NCQG, HOW MUCH SHOULD THE US, CHINA AND ITALY CONTRIBUTE?
THE ANALYSIS BY ITALIAN CLIMATE NETWORK
- Considering historical responsibility and the current contributive capacity of the country, Italy should be able to mobilize between $14,5 and $22,6 billion per year in finance to countries in the Global South, almost twenty times more than current efforts
- The US should contribute for half of the NCQG, basically investing abroad the amount of the Inflation Reduction Act every year
- The withdrawal of the US from the Paris Agreement may significantly affect any assumptions about financial sharing of commitments among other developed countries
It is legitimate to wonder, in these days of negotiation and debate on the new global quantitative climate finance goal, what the contributions of the major countries under the NCQG should be. In Baku there is solid talk of a new global goal in the order of $1,000 to $1,300 billion mobilised annually in climate finance, through both public and private resources.
In an ideal world, how much should Italy contribute? How much the US, how much China? We tried to calculate it, although some preliminary considerations must be made.
Methodological and contextual caveats
First of all, in the context of UN climate negotiations, no country-specific targets can be imposed – unless the countries themselves self-impose them – in the absence of any sanctioning or monitoring regime at the multilateral level. Taking ten steps back, let us recall that there is not even a globally accepted definition of climate finance. Here, we will therefore limit ourselves to considering the financial flows mobilised, in a broad sense, outside national borders for transfers, loans or project financing in third countries falling under the UN category of developing countries and according to the 1992 distinction between Annex I countries (including Annex II) and non-Annex I countries, albeit largely outdated.
Second, in the context of the UN climate negotiations, the rule of Common but Differentiated Responsibilities and Respective Capacities (CBDR-RC) applies, which would commit countries to contribute according to their historical contribution, in terms of emissions, to the climate change problem. In practice, however, no COP has ever succeeded in imposing mandatory percentages of transfers, investments, reparations, and this is not even the mandate of COP29. The Paris Agreement itself is indeed based on a bottom-up approach, whereby common targets are set at the COP level and countries are then called upon to meet them collectively, cumulatively, through a coordinated effort of international cooperation.
Third and not least, we found it useful to conduct an additional calculation, parallel to the global one, on the hypothetical distribution of financial responsibilities among developed countries only (included in Annex II), currently the sole required contributors according to the UN Climate Convention and the Paris Agreement.
In our calculations, designed to help readers of the COP Bulletin get an idea of the size of the contribution of every country to the new Global Goal, we have considered both the historical responsibilities of countries in terms of CO2 emitted from the pre-industrial era to 2023 (excluding natural removals) and a due adjustment for Gross National Income (GNI) per capita also at 2023 data. In this way, the figure resulting from the product between the global target and historical emissions liabilities is ‘adjusted’ to take into account the country’s estimated ability to contribute.
We then worked on the options now on the table in Baku in the technical construction of the new target, without distinguishing here between public and private finance. The two main options are either a goal between $200 and $300 billion per year, as it seems could be proposed by the European Union (although the option could be discarded on the basis of the final text of the G20 in Rio), or a goal between $1000 and $1300 billion dollars per year, as proposed by China and the G77.
In closing, we have come up with three additional scenarios:
- in the first scenario, financial responsibilities are allocated internally within the group of Annex II countries with the addition of China to the list of obligated contributors (it is not relevant, for the purposes of this illustrative analysis, in what formal manner);
- in the second scenario, the current Annex II countries fill the financial gap resulting from a possible US withdrawal from the Paris Agreement;
- in the third scenario, China is included or added, in terms of financial responsibility, to Annex II in the absence of the United States.
How much should Italy contribute to climate finance?
According to a mere calculation of global historical emissions, Italy should be called upon to contribute between $3.0 and $4.5 billion per year to the new target under the 200-300 scenario rumored in Brussels, and between $14.8 and $19.2 billion per year under the more ambitious 1000-1300 target proposed by developing countries. Adjusting for GNI per capita, i.e. for estimated contributive capacity, would slightly ease the burden for Italy, bringing the contribution to a figure between $2.9 and $4.4 billion in the 200-300 option and between $14.5 and $18.9 billion dollars per year in the 1000-1300 option.
If, on the other hand, we narrow the field of donors to developed countries only, as in the previous financial target, and we consider only the historical responsibility with respect to the group of 2.9% for Italy, our country would have to contribute between $5.8 and $8.7 billion per year in the 200-300 option, and between $29.0 and $37.8 billion per year in the 1000-1300 option. Adjusting these estimates for the estimated ability to pay, Italy would instead have to contribute between $3.5 and $5.2 billion per year in the 200-300 option and between $17.4 and $22.6 billion per year in the 1000-1300 option.
To give an idea of the size in comparison to the current commitment, over the five-year period 2022-2026 Italy has pledged to contribute €4.4 billion to climate finance through the Italian Climate Fund (over five years), in addition to the €100 million pledged to the Losses and Damages Fund (a one-off); €300 million of the €4.4 billion over the five-year period goes to finance Italy’s contribution to the Green Climate Fund.
