Economic evidence to support effective climate policy at COP29

As COP29 approaches, development economics can provide useful tools and insights to help tackle climate change.

Low- and middle-income countries are particularly vulnerable to the rising threats created by climate change. Poor countries have experienced a rise in climate-related disasters that may push millions into poverty and lead to large-scale forcible displacement (Jafino et al. 2020, UNHCR 2023). Climate change also poses serious risks to health, food security and water scarcity (WHO 2023, World Bank 2022).

COP29 starts on November 11th in Baku, Azerbaijan. Decisions made at COP hold significant importance for LMICs given the scale and multi-dimensionality of the climate challenge and their relative contribution to total and historical emissions relative to rich countries (Ritchie 2023).

Figure 1

Source: Global Carbon Budget (2023); Population based on various sources (2023) – with major processing by Our World in Data

VoxDev has featured a wide range of research that explores environmental economics, the impacts of climate change on LMICs, and how individuals, communities, NGOs and governments are adapting to these threats. Often this work focuses on micro-level interventions or studies a particular climate event, whilst COP is primarily about national and global commitments. This blog draws a link between COP29’s high-level agenda and VoxDev’s resources.

A great place to start is our VoxDevTalks on environmental economics and policy in low- and middle-income countries. Robin Burgess and Kelsey Jack document the specific challenges faced by low- and middle-income countries with regards to climate change and what this means for economic research.

What is climate finance?

To help simplify the blog, it’s worth defining some of the basic initiatives and terms related to COP and the climate funding landscape.

Climate finance refers to local, national or transnational financing that can be funded from public, private or alternative sources to support mitigation and adaptation (UNFCC n.d.). As part of the UNs Framework Convention on Climate Change in 1994 the onus was placed on developed countries to lead the way on climate action, in recognition of their contribution to historical and current greenhouse gases and the vulnerability of many developing countries, including through the provision of financial assistance and support to developing countries (UNFCC n.d.). Subsequent agreements such as the Kyoto Protocol and the Paris Agreement continue to call for the transfer of resources from developed to developing countries to support climate mitigation and adaptation. The Paris Agreement, adopted in 2015, is an international treaty on climate change which is legally binding and whose main goal is to limit global average temperatures to a maximum of 2°C above pre-industrial levels. It operates on a "ratcheting-up" system, where every five years, countries submit increasingly ambitious climate action goals (UNFCC n.d.).

Key outcomes from COP28

The last COP, COP28 was held in Dubai, UAE at the end of 2023. Key outcomes of COP28 included:

Global Stocktake: the first stocktake of progress against the Paris Agreement was taken. It found countries were off target to limit temperatures rising to 1.5°C and that adaptation is not at the levels needed (UNFCC 2024).
Loss and Damage Fund: the fund, whose mandate includes ‘a focus on addressing loss and damage to assist developing countries’, was adopted. As of September 2024, a total of US$702 million has been pledged (UNFCC n.d.).

What is the focus of COP29?

COP29, has been coined ‘finance COP’ given the agenda’s focus on two important finance goals:

New Collective Quantified Goal (NCQG): a target to support developing countries post-2025. At COP15, in 2009, developed countries collectively agreed to mobilise $100 billion per year by 2020 to support developing countries in climate actions (and then extended to 2025). This goal was only reached for the first time in 2022 (OECD 2024). Deliberations on the NCQG have been in progress since 2015 and are set to be concluded at COP29 (UNCTAD 2024).
Nationally Defined Contributions (NDCs): central to the Paris Agreement they ‘embody efforts by each country to reduce national emissions and adapt to the impact of climate change’ (UNFCC n.d.). In February 2025, countries will have to announce their new Nationally Defined Contributions (NDCs) to cover the period up to 2035. As a result, COP29 will be an important forum for their formulation.

To hear from someone who has researched how global climate agreements come about listen to Bard Harstad speak to Tim Phillips about their design and the key lessons from historical commitments.

