of greenhouse gas emissions to help one or more countries meet their climate targets. However, no breakthrough has been reached yet to implement the mechanism. In his letter, Minister Babayev spoke of a “long overdue priority.” The conference in Baku is also expected to prepare the groundwork for the renewal of the National Determined Contributions (NDCs) , each country’s individual climate action goals, which are due on February 10, 2025. At COP28 last year almost 200 nations recognized the

outcome of the Global Stocktake which called for “deep, rapid and sustained reductions in greenhouse gas emissions” in line with the 1.5°C climate target. But action has yet to be taken. The Global Stocktake also showed that climate adaptation efforts are not on track. Countries are supposed to have National Adaptation Plans in place by 2025 and progress their implementation by 2030. The COP29 presidency has called on developed countries to “at least double adaptation finance by 2025” and underlined the “urgent need for continued and increased contributions to funds,” including the Green Climate Fund and the Adaptation Fund. Expectations for Baku are centred on one thing though: “It’s finance, finance, finance,” says Nigel Topping, who represented Great Britain at COP26 in Glasgow in 2021. “We’ve really focused on NDCs and they are nice, but you can’t invest in an NDC. Every COP from now on is a finance COP.”

“We’ve really focused on NDCs and they are nice, but you can’t invest in an NDC. Every COP from now on is a finance COP.” Nigel Topping, representive for Great Britain at COP26 in Glasgow in 2021

Nigel Topping, left; the Information Center for COP29, Baku, Azerbaijan

Photo: GFANZ

COP29 THE OPEC FUND’S RESPONSE

“BIGGER, BETTER, FASTER” The need for climate action is huge and urgent. Experts warn that insufficient action now will only drive up costs tomorrow. The OPEC Fund’s Climate Finance Report examines the institution’s response By Axel Reiserer, OPEC Fund THE OPEC FUND AND CLIMATE ACTION

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I n an increasingly fractious world riven by deep divisions, the need for climate action is one of the few things almost everyone can agree on. The OPEC Fund is part of this effort. At the UN Climate Change Conference COP28 last December in Dubai almost 200 nations reaffirmed their commitment to the Paris Agreement’s goal of limiting “the increase in the global average temperature to well below 2°C above pre-industrial levels” and pursuing efforts “to limit the temperature increase to 1.5°C above pre-industrial levels.” The urgency is beyond doubt. But hitting these targets is impossible without more funds and faster action. Anything less risks a steep human cost, specifically in terms of lost livelihoods. A new working paper by the economists Adrien Bilal and Diego R. Känzig estimates that climate change could cause a one-third or more loss in long-term human welfare. Employing long-term data on global economic growth and average annual temperature, they find that an additional 1°C of warming will lead to a 12 percent fall in GDP. They warn that a climate-change scenario with more than 3°C warming would be “an equivalent blow to fighting a permanent war.” Yet the chances of achieving the Paris goal are decreasing by the day. The World Meteorological Organization (WMO) said in its most recent report in June 2024 that there is an 80 percent likelihood that the annual global average temperature will temporarily exceed 1.5°C above pre-industrial levels for at least one of the next five years.

The main investment and spending priorities fall into the following categories:

To put this into perspective: When the Paris Agreement was drafted in 2015, such a chance was “close to zero”, the WMO says. The organization also warns that there is an 86 percent chance that a new “hottest year on record” will be set this year. In other words 2023, the dubious current record holder, will seem cool by comparison. Lower temperatures, higher sticker price COP28’s Global Stocktake report showed that the world is “severely off track” on climate. “Governments are taking baby steps,” while they “must make bold strides” instead, said the Executive Secretary of the United Nations Framework Convention on Climate Change (UNFCCC), Simon Stiell. To achieve the Paris Agreement’s targets, global greenhouse gas (GHG) emissions must be cut by around 43 percent by 2030 and 60 percent by 2035 from 2019 levels, aiming for net-zero CO2 emissions by 2050. The costs are immense. The Independent High-Level Expert Group on Climate Finance (IHLEG) said that emerging markets and developing countries (EMDCs), excluding China, need to invest and spend close to US$2.4 trillion a year by 2030 to meet climate and nature goals. That is four times what is currently being invested.

US$1.5 trillion

Energy transition

US$250 billion

Adaptation and resilience

US$300 billion

Loss and damage

US$300 billion

Natural capital and sustainable agriculture

US$75 billion

Just transition

To achieve the Paris Agreement’s targets, global greenhouse gas emissions must be cut by around 43 percent by 2030 from 2019 levels.

