COP29’s new financing goal of $300 billion each year by 2035 will funnel crucial funds toward accelerating developing nations’ climate action. The next step is to increase that figure between now and COP30 next year to $1.3 trillion annually. This is the main goal set out in the Baku to Belém Roadmap.
While the increased financing goal, which marked a tripling of the one set at COP15 in Copenhagen, is encouraging, there is still much work to be done to unlock the newly announced finance and deliver tangible outcomes for Southeast Asian nations.
It is important to acknowledge the “chicken-and-egg” dilemma that the region, along with many other developing economies, is facing.
The implementation and progress of the Just Energy Transition Partnerships in Indonesia and Vietnam have revealed that lower-middle-income countries in Southeast Asia expect international donors to give more money in grants before taking further steps to accelerate climate action. They are primarily concerned about whether accelerating decarbonization will lead to significant debt and create trade-offs with other important priorities, such as health and education.
Meanwhile, international donors want to see lower-middle-income countries implementing meaningful climate and emissions reduction policies before committing to additional funding. At the same time, the private sector demands concessional financing to de-risk investments and reduce capital costs while also calling for clear, ambitious climate policies.
This has produced a climate finance stalemate.
The final COP29 texts are worded carefully, referring to financing from diverse sources, tied to ambitious actions in developing countries. Diverse sources could mean private funding or funding from multilaterals. These normally come in the form of concessional loans, but to level the development playing field, many at COP29 were hoping for debt-free money. The current global conditions make it increasingly difficult for developed countries to commit to this.
The world is in the midst of a global economic downturn. Overseas development assistance is expected to stagnate, as it is typically linked to a percentage of donors’ Gross National Income. The World Bank’s latest Global Economic Prospects report forecasts global growth slowing to 2.4 percent in 2024, with only a slight recovery to 2.7 percent in 2025.
In 2024, 64 countries and the European Union – representing nearly half of the global population – have held or will hold elections. The results of these elections will have long-lasting effects on government spending priorities and international aid policies. Given the ongoing cost-of-living crisis, many new governments may prioritize domestic needs over international commitments.
Against this backdrop, international donors and Southeast Asian governments will need to consider how and where grants can be prioritized and used to catalyze large-scale private sector investment. On the ground at COP29 in Baku, I got an insight into the key trends pertinent to the region’s energy and economic future, which could act as levers for increasing private investment.
First, there was a strong consensus that there is no transition without investment in transmission. Upgrading national power transmission grids while at the same time establishing green energy corridors is essential for facilitating energy transitions and sustainable development. Many existing and planned interconnection projects under the ASEAN Power Grid initiative aim to increase the share of renewable and low-emission energy in regional grids. ASEAN’s energy corridor holds great potential, with expansion plans even reaching as far as Australia. Earlier this year, the SunCable project received conditional approval from Singapore’s Energy Market Authority to supply up to 1.75GW of renewable electricity from Australia’s Northern Territory as part of the Australia-Asia PowerLink.
Second, COP29 highlighted the importance of green energy zones and hubs. These zones are crucial for improving the efficiency of renewable energy generation, reducing reliance on fossil fuels, and minimizing environmental impacts. Southeast Asia boasts around 1,000 existing industrial zones, many of which are vital to the region’s manufacturing sectors. Transforming these zones into net-zero industrial precincts and expanding green industrial clusters could accelerate the shift toward sustainable manufacturing.
However, this progress cannot be achieved without addressing the “green premium.” For example, to transition countries like Indonesia away from coal-based nickel production, the world must be willing to pay a premium for greener alternatives. Market forces will naturally favor cheaper energy products unless incentives are created for more sustainable options.
As Indonesia’s Deputy Coordinating Minister for Infrastructure and Transportation Rachmat Kaimuddin noted in an interview with BloombergNEF last year, grants could play a crucial role in enabling market demand to shift and make green projects economically viable.
The COP29 finance text also encourages other countries beyond the list of developing countries to contribute voluntarily, including through “South-South cooperation,” a term referring to development cooperation between Global South countries.
China and South Korea, key players in Southeast Asia’s development landscape, are also uniquely positioned to increase climate financing in the region. Both countries have strong bilateral ties with Southeast Asia, with South Korea in 2022 being the fourteenth-largest donor among the OECD Development Assistance Committee. Prior to committing to phase out coal investments, both were major investors in fossil fuel projects in the region.
Singapore has also positioned itself as a leader in facilitating climate finance in the region. At COP29, the Singapore government committed up to $500 million in concessional funding to support the Financing Asia’s Transition Partnership, which was launched by the Monetary Authority of Singapore last year.
COP29 once again highlighted that it’s not just who pays and how much that’s important; it’s also the kind of finance that’s crucial. While waiting for progress leading up to COP30 and for developed countries to commit to more finance in terms of grants, Southeast Asia’s successful transition will hinge on the effectiveness of existing grant pools in catalyzing large-scale private investment to turn ambitious targets into tangible climate outcomes.