Top 4 areas for in-house legal to watch at COP29

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Top 4 areas for in-house legal to watch at COP29

Top 4 areas for in-house legal to watch at COP29

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November 12, 2024

This year’s Conference of the Parties (COP) to the UN Framework Convention on Climate Change (UNFCCC) is being referred to as the 'Finance COP’. It kicks off this week in Baku, Azerbaijan and runs until 22 November. Our ESG team explores the key issues that in-house legal teams need to know about what is being discussed at the Conference.

Negotiating a New Collective Quantified Finance Goal

Parties will aim to negotiate a "New Collective Quantified Finance Goal" (NCQG), representing the first new NCQG since 2009. The NCQG is a key element of the Paris Agreement and specifically aims to set a new financial target for supporting developing countries in their climate actions¹. Back in 2009, parties agreed to set a $100 billion per year target for supporting developing countries with transition away from hydrocarbons and implementation of clean energy solutions. This goal was met for the first time in 2022, two years after the deadline. As part of the Paris Agreement in 2015, a new NCQG was envisaged, to be adopted at COP29 in Baku. There is still a long way to go to reach agreement – on a headline figure, on who should contribute, and the relevant time frame for the NCQG². India³ and Saudi Arabia⁴ (on behalf of the Arab Group) have both called for the NCQG to be over $1 trillion per year.

Another issue causing disagreement is that the responsibility for meeting the goal rests only with developed countries – which only includes the 24 then-members of the OECD in 1992 – and does not reflect changes to the world economy in the intervening 30 years. On the other hand, developing countries argue that the majority of the finance made available under the first NCQG was not 'high-quality' finance – instead it was either costly loans, or questionable funding targets⁵. Finally, the 2009 NCQG had no accountability or transparency measures built in – they had to be added at COP26 in 2021. It is worth watching whether such transparency measures will be included immediately this time round.

Progress on operationalizing the rules for carbon market trading

Article 6 of the Paris Agreement in 2015 set out principles for international carbon trading markets. At COP26, the parties agreed rules and a framework for the system. However, the framework required further co-operation between the parties on how to operationalize the rules. At COP28, the parties failed to complete negotiations on these points and pushed out discussion to Baku. Article 6 has two pillars – enabling bilateral trading of emissions between high emitting countries and lower-emitting countries under Article 6.2, and a multilateral trading system which all countries could participate in under Article 6.4. Some countries are already trading credits under Article 6.2 and some campaign groups have highlighted the risks of greenwashing due to the lack of full rules being in place⁶. Currently, there is no formal agreement on either route, and key challenges that are still outstanding include precisely defining carbon credits, the level of transparency required for transactions, and deciding between a central carbon credit registry or utilising existing or national carbon credit registries⁷.

Given the geopolitical environment, watch out for new Nationally Defined Contributions announcements

Under the Paris Agreement, countries agreed to set out their climate commitments, known as Nationally Defined Contributions (NDCs). NDCs are set every five years and are due to be updated in early 2025⁸. It is expected that some countries will use COP29 as an opportunity to set out their updated NDCs, which will define emissions reductions targets up to 2030, or in some cases 2035. For example, the UK is among the countries yet to announce their updated NDC target, although the Energy Secretary has written to the Climate Change Committee requesting advice on what it would suggest as a suitable target. The Climate Change Committee recommended an 81% cut in carbon emissions by 2035 (with some exceptions)⁹. Given the recent US election and the impending change in government, it will also be important to monitor how the Trump administration approaches its international obligations under the Paris Agreement, and the overall level of engagement from the Biden administration.

Increasing financial pledges to the Loss and Damage Fund for adapting to inevitable and existing climate impacts

In addition to measures to mitigate climate change, COP29 will also consider measures aimed at adapting to the inevitable and already existing impacts. At COP28, the parties agreed to operationalize the Loss and Damage Fund, designed to help vulnerable countries deal with the impacts of climate change. The Fund's Board is hosted in the Philippines and will be delivered by the World Bank¹⁰. $700 million was pledged last year, but various research estimates that the actual amount needed is hundreds of billions of dollars¹¹. At COP29, the parties will seek to increase financial pledges to the Fund, and to make progress on the establishment and operationalisation of the Fund¹². In addition to financial goals, countries will discuss adaptation strategies, such as the Global Goal on Adaptation put forward at COP28.

If you would like to discuss how any of these issues might affect your global organization, please get in touch. You can also explore more insights at www.dentons.com/esg