A break in the clouds: What COP29 got right and why it matters

By Sharad Somani, Partner, Head of ESG Consulting, KPMG in Singapore

The recently concluded 2024 UN Climate Change Conference (COP29) in Azerbaijan deserves recognition for many positive developments that should deliver global benefits and set the stage for more robust agreements in the coming years. It was notable in that it demonstrated the convergence of three major trends: the availability of finance across countries and projects; regulatory imperatives driven by key markets; and technological innovations in renewable energy, storage technologies and carbon capture. This has set the stage to fast-track the climate agenda in developed and developing markets alike and has important implications for Singapore’s role in helping solve the climate challenge.

Importantly, the summit lived up to its description as a “Finance COP”. Under the New Collective Quantified Goal (NCQG) agreement, the tripling of public finance to developing economies from US$100 billion annually to US$300 billion by 2035 is a critical first step towards addressing the climate challenge. The finalisation of Article 6 of the Paris Agreement, which is designed to facilitate a global carbon market for countries and companies, is expected to generate an additional US$250 billion annually of climate finance. And the operationalisation of the US$730 million loss and damage fund will unlock significant capital for communities, indigenous peoples, and vulnerable groups across developing countries.

While the debate around the headline US$300 billion number is understandable – developing nations need much more, and more quickly – the focus should be on the quality of funding, the successful deployment of these funds, and the ability to channelise this capital towards climate innovation, catalysing investments and supporting marginal technologies. This catalytic capital, deployed effectively, could attract more investors, thereby helping meet the commitment to scale up finance to a total of US$1.3 trillion through public and private participation.

Indeed, NCQG’s value lies in its ability to attract more funds for the right projects – including from businesses. A market mechanism that can effectively match projects with technology and financing would be crucial to developing a strong, successful and sustainable pipeline of mitigation and adaptation projects. Successful use cases that can be easily replicated at commercial scale across countries will in turn catalyse more funding. 

Another milestone was the agreement to implement a centralised global carbon programme that provides a one-stop shop for eligible carbon credits that countries can use to offset greenhouse gas emissions. This deal, whose guidelines, rules and frameworks have taken a decade to finalise, will bring much-needed transparency and integrity to the process of trading carbon credits, and should boost demand for them.

COP29 also saw 150 countries pledge to collectively deploy 1,500 gigawatts of energy storage by 2030, six times the level of 2022, put grid expansion at the heart of a decarbonised energy system, and scale the production and use of clean hydrogen.

Action to combat methane emissions, a super pollutant that has 28 times greater global warming potential than carbon dioxide, was also noteworthy, as was the declaration to use digital tools like artificial intelligence (AI) to cut emissions and optimise energy consumption. There was also a greater focus on adaptation measures, and a commitment by multilateral development banks (MDBs) to contribute as much as US$170 billion of funding annually by 2030.

Closer to home, Singapore announced a US$500 million commitment to match funding one-to-one with other organisations, thereby mobilising US$1 billion of concession capital, which in turn can attract an additional US$4 billion of commercial capital to drive the energy transition agenda in Asia. Given the strong financial ecosystem in Singapore and its ability to match capital with projects, this could potentially offer a big leg-up to decarbonisation projects across industries. Here, three COP29 developments have particular relevance.

The first relates to the energy transition away from fossil fuels: increased funding for this could see large sums funneled to the region, potentially through Singapore. The second relates to the agreement to improve energy storage, grid expansion and the use of clean hydrogen. Singapore is already a testbed for clean hydrogen and expanding ASEAN’s power grids, and its expertise could see decarbonisation become an important economic pillar, potentially contributing up to 10 percent of Singapore’s gross domestic product within the next two decades. 

The third is the advent of global carbon trading, which gives Singapore – with its strong governance, financial ecosystem and location as a base for many multinationals – the chance to become a carbon trading hub. The global carbon trading market is expected to be worth US$1 trillion by 2050, and Singapore could expect to attract a reasonable share of these transactions.

While COP29 was, understandably, unable to address the financing gap issue or take bolder steps like mainstreaming small modular reactors as part of energy sector decarbonisation, the summit deserves recognition for many positive developments. It also underlined the fact that we now need an all-hands-on-deck approach to solve the common problem facing humanity.

While we may demur at the quantum of funding pledged at COP29 or areas of divergence between the global north and global south, we need to focus on next steps. The funding, when effectively deployed, will attract more capital. Success begets success: we are on the cusp of unlocking the necessary climate financing needed to create a meaningful impact.

In that, from policy and use cases to catalysing financing, Singapore has an important role to play.