What research in development economics can tell us about COP29’s agenda

1. New Collective Quantified Goal

At the top of this year’s agenda for COP29 is establishing the size and the details of a New Collective Quantified Goal (NCQG) (UNFCC 2023). Evidence suggests that at least a four-fold increase in current annual investment levels are needed to support emerging markets and developing countries (IHLEG 2022, WEF 2024). The aims of the NCGQ include helping countries to adapt and supporting them in achieving ‘low greenhouse gas emission and climate resilient development’ (UNFCC 2023).

LMICs need sustained and significant support to achieve environmentally sustainable economic development. One example of how there can be a growth-environment trade-off is the building of large-scale infrastructure, that can have substantial economic benefits but can be environmentally costly; evidence of which can be seen across the world:

However, a growing body of research has demonstrated that the environment and the economy are not always in conflict. Evidence on VoxDev, among other things, has shown the negative impacts of pollution on productivity and that environmentally friendly investments can also have economic benefits:

2. Adaptation

A key element of the NCQG is supporting countries in their adaptation strategies. COP28 made progress on the global goal for adaptation, which was mandated in the Paris Agreement, but details of the plan remain elusive. Adaptation finance needs of developing countries have been estimated to be around 10-18 times as big as international public finance flows (UNEP 2023). As new funding is directed to LMICs, understanding which policies are most effective at helping individuals and firms adapt is critical. In our VoxDevLit on Climate Adaptation, Namrata Kala reviews the evidence on the effectiveness and efficiency of various climate change adaptation strategies, including:

Managing climate risk through financial products such as weather insurance for farmers and credit interventions for non-agricultural firms.
Building resilience through technology adoption, innovation and improved practices (e.g. improved seed varieties, irrigation pumps or air conditioning adoption) including the role of information interventions at raising technology adoption.
Impacts of government policies including large-scale infrastructure projects or social protection policies.

Earlier this year BRAC’s Executive Director Asif Saleh discussed the need for a holistic approach to respond to the climate crisis - adaptation on the frontline of climate change.

3. Nationally Defined Contributions

NDCs will outline each country’s target climate change commitments and will be informed by COP28’s Global Stocktake. The longer countries remain off path the more detrimental the impacts:

4. Loss and Damage Fund

There is a large gap between how much has been pledged to the fund (around $700 million so far) and estimates of damages to developing countries (e.g. Markandya and González-Eguino (2019) estimate residual damages may reach $580 billion by 2030). As a result, COP29 is likely to see calls for larger commitments and the actual operationalisation of the fund. The Loss and Damage Fund has been particularly contentious given that it is providing funding not just for climate mitigation and adaptation but rather for the direct losses and damages caused by climate change (Nishi 2022). Tamma Carleton and Reed Walker lead an insightful conversation about the inequality of environmental damage on this VoxDevTalks and highlight the need for accurate estimates of local damage.

Figure 2

Source: Global Carbon Budget (2023) – with major processing by Our World in Data

5. Article 6 of the Paris Agreement

Article 6 of the Paris Agreement outlines how countries can engage in voluntary cooperation to achieve their climate goals (UNFCC n.d.). This includes mechanisms that allow countries to transfer carbon credits to other countries to help them meet their climate targets and establishes a framework for an international carbon market for the trading of emission reductions (Carbon Brief 2019). Discussions at COP29 will play an important part in attempting to operationalise Article 6. Any decisions made will also have important implications for voluntary carbon markets (Oxford Institute for Energy Studies 2022). There is now a growing body of research from many LMICs about voluntary carbon markets and Payments for Ecosystem Services, including their design and implementation, their effectiveness at emission reduction and addressing concerns of additionality and leakages:

For further discussions on voluntary carbon markets and to hear what three leading development economists are expecting from COP29, listen to our first Development Dialogues Episode in collaboration with Yale’s Economic Growth Centre.

6. Biodiversity

As COP29 begins it marks the conclusion of the 2024 United Nations Biodiversity Conference. Biodiversity is declining faster than at any time in human history (Dasgupta 2021) and this has significant economic and human costs due to our dependence on and relationship with nature (WEF 2020):

For more on biodiversity and conservation we have a VoxDevTalks episode on the economics of conservation in low- and middle-income countries. This podcast is part of our VoxDevTalks series in collaboration with BREAD and IGC covering their PhD course on environmental economics, you can find all nine podcasts on Environmental Economics here.

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