COP29: Between Europe and China, the Great Bargain

Despite a poorly managed conference, with a biased presidency subservient to its country's fossil fuel interests, COP29 in Baku, Azerbaijan, came to an agreement that establishes a new, collective quantified goal on climate finance - the main objective of this UN conference. In an unstable geopolitical context, the relationship between Europe and China has become central to the future of climate negotiations. This relationship raises existential political questions for Europeans, who must determine how to align climate action, economic priorities, and their economic dependence on Beijing.

The new annual target for climate finance has been set at $300 billion by 2035. This funding will be mobilized through public resources, multilateral development banks, and private investments leveraged via public finance mechanisms. It marks a significant increase from the $100 billion per year target established under the Copenhagen Accord in 2009.

For the first time, the text of the agreement also "encourages" China and other emerging and high-emitting nations, the "most developed countries among the developing countries" - a formula regularly put forward by Chinese negotiators - to make their contribution alongside the rich countries. While these countries are not explicitly included in the mandatory climate financing framework, they are included in the new financing framework, via the Multilateral Development Banks. This nuance marks a subtle but significant shift in the language of climate diplomacy.

Many therefore feel that the target set is far from commensurate with the stakes: it is merely a re-evaluation of the $100 billion target set in 2009, adjusted for inflation. Furthermore, according to the current trajectory of climate financing ("business as usual"), this would have reached $200 billion dollars by 2035 without any additional effort. Thus, the actual increase pledged at COP29 represents, in reality, only a surplus of $100 billion.

The agreement also includes a non-binding "roadmap from Baku to Belém" to identify ways of mobilizing $1,300 billion for developing countries by 2035. This objective is largely based on "new forms of financing", the implementation of which promises to be particularly complex. Among the avenues mentioned are an agreement on an international tax on aviation, or the reallocation of fossil fuel subsidies to international climate financing. However, these solutions appear unrealistic, as governments tend to prefer domestic use of the revenues generated by such hypothetical measures, making their implementation on an international scale highly unlikely.

A Fairly Predictable Outcome

Despite the tensions and inevitable dramatizations that marked the two weeks of negotiations on the shores of the Caspian Sea, this compromise was fairly predictable from the very first days of the conference.

In an increasingly constrained budgetary context, marked by the need to finance their own decarbonization and respond to the consequences of the war in Ukraine, Europeans - the world's main providers of climate financing - find it politically impossible to make more ambitious pledges. Their mandate, constrained by their governments, did not allow them to meet the high expectations of developing countries.

Donald Trump's return to the White House immediately undermines the credibility of the United States, the biggest polluter in history in climate negotiations. However, this is part of a broader pattern for Washington: the country has repeatedly proven to be a failing partner in climate financing, due to the lack of consensus in Congress on the very legitimacy of this principle.

Europe thus finds itself more isolated than ever in the Paris Agreement process. In 2023, it mobilized 28.6 billion euros in public climate financing, to which were added 7.2 billion euros in private funding. With the departure of the United States, and within the framework defined by the Agreement, Europe now shares this financial responsibility essentially with Japan, Australia and Canada, the only other developed countries still fully committed to this financing. Europe therefore took advantage of the Baku summit to express its growing frustration, and reiterated its firm determination to involve major emerging polluters such as China and the Gulf States in climate financing, despite their strong resistance
 
China firmly refused to be classified as a developed country under the Paris Agreement. This position, criticized even by some developing countries, is increasingly difficult for Beijing to justify, given its status as the world's biggest emitter and second biggest historical polluter in terms of absolute emissions (a ranking that does not take per capita emissions into account). Nevertheless, the framework of the climate talks hardly calls into question the comfort of China's entrenched positions, especially with a potential second U.S. withdrawal from the Paris Agreement on the horizon. Aware of the increased risk of derailing the Paris Agreement, Europeans are reluctant to push China over the edge. As the Agreement negotiated in 2015 remains the only global platform for discussing the fight against climate change, questions of climate financing are perceived as secondary to more central issues such as pushing Beijing to accelerate its decarbonization.

A "Post-Colonial" Narrative That Benefits China

The Europeans reacted to the disappointment of global south countries who viewed the final goal as a minimal target, by advocating for greater reliance on private finance to fill the gap left by insufficient public funding.

These proposals were firmly rejected by Southern nations, which, in a resolutely post-colonial rhetoric, asserted their right to receive financing in the form of direct transfers of public funds. In their view, such funding is essential to help them develop in a low-carbon way, adapt to the effects of climate change and, of course, repair the damage already caused.

This position was accompanied by a call for precise targets for each type of financing, with particular emphasis on the most difficult to mobilize: those for adaptation and for loss and damage, areas where returns on investment are virtually non-existent. Europe and other "rich" countries have opposed the introduction of these specific sub-targets by type of financing (mitigation, adaptation, or loss and damage), insisting on their right to decide freely on the projects they support.

