EU secures agreement on carbon market rules and new climate finance goal, with broader contributor base to drive clean investments, increase resilience and prepare the ground for further emission reductions

This article is brought to you in association with the European Commission.

At the COP29 UN Climate Change Conference in Baku, the European Commission and EU Member States took the lead in brokering a deal to align global financial flows with the objectives of the Paris Agreement. Through the adoption of a New Collective Quantified Goal (NCQG) for Climate Finance, the EU successfully broadened the global contributor base for climate finance. The NCQG provides for more countries to contribute finance, reflecting their growing emissions and economic weight. The agreement also gives a strengthened role to multilateral development banks (MDBs), maximising the leverage and impact of public funds by drawing in and mobilising significant private finance. Parties agreed that the combined funding from all these sources should reach at least $1.3 trillion per year by 2035.

Within this broader target is a commitment by developed countries to take the lead on mobilising $300 billion per year by 2035 for developing countries’ climate action. This core goal can be achieved through a wide range of sources, including finance mobilised by multilateral banks and, for the first time, contributions from other countries. This was a critical EU demand to ensure that other countries do their fair share in providing and mobilising funding, matching their financial capacity. There is no assigned share of this contribution for the EU or Member States, and decisions about how to meet these targets will lie with Member State Governments and the EU, through national budgets and the MFF.

The EU negotiating team also successfully finalised the rules that will bring greater environmental integrity, transparency and accountability to international carbon markets under Article 6 of the Paris Agreement. The crediting mechanism under Article 6.4 will set a new UN-backed standard for high-quality carbon offsets, and the new rules for recording and tracking of international transfers will bring transparency to bilateral carbon deals between Parties. This will enable a cost-effective reduction and removal of emissions.

During COP29 the EU joined a group of other ambitious countries in announcing its intention to present a 1.5C-aligned NDC next year, setting the bar for other countries. To drive forward the clean energy transition, the Commission and the Beyond Oil and Gas Alliance announced a partnership on the transition away from fossil fuels. The Commission also launched a new Methane Abatement Partnership Roadmap to further accelerate the reduction of methane emissions associated with fossil energy production and consumption, in collaboration with a number of partner countries, international organisations, NGOs and development banks. 

During COP29, the EU published its first ever Biennial Transparency Report (BTR), ahead of the end of year deadline. The submission of BTRs is a significant milestone in the implementation of the Paris Agreement, enhancing accountability and collaboration in the global fight against climate change, as outlined under the Enhanced Transparency Framework of the Paris Agreement.

Background

Under the 2015 Paris Agreement, 194 countries agreed to keep average global temperature change well below 2°C and as close as possible to 1.5°C by the end of the century. To do this, they agreed to submit Nationally Determined Contributions (NDCs) which represent their individual emissions reduction targets. The European Union is firmly committed to the Paris Agreement, and is a global leader in climate action, having already cut its greenhouse gas emissions by 37% since 1990, while growing its economy by almost 70%. The EU has already begun preparations for its new NDC with the publication of the Commission’s Communication on Europe’s 2040 climate target earlier this year. The Commission intends to present a legislative proposal to enshrine a 90% emission reduction target for 2040 in the European Climate Law. This target will subsequently inform the submission of the new EU NDC.

The EU is currently the largest provider of international climate finance, contributing €28.6 billion in public climate finance in 2023 and mobilising an additional amount of €7.2 billion of private finance to support developing countries to reduce their greenhouse gas emissions and adapt to the impacts of climate change.

With the European Green Deal presented in December 2019, the EU committed to reaching climate neutrality by 2050. This objective became legally binding with the adoption and entry into force of the European Climate Law, in July 2021. The Climate Law also sets an intermediate target of reducing net greenhouse gas emissions by at least 55% by 2030, compared to 1990 levels. This 2030 target was communicated to the UNFCCC in December 2020 as the EU’s NDC under the Paris Agreement. In 2021, the EU presented a package of legislative proposals to make its climate, energy, land use, transport and taxation policies fit for reducing net greenhouse gas emissions by at least 55% by 2030.