Photo: ultramansk/Shutterstock

THE OPEC FUND’S RESPONSE

A silver lining, especially for EMDCs, is the opportunity to “leapfrog the dirty and destructive phase of fossil-fuel growth of developed countries and build cleaner, safer, more energy-secure, more resilient and more bio-diverse ways of living and working,” as the experts put it. Renewables investments and savings from the replacement of fossil fuel use would go a long way. But not long enough. While global efforts to tackle climate change are increasing, EMDCs are facing various setbacks. These include the shift to clean energy in supply and use, enhancing adaptation and resilience, addressing loss and damage, protection and restoration and ensuring a just transition. This backsliding is also borne out in numbers: Global clean energy investments reached an all-time high in 2023, but more than 90 percent of the increase took place in advanced economies and China. Low- and lower- middle income countries accounted for only 7 percent of clean energy spending in the previous year. Adaptation needs are estimated at around 10-18 times as much as current flows of international public adaptation finance, the IHLEG report says. Although EMDCs account for an estimated 90 percent of the investment opportunity in protecting and restoring nature from 2020-2030, 80 percent of the financing remains in developed economies. International public finance commitments for adaptation in EMDCs fell by 15 percent in 2021. The IHLEG report concludes: “There are important shortcomings from the perspective of EMDCs: climate finance is concentrated in developed economies and China, and in mitigation rather than adaptation. Private finance is insufficient. Climate finance is primarily delivered in the form of debt. And most financing remains in its country of origin.” Doing nothing costs a lot Despite a global increase in climate financing – mostly benefitting rich nations – the amounts are still far from what is needed and also what is spent on other purposes. According to the International Institute for Sustainable Development, an independent think tank, governments provided a record high

of over US$1.7 trillion in public money in 2022 to support fossil fuels, despite 91 percent of global CO2 emissions originating from fossils fuels. This amount dwarfed the US$1.27 trillion of global climate finance committed in 2021/22. In addition to raising more funds, it is also imperative to act faster. When the groundbreaking Stern Review on “The Economics of Climate Change” was published in 2006 it provided a first substantial estimate, suggesting that stabilizing greenhouse gases, if action were taken promptly, would cost 1 percent of global GDP. For lack of action that estimate today has more than doubled. In other words, the world has learned the hard way that the cost of inaction far outweighs the expense of mitigation. A new study by the International Institute for Applied Systems Analysis in Laxenburg, Austria, finds that if global warming continues to 3°C, global GDP will decrease by up to 10 percent – with the worst impacts in less developed countries. “When it comes to climate variability and extremes, it is crucial that we can understand and quantify their financial impacts and how those will change over time,” says co-author Jarmo Kikstra. “Our results suggest that climate change comes at a substantial cost to populations around the world.” The IHLEG report also warns against the “cost of inaction” and calls instead for a “comprehensive strategy to deliver bigger, better and faster climate finance.” One of the pillars of this approach are multilateral development banks. A G20- mandated Independent Expert Group calls for a tripling in sustainable annual lending levels by MDBs to US$390 billion by 2030.

T he OPEC Fund is taking on a growing role in the delivery of climate action. It adopted its first Climate Action Plan in 2022, setting ambitious targets of increasing climate finance to 25 percent by 2025 and 40 percent by 2030 of all new financing. The OPEC Fund also committed to seeking alignment with the goals of the Paris Agreement. The OPEC Fund’s approach focuses on three key areas: 1. Climate finance and energy mitigation, 2. Food security and climate adaptation, and 3. Nature-based solutions – in other words, the protection of ecosystems and biodiversity. In order to assess its delivery, the OPEC Fund introduced an annual accounting of its climate financing in 2021. It follows the methodology adopted by other multilateral development banks (MDB). This harmonization represents a major step forward towards joint efforts in response to climate change. In accordance with the practices of the Joint Report on MDB Climate Finance, the OPEC Fund publishes details of the climate finance measures for its approved portfolio (excluding trade finance) retrospectively from the previous year. The first annual Climate Finance Report, released at COP29 in Baku, provides a detailed overview. The OPEC

“When it comes to climate variability and extremes, it is crucial that we can understand and quantify their financial impacts and how those will change over time.”

Jarmo Kikstr, International Institute for Applied Systems Analysis

SPECIAL FEATURE

Total OPEC Fund climate finance in 2023 was US$515.4 million , accounting for 33.4 percent of the total portfolio

Fund and climate action

The climate (financing) is heating up

• The OPEC Fund’s level of climate financing has notably advanced in recent years. Comparing the baseline period of 2018-2021 to the year 2023, there has been a significant increase from 20 percent to 34 percent . • Adaptation finance increased from 5 percent to 17 percent , and mitigation finance increased from 15 percent to 18 percent. The contribution of the public sector to the OPEC Fund’s climate finance has averaged around 70 percent over the baseline period, primarily driven by energy and multisectoral projects. Climate finance in the private sector accounted for approximately 30 percent , led by the energy sector, with additional contributions from banking and finance as well as multisectoral (financial intermediaries) projects.

Photo: UN women/ JoeSaad

• When the OPEC Fund adopted its Climate Action Plan in 2022 the institution emphasized “the pivotal role that climate finance plays in shaping a resilient and equitable future.” Two years on, delivery is well on track. But given the size of the task this can only be seen as encouragement to redouble all efforts. • Total OPEC Fund climate finance in 2023 was US$515.4 million , accounting for 33.4 percent of the total portfolio, well ahead of the 25 percent target for 2025. Of that total, adaptation finance amounted to US$146.6 million (9.5 percent of total OPEC Fund financing), while mitigation finance amounted to US$368.8 million (23.9 percent).

