Billion-dollar climate fund unveiled to help vulnerable nations

BAKU: Azerbaijan has announced a $1bn fund to invest in climate action projects in the developing world, to help vulnerable nations build resilience to climate change risks, including floods and droughts.

This was announced as a prelude to the UN Climate Change Conference (COP29) – being held in November this year – by COP29 President-Designate Mukhtar Babayev at a news conference on Friday.

The Climate Finance Action Fund (CFAF) will be capitalised with contributions from fossil fuel-producing countries and companies across oil, gas and coal, and Azerbaijan will be a founding contributor, he said.

Members will commit to transfer annual contributions as a fixed-sum or based on volume of production.

COP29 host Azerbaijan founding contributor; CFAF to be funded by fossil fuel producing nations and companies

CFAF is one initiative within a package of 14 announced by Mr Babayev as part of the COP29 action agenda to enhance ambition and enable action.

CFAF will be a catalytic public-private partnership fund, mobilising the private sector and de-risking investment.

The fund will also contain special facilities with concessional and grant-based support to rapidly address the consequences of natural disasters in the developing countries in need, said Yalchin Rafiyev, who is the chief negotiator for COP29.

CFAF will provide off-take agreement guarantees for small and medium-sized renewable energy producers and first-loss capital for green industrial projects. The fund will also have a focus on the food and agriculture sector as a priority to protect livelihoods and achieve net zero. Profits generated from projects will be reinvested in the fund, Mr Rafiyev said.

CFAF will become operational at the conclusion of the initial fundraising round, which seeks to capitalise the fund with $1 billion, and when 10 contributing countries committed as shareholders.

Half the capital 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.

Meanwhile, 50 per cent of contributions will be allocated to helping meeting members’ the next generation of Nationally Determined Contributions (NDCs) to keep the 1.5C temperature target within reach.

“Azerbaijan has committed to leading by example, it is working to submit a 1.5-aligned NDC, and the COP29 Presidency is encouraging all parties to come forward with similar plans,” Mr Yalchin said.

Around 20pc of the revenues generated from investments will be deposited in a Rapid Response Funding Facility (2R2F) providing highly concessional and grant- based support.

This facility will offer immediately accessible funding to address the consequences of natural disasters in Small Island Developing States, Least Developed Countries, and to other vulnerable developing communities as needed.

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, he explained.

“Enabling action is an essential part of the COP29 agenda and we are committed to leading by example. I am grateful for the direction and support that I have received from the President of Azerbaijan Ilham Aliyev, that countries rich in natural resources should be at the forefront of those addressing climate change,” said Mr Mukhtar Babayev.

“We have heard that communities want action not words, and today by launching the Climate Finance Action Fund we are taking a significant step. We are calling on donors to join us so that we can fulfil the COP29 plan to enhance ambition and enable action.”

“This process of intergovernmental cooperation, and each year’s COP, is of vast significance. It is humanity’s best hope to avert the global climate crisis, and spread the huge benefits of decarbonization and climate resilience,” said UNFCCC Executive Secretary, Simon Stiell who spoke through video link.

COP29 Chief Negotiator Yalchin Rafiyev said that the decision to create a new fund and its initial size beside 13 other actions were finalized on the basis of engagements with UN agencies, major nations and other stakeholders in recent months.

Responding to a question, he said it was beyond the scope of COP29 to talk about imposing fines on major carbon emitting countries or other penalties.

Published in Dawn, July 20th, 2024