This debate cleverly benefits China. China is positioning itself as a spokesperson for the countries of the South on the issue of climate finance, as Europe's main interlocutor in the absence of the United States, and as an essential supplier of low-cost technologies, presented as global "solutions" to the climate challenge, including for lowering the financial cost of the transition. This triple position strengthens Beijing's strategic influence in UN climate negotiations.

Officially, the Europeans were calling for China and the Gulf States to be included in the formal framework of mandatory climate financing. However, very early on in the negotiations, their strategy - dictated by the constraint of Trump's return - was to encourage China to contribute to climate financing outside the formal framework reserved for Northern countries. This approach aims to make Beijing a voluntary contributor, while enabling it to retain its status as a "developing" country, essential to its position in global geopolitics.

Although this amount is deemed largely insufficient and of low quality (essentially via loans at sometimes high interest rates), it has the merit of existing and integrating Beijing, however modestly, into the overall financial effort aimed at developing countries.

A Step Forward on Carbon Markets

The adoption in Baku of rules for the carbon markets governed by Article 6 of the Paris Agreement marks a positive step forward for global climate finance. After nine years of intense negotiations, these mechanisms now offer an operational framework for supporting emission reduction and removal projects worldwide.

Article 6.2, which governs bilateral collaboration, now benefits from essential clarifications, notably on technical issues such as revocation of authorizations, registries and reporting. These clarifications are likely to boost the confidence of market players, facilitate the commitment of investors and pave the way for an increased flow of financing for decarbonization projects that do not automatically require a substantial injection of public money from developed countries.

For its part, the Article 6.4 Carbon Credit Mechanism now has standards for carbon removal methodologies and projects - a highly controversial subject - as well as guidelines for the transition of existing mechanisms such as the Clean Development Mechanism (CDM). The gradual integration of voluntary market methodologies and infrastructure into these mechanisms is likely to enhance their effectiveness and scope. This convergence between voluntary and compliance markets offers a real opportunity to mobilize private capital and accelerate the transition to carbon neutrality.

However, a number of problems could tarnish this picture. Despite the progress made in terms of transparency, the measures governing decentralized emissions trading under Article 6.2 reveal certain shortcomings. For example, the absence of clear penalties for non-compliance could encourage some countries to circumvent the rules without fear of consequences. Furthermore, the absence of harmonized methodologies for quantifying carbon credits compromises the integrity of transactions, while delays in publishing information on approved credits limit effective monitoring. As for article 6.4, the transition of controversial CDM projects to this new framework, without rigorous verification, is fuelling concerns about the quality of credits on this market.

COP30 in Brazil and the Start of an Implementation Phase

As dramatic as it may seem for the poorest countries, the game of fools played out in Baku around climate finance was in reality of secondary political importance for the major powers - led by China, Europe and the United States. This casual attitude is illustrated by the almost universal absence of heads of state in Baku, and by the minimal signal sent to the conference from the G20 summit held in Rio at the same time, eclipsing the issues at stake at COP29.

Over and above the question of finance, behind-the-scenes discussions at political level were also animated by the implications of the forthcoming US withdrawal and by preparations for the next COP30 in Brazil.

This conference, billed as one of the most crucial since Paris, marks a key milestone: each state will have to submit a new Nationally Determined Contribution (NDC), reinforcing its commitments to reduce emissions and accelerate the transition.

COP30 is also expected to usher in a phase of "implementation" of the targets, a turning point that promises to transform the dynamics of these summits considerably. The challenge will be not only to formalize ambitious commitments, but also to demonstrate concrete progress, which will redefine the role and impact of these multilateral conferences.

In this context, the American withdrawal ipso facto transforms the Conferences of the Parties into a vast political stage dominated by the face-off between Brussels and Beijing, the two largest economies still actively engaged in climate multilateralism. This climate relationship is increasingly intertwined with industrial and commercial issues, making relations between the two shores of Eurasia more complex.

Climate, Trade, Industrial Policies: The Era of Collision

Much more than during Trump's first term in office, the climate scene is now becoming a terrain where trade and economic diplomacy play a central role. Industrial tensions and strategic interests between Brussels and Beijing are now shaping climate negotiations, further blurring the boundaries between environmental and global economic policy.

Indeed, this trade relationship could play a crucial role in resolving the climate crisis: it has the potential to stimulate sufficient supply and demand for technological solutions to decarbonize the world. However, it raises major dilemmas for Europe. How far is it prepared to go to become the client of its own decarbonization, in order to maintain a strategic relationship with Beijing and accelerate the global transition?

This questioning highlights the tensions between economic imperatives, industrial sovereignty and climate objectives, confronting Europe with difficult choices in its quest to strike a balance between technological dependence and climate leadership.

At COP29, more than ever, Beijing made clear its strategy of industrial hegemony in the clean technology sector, aiming to become the world's leading supplier of the technologies needed for decarbonization. However, Beijing seems to be struggling to come to terms with the growing mistrust of this strategy, particularly in the West.

The majority of Chinese delegates believe that abandoning this approach would be detrimental not only to China, but to the world as a whole. However, they seem to underestimate the political and economic consequences it would have in Europe: deindustrialization, increased strategic dependence, and loss of know-how- issues which are fuelling a climate of growing mistrust and tension.

