As world leaders gather in Glasgow, Scotland for 26th UN climate conference (COP26), there are many expectations regarding financing mechanisms aimed to mitigate climate change and build resilience to its effects.

The New Times looked at three climate finance concepts that need urgent action during negotiations at the conference that started Monday, November 1 and will run up to 12th.

Unmet $100 billion target

According to Faustin Munyazikwiye, the Deputy Director General of Rwanda Environment Management Authority (REMA) who is among government’s negotiators at the conference, developed countries under the Paris Agreement pledged $100 billion annually to help developing countries including Rwanda build resilience to climate change effects.

However so far the target falls short of $20 billion.

Only $79.6 billion was made available in 2019, the latest year for which data is available, before the Covid-19 pandemic hit the world.

Of the overall amount, 25 percent went to adaptation and 64 percent went to climate mitigation.

Asia has been the main beneficiary of the financing between 2016 and 2019, taking 43 percent of the total, followed by Africa and the Americas.

The contributions from industrialised countries include loans and grants, plus private investments which public bodies helped mobilise.

"From the conference, these countries must show a clear plan to meet this target,” he said.

According to a report by the Organisation for Economic Co-operation and Development (OECD)-an intergovernmental body made up mostly of rich countries, the $100 billion climate finance commitment won't be met until 2023.

It is suggested that the goal could be met and exceeded from 2023 with up to $117bn expected to be delivered in 2025.

Carbon market rules

"We also expect guidelines that govern the carbon market at COP26,” Munyazikwiye said.

Article 6 of the Paris Agreement recognises the potential of international carbon markets to achieve emission reductions in a cost efficient way and to spur private sector investment.

Several countries intend to use the carbon market to help them meet their 2030 climate targets.

The market would allow ‘nations to finance carbon-cutting projects in other countries and count the avoided emissions towards their own climate targets.’

For instance, states or individuals with enough forests that reduce a certain quantity of carbon emissions would be paid for that work by the other country or company that emits gases and this will also be considered to have reduced emissions as they buy emissions.

But without robust accounting rules, experts say, it has the potential to undermine the Glasgow summit’s key objective: to keep 1.5C – the most ambitious goal of the Paris Agreement – within reach.

However, the Paris Agreement does not contain detailed rules regarding the operation of these carbon pricing mechanisms.

Rules for a new global carbon market are set to be finalized at COP26 because the work was not finished during C0P25 that was held in 2019.

Article 6 contains three carbon pricing mechanisms, two of which are market-based.

One carbon pricing mechanism is ‘voluntary bilateral arrangements mechanism’ where State Parties can reach bilateral agreements, pursuant to which emission reductions achieved in a Country A could be transferred to a Country B.

The other mechanism is ‘an international carbon market mechanism’ which is the 'Sustainable Development Mechanism', which would be supervised by a body designated by the Conference of the Parties.

Under this mechanism both States and private actors would be able to trade emissions reductions.

The Paris Agreement does not provide any details regarding the proposed form or operation of such a carbon market.

This will be agreed by the Parties in the rules and modalities to be adopted.

 It is likely that the Parties will aim to ensure that standardised procedures are adopted in the design, implementation and verification of emission reduction activities.

‘Non-market-based approach’ is not based on a market mechanism, but would instead be designed to cover other forms of assistance which would target "mitigation, adaptation, finance, technology transfer and capacity-building".  

This may include cooperation on climate policy, fiscal measures (such as a carbon price) or similar activities to those under Articles 6.2 and 6.4 but without trading.

The 'rulebook' for the carbon pricing mechanisms will determine how this non-market-based approach will operate in practice and how it will interface with the market based approaches.

As of September 2021, there are 64 carbon pricing initiatives in place around the world. 

Around 120 countries have included the use of carbon markets in their nationally determined contribution (NDC). This represents about a third of global emissions, according to a tracker developed by the World Resources Institute (WRI).

Loss and damage debate

During COP26, Munyazikwiye said that negotiators want developed countries to compensate for damages caused by climate change in poor countries by 2025 under a framework dubbed "Loss and Damage”.

The compensation policy is founded on the fact that developed countries have contributed highly to the causes of climate change and therefore should compensate poor countries.

 The Warsaw International Mechanism for Loss and Damage associated with Climate Change Impacts was established at the COP19 UN climate conference in November 2013 to address losses and damage in developing countries.

The mechanism’s role was recognized in 2015 in Article 8 of the Paris Agreement and was reviewed in 2019 at COP25, during which developing countries demanded that it be enhanced and strengthened, to include additional finance from developed countries.

 However, consensus was not reached on developed countries’ obligations.