• When calculating its climate reach the OPEC Fund first

analyzed the period 2018-2021. The overall portfolio included 134 projects with total OPEC Fund funding of US$4.13 billion . Of this portfolio, 57 projects (42 percent of the total number of investments) addressed climate finance: 23 projects (17 percent) were dedicated to adaptation finance, 19 projects (14 percent) to mitigation finance and 15 projects (11 percent) were a mix. Total OPEC Fund climate finance for the period was US$826 million, accounting for 20 percent of the total portfolio.

Photo: Swimsol

• The analysis of OPEC Fund climate finance in 2023 was based on net project approvals for 2022 (year of approval), excluding trade finance projects. The analyzed portfolio included 37 projects with total OPEC Fund financing of US$1.54 billion . Out of these 37 projects, 25 (67.6 percent of the total number of investments) addressed climate finance, 5 projects (13.5 percent) involved climate change adaptation finance, 10 projects (27 percent) involved climate change mitigation finance and 10 projects (27 percent) were a mix of both.

Photo: Henrique ferrera/ Shutterstock

THE OPEC FUND’S RESPONSE

The OPEC Fund and climate action: Project examples across the globe Delivering real impact working across Africa, Asia and Latin America & the Caribbean

PANAMA Support Program for the National Climate Change Policy Total project cost US$440 million OPEC Fund contribution US$120 million policy-based loan Goals 1. Implement low-carbon

development strategy and national energy transition agenda. 2. Promote clean and renewable energy generation. 3. Increase climate resilience to extreme weather conditions and development of effective water management. 4. Promote low-carbon electric transportation systems. OPEC Fund climate finance Of the total loan, 58.33 percent are dedicated to adaptation finance and 41.67 percent are mitigation finance.

COLOMBIA Climate Action and Energy Transition Program Total project cost US$1.4 billion OPEC Fund contribution US$150 million policy-based loan Goals 1. Strengthen government’s capacity to plan, manage and finance climate action. 2. Foster economic opportunities based on sustainable use of natural resources and development of circular economy models. 3. Promote the energy transition. OPEC Fund climate finance Of the total loan 73.17 percent are dedicated to climate finance, of which 29.27 percent are adaptation finance and 43.9 percent are mitigation finance.

SENEGAL Water Valorization for Value Chain Development Project

Total project cost US$136 million OPEC Fund contribution US$20 million policy-based loan Goals 1. Develop climate-smart agriculture and promote value chains in promising sectors. 2. Open up production areas, reduce production costs through use of new technologies, build capacity of stakeholders, create rural entrepreneurship opportunities for young people. 3. Protect the environment.

OPEC Fund climate finance Of the total loan, 20 percent are dedicated to adaptation finance and 40 percent are mitigation finance.

SPECIAL FEATURE

ARMENIA Green Inclusive and Sustainable Development Program

AZERBAIJAN ACWA Wind Power

Total project cost US$347 million

Total project cost US$153.61 million

OPEC Fund contribution US$50 million term loan Goals 1. Co-finance the construction and operation of the 240 MW Absheron-Khizi Wind Power Plant. 2. Generate up to 893 gigawatt hours (GWh) of clean electricity annually while reducing carbon emissions by more than 400,000 tons per year. OPEC Fund climate finance 100 percent are climate mitigation finance

OPEC Fund contribution €50 million policy-based loan Goals 1. Improve climate resilience and reducing environmental impacts.

2. Enhance equity and human capital development. 3. Improve public sector governance and efficiency. OPEC Fund climate finance

Of the total loan 43.75 percent are dedicated to climate finance of which 15.63 percent are adaptation finance and 28.13 percent are mitigation finance

UZBEKISTAN ACWA Wind Power

Total project cost US$656.57 million for ACWA Power Dzhankeldy and US$688.41 million for ACWA Power Bash OPEC Fund contribution A US$20 million senior loan to each Goals 1. Construct and operate the 500 MW Dzhankeldy wind farm and the 500 MW Bash wind power plant in Uzbekistan. 2. Boost renewable energy generation capacity while reducing GHG emissions and diversifying the energy mix. OPEC Fund climate finance Of the total loan, 100 percent are dedicated to mitigation finance.

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BURUNDI Agricultural Production Intensification & Vulnerability Reduction Project Total project cost US$68.26 million OPEC Fund contribution US$20 million sovereign loan Goals 1. Intensify agricultural production. 2. Improve access to markets. 3. Improve productivity and nutritional situation of households. 4. Ensure greater resilience of

MALDIVES Outer Islands Harbors, Water Supply and Sewerage Facilities Total project cost US$65.25 million OPEC Fund contribution US$50 million sovereign loan Goals 1. Improve living conditions for 20,000 people living on 13 outer islands of the Maldives by

providing sustainable access to safe water and sanitation services. This includes physical works on water supply networks and sewage systems. OPEC Fund climate finance Of the total loan 51.2 percent are adaptation finance.

small farmers to external shocks, especially climate- related. OPEC Fund climate finance Of the total loan 29 percent are dedicated to adaptation finance.

Photo: Mohammed Shanoon/OPEC Fund

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