It is useful here to attempt a comparison with the amount that – applying the same methodology – the United States and China would have to commit to pay if the latter were to be included in the list of donors, in response to European pressure to broaden the list of contributors to the new large emitters with significant financial capacity.
How much should the US contribute?
The United States of America, the first country by cumulative emissions at the historical level, on a global level analysis should commit between $49.7 and $74.5 billion per year in the 200-300 option and between $248.3 and $322.8 billion per year in the 1000-1300 option.
The estimated adjustment for the ability to pay substantially raises the expected US contribution to between $102.5 and $153.7 billion per year in the 200-300 option and between $512.3 and $666.0 billion per year in the 1000-1300 option, a figure comparable – again, to give us some dimension – to what the federal government invested with the Inflation Reduction Act (IRA) in 2022.
Again, looking only at the required donors to date and their historical responsibilities, we find different values. The United States, with roughly 50% of historical emissions among developed countries, would, in this case, have to commit to mobilise between $97.7 and 146.5 billion in the 200-300 option, and between $488.4 and $634.9 billion annually in the 1000-1300 option. Adjusting the values to the estimated ability to pay, it results in a commitment between $122.8 and $184.2 billion per year in the 200-300 option and between $613.9 and $798.1 billion per year in the 1000-1300 option.
How much should China contribute?
We tried to apply the same methodology to estimate a possible Chinese contribution on the basis of historical global liabilities (and not just current ones, where it is now the leading emitter) and, again, gross national income per population.
Our calculations show that Beijing would have to commit between $31.3 and $47.0 billion per year in the 200-300 option and between $156.7 and $203.7 billion per year in the 1000-1300 option. This contribution, scaled up to the estimated contributing capacity, would ideally see China contribute between $10.8 and $16.2 billion per year in the 200-300 option and between $54.0 and $70.1 billion per year in the 1000-1300 option. In the Chinese case, despite the significant historical emissions, the context of an emerging economy with a high population eases the burden on the country, assuming this methodology can be accepted by the Parties.
Hypothetical Scenario 1: Repartitioning Annex II with China
We have attempted to imagine a parallel world, in which the People’s Republic of China is included or added to the list of developed and contributing countries (Annex II), thus scaling up its historical responsibilities not to the rest of the world but internally to the Annex II group. In this case, China, responsible for 24% of the developed world’s historical emissions (‘+China’), would have to contribute between $47.1 and $70.7 billion per year in the 200-300 option, and between $235.6 and $306.3 billion per year in the 1000-1300 option.
Taking into account the estimated contributive capacity, China could contribute less, between $12.1 and $18.2 billion per year in the 200-300 option and between $60.7 and $79.0 billion per year in the 1000-1300 option. In this scenario, Italy’s contribution decreases more significantly when considering only its historical responsibility (e.g. in the 1000-1300 option, from $29.0-$37.8 to $22.2-$28.9 billion per year) and less when considering its estimated ability to contribute (again for the 1000-1300 option, from $17.4-$22.6 to $16.3-$22.2 billion per year).
Hypothetical Scenario 2: Annex II sharing without the US
What if the US withdrew from the Paris Agreement? Someone else would in theory have to fill the gap, because it is true that one party produces the emissions, but once in the atmosphere they immediately become everyone’s problem. In the event of an increasingly likely withdrawal from the Paris Agreement by the government in Washington, our country would find itself having to contribute (again, in theory), with an unenlarged taxpayer base beyond Annex II, an estimated $11.4 to $17.0 billion per year in the 200-300 option and between $56, 8 and $73.9 billion per year in the 1000-1300 option; these figures, when adjusted for the estimated contributive capacity, lead to a contribution between $9.0 and $13.5 billion per year in the 200-300 option and between $45.0 and $58.5 billion per year in the 1000-1300 option.
This hypothetical distribution of financial responsibilities among developed countries in the absence of the main contributor would result in our country having to contribute about twice as much as in the scenario in which the United States remains, and proactively, in the Paris Agreement. The Italian case alone therefore gives a good idea of the potential impact of the US leaving the Agreement.
Hypothetical scenario 3: Annex II allocation without the United States, with China
Finally, we point out that, in the event that the United States were to withdraw from the Paris Agreement and China – and only China – were to be included in the list of contributors, Italy’s contribution would be slightly reduced by taking into account the estimated contribution capacity (going from $45.0-$58.5 in the 1000-1300 option to $38.6-$50.1 billion dollars per year), due to the People’s Republic of China’s reduced estimated per capita financial capacity compared to Annex II countries, as an emerging economy with a large population.
In this case, the Italian contribution would still be much higher than estimated in the scenario in which the United States remains in the Agreement and only current contributors are considered.
Sources:
- Friedlingstein P. et al., Global Carbon Budget 2024, Earth Syst. Sci. Data Discuss. [preprint], https://doi.org/10.5194/essd-2024-519, in review, 2024.
- GNI per capita Atlas methodology, World Development Indicators database, World Bank, 2024.
Article by
Claudia Concaro, ICN delegate at COP29 and finance expert
Anna Pelicci, ICN Head of delegation at COP29