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COP29 has earned the nickname “finance COP” for its discussion on regulations, investment, and ways to finance the green transition, especially for small and medium-sized enterprises (SMEs) and developing countries. 

The goal of this year’s COP was to approve a New Collective Quantified Goal (NCQG), defining the amount and terms of the financial support rich countries were to give to developing nations to meet their climate goals. However, negotiations faltered. On Sunday 24 November, it was agreed that developed economies would pay developing countries $300 billion a year by 2035 to help insulate themselves from and adapt to climate change.

This has been heavily criticised by the ‘least developed countries’ (LDCs) group, who walked out of discussions along with the Alliance of Small Island States (AOSIS), not only for its amount but also for its last-minute announcement agreed yesterday in overtime.

Beyond the main negotiations, however, some progress has been made. The newest versions of countries’ Nationally Determined Contributions (NDCs) set ambitious goals for emissions reduction and universal standards for carbon credits; the NDC 3.0 guidelines put small businesses front and centre in national climate finance strategies; and efforts to put climate tariffs on the agenda drew attention to the controversial issue. These could all be consequential to the world of trade and trade finance, putting sustainability at the forefront while raising the issue of the compromise between free trade and the climate.

Ambitious climate targets, and concrete ways to reach them

COP29 saw nations publish new and ambitious climate goals, with the UK announcing a new target of reducing emissions by 81% compared to 1990 levels by 2030 and being the first developed country with a decarbonised power system by 2030. While NDCs by the UAE and Brazil fell short of expectations, notably missing a commitment to phase out fossil fuels, there are high hopes that other developed countries will emerge as frontrunners in the fight against climate change.

As well as the NDCs themselves, COP29 saw the announcement of the NDC 3.0 Guidelines, a set of policy recommendations to help countries include small and medium enterprises in their climate strategies. SMEs are responsible for 64% of global business emissions but often miss out from climate programs because of a lack of information, excessive bureaucracy, or difficulty accessing funding. The Guidelines play a crucial role in involving SMEs in the fight against climate change, accelerating the climate transition while leading to sustainable, equitable economic growth. 

SMEs, which will be at the centre of next year’s COP30 in Brazil, also saw a landmark declaration by Azerbaijan, Brazil, and the International Trade Centre, the UN’s trade agency. The Joint Declaration on Baku Climate Coalition for SMEs Green Transition, signed last week, aims to help small businesses understand and adapt to climate regulation, paving the way for COP30’s focus on the sector. 

A consensus on carbon credits

COP29 opened with an agreement on standards for the creation of carbon credits, and tradeable permits tied to greenhouse gas emissions used by governments to measure and limit emissions. 

The agreement, announced on the first day of the conference, sets out clear standards and regulations for carbon credits, enabling global cross-border trade. Under the new system, a unified standard would define a carbon credit and determine its value; the credits would be traded on a single market under UN supervision. 

If finalised, this could have a great impact on global trade and finance. Universally tradeable credits could mean, for example, that a small Gulf nation can set ambitious climate targets and meet them by effectively financing a carbon sink on the other side of the world through carbon credits; individual companies can respect climate goals without inhibiting growth under the new system, and emissions reporting at every level would be much easier and more accurate. 

Carbon credits, then, could lead to a significant increase in climate project-related cross border trade and foreign direct investment, as well as more corporate accountability and transparency on emissions. 

Climate tariffs: a contradiction in terms? 

A more contentious topic this year was trade restrictions, with developing countries accusing the West of setting climate-linked border taxes that are so restrictive they effectively amount to protectionism. Measures such as the Carbon Border Adjustment Mechanism (CBAM), introduced by the EU in 2023 and recently announced to be a key part of the UK’s climate strategy, impose tariffs on foreign goods that have been produced through carbon-intensive methods. 

The taxes are intended to reduce carbon leakage, which occurs when climate guidelines lead to carbon-intensive goods being imported from abroad, effectively localising rather than reducing emissions; by applying domestic regulations to imports, the CBAM should reduce overall emissions and ensure fairer competition. Critics, especially from developing economies which export to Western Europe, say unilateral measures like the CBAM unfairly target their products and impose unreasonable, overly complicated reporting standards. 

A similar EU measure set to ban imports of commodities linked to deforestation set to go into effect in 2025 was postponed earlier this month after complaints from within and outside the bloc. The ban, which would have affected imports of soy, beef, cocoa, and palm oil, among others, was criticised for excluding small farmers who rely on exporting to the EU and imposing unreasonably strict standards on firms. 

These discussions on climate-linked border controls are representative of the tension between promoting trade and economic development while also reducing emissions and preventing climate collapse, a common theme at this year’s conference.

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Overall, COP29 shows the international community’s commitment to both goals and gave rise to important steps to include every player, especially SMEs, in the climate transition. What was lacking was a set of binding rules on climate finance and trade, which could have accelerated the climate transition and encouraged businesses to take green finance more seriously.

Geopolitically, it is essential to keep countries united on climate. The argument between rich and poor countries on topics as sensitive as funding left a bitter taste and a murky future outlook, particularly with President Donald Trump’s arrival next year, a known climate sceptic.

COP30, which will be held next year at the border of the Amazon rainforest, could be an opportunity to strengthen the commitments to SMEs and carbon credit reporting standards while making real progress on achieving the goals set out in the Paris Agreement.