In the same vein of telescoping trade, industry and climate, China once again vociferously demonstrated its opposition to the European Union's Carbon Border Adjustment Mechanism (CBAM) in Baku, drawing the BRICS and many other developing countries into a critical narrative and attempting, unsuccessfully, to place a debate on the subject on the conference agenda.

Beijing doesn't understand why it should pay to export to Europe,arguing that it is cheaper to reduce emissions in China through its intensity-based carbon market, which it plans to transform into an absolute carbon market by 2030. It puts the responsibility for decarbonization targets on each national agenda, and considers that border adjustment tools such as CBAM represent a waste of money for both Europe and Chinese companies.

According to the Chinese, finance also plays a central role here, with the risk of a snowball effect: the multiplication of CBAMs around the world would complicate market access for Southern countries. The latter, supported by India and China, denounce these instruments as protectionist, accusing them of further hampering their development. This dynamic is fuelling growing demands for increased climate financing, intensifying tensions between North and South.

A Sino-European Relationship at Odds with Europe’s Economic Interests

There's no denying that the ability to supply low-cost clean technologies on a massive scale to the whole world is a necessity for the global energy transition. Indeed, most of the Chinese delegates believe that this logic is intrinsically linked to the growing demands for climate finance, which will inevitably increase if the cost of the transition remains high.

In theory, this logic makes perfect economic sense, but it runs up against two major obstacles: the profound divergences between Europe's decarbonization agenda and that of the rest of the world - led by China - and the political imperatives of Western societies. European populations, in particular, resist losing jobs tied to the production of tangible industrial goods, relocated abroad for cost reasons. Paradoxically, they are also unwilling to bear the additional costs of greater local production. This contradiction creates an almost insoluble dilemma for Europe's political decision-makers.

For its part, China, facing sharply slowing growth and an economic model now focused on exporting its industrial overcapacity, is seeking to leverage global climate action to advance its economic agenda - a strategy that Chinese delegates are willing to acknowledge privately.

It is trying to open up new markets via the BRI, by offering financing to Southern countries to enable them to buy Chinese products such as photovoltaic panels or batteries. While this strategy is sometimes successful, it is hampered by several major challenges: the slow return on investment, the difficulty of finding markets genuinely open to these technologies, and low profit margins. With the United States already largely closed to Chinese products - even more so under a second Trump administration - Europe remains the only major market still accessible and capable of purchasing these goods in large quantities.

Has the Time for a Grand China-Europe Bargain Arrived?

China is expected to peak its emissions in the not-too-distant future, but is unlikely to make an official announcement until 2029. While its emissions peak will be real, the decline that follows is likely to be slow, due to the slowdown in its economic growth and the response that this entails (support for coal). A reality that is difficult to accept if we hope to stay below 2 degrees of warming.

Beijing believes that it already contributes far more than the United States to the fight against climate change. As a result, China finds it hard to understand why Europe should not consider it a privileged partner, both in terms of climate and in terms of trade and industry.

For China, this relationship must take the form of a "grand trade agreement", in which, supported by European demand, it helps the world to decarbonize by supplying the necessary technologies, while controlling the associated supply chains.

It's true that the conditions for such an agreement could materialize in a context where the United States disengages completely from the climate scene and the indiscriminate trade tariffs imposed by the Trump administration heavily affect Europe as well as China.

This situation brings Beijing and Brussels face to face with their climate, trade and economic responsibilities. In China, some are calling for a "grand bargain" with Europe, in which the latter would remain open to Chinese products - or with fewer trade barriers - in exchange for a greater commitment from Beijing to accelerate its decarbonization: a faster reduction in exchange for an open European market.

Such an agreement could include several strategic components: standardization of green technologies, transparency of emissions data, as well as co-investment in third countries, reinforcing mutually beneficial cooperation while meeting the global challenges of climate transition.

Europe Cannot Afford to Be Naive

There is a real opportunity for cooperation between complete decoupling and total dependence: a path where Europe and China could build a form of co-dependence in supply chains. This is the only condition for such a partnership to achieve any semblance of balance. However, such an agenda, while easy to formulate in theory, proves extremely complex to implement. Chinese industrial policy, with its model of ultra-concentration on the national territory, makes any diversification structurally difficult.

It is therefore essential for Europe to stand firm on these principles. Otherwise, it risks becoming a mere client in this relationship, losing all relevance in the emerging post-carbon economy - an economy which, dominated by China, will also count the United States as a central player, despite its disengagement from the Paris Agreement and its opportunism on fossil fuels.

The next COP, to be held in Belém, Brazil, will be an opportunity to gauge what "implementation" really means in a multilateral arena. One thing is certain: the relationship between Europe and China will undoubtedly be the central axis, with the shadow of Donald Trump looming in the background. The new NDCs, expected in early 2025, will provide a first glimpse of the ambition of this effort and the concrete possibilities for collaboration with Beijing.

Copyright Alexander NEMENOV / AFP