COP29, the latest United Nations climate summit, earned the nickname “The Finance COP” for its focus on trying to answer the key questions of who should pay for fixing the climate crisis, and how much?
In theory, climate finance is all about figuring out how to equitably share the burden of addressing climate change. In practice, though, where this money comes from — and how it’s spent — is a source of fierce debate. The stakes are staggering — and so is the complexity of the language surrounding these negotiations.
To help navigate all the jargon, we’ve put together this glossary to decipher bureaucratic acronyms and confusing terminology, so no one is too intimidated to join the conversation. Let’s dive in.
1. Climate Finance
First off, it’s important to clarify exactly what climate finance is. Generally speaking, it’s the global pool of money dedicated to tackling climate change. This money comes from a mix of sources, including wealthier nations, multilateral development banks (MDBs, such as the World Bank or the Asian Infrastructure Investment Bank), climate funds (like the Green Climate Fund), and the private sector to help fund efforts to reduce emissions and adapt to the impacts of climate change, especially in low-income nations that often bear the brunt of the climate crisis.
2. Concessional Loans
Here’s where things get slightly more complicated — most of this money isn’t handed out freely. Much of it (about 70%) comes in the form of loans, often with steep interest rates and repayment terms that can trap vulnerable countries in vicious cycles of debt, leaving them with even fewer resources to actually tackle climate change.
Enter concessional loans. This is just a fancy term for loans offered at below-market rates, with generous repayment plans to make financing more accessible for developing nations without triggering further debt. Even better are grants, or funds provided without any repayment requirements whatsoever. Unfortunately, less than 5% of total climate finance is doled out as grants.
3. Mitigation
Climate finance largely supports two key areas. The first is mitigation, or reducing the greenhouse gas emissions that are causing the planet to warm. The vast majority (90%) of climate finance goes towards mitigation projects, such as investments in renewable energy technology or nature-based solutions like reforestation.
Why does mitigation dominate climate finance? First, it addresses the root cause of climate change, making it an obvious and clear priority. But secondly, these projects tend to attract public and private investors because a) their impact is relatively easy to monitor and b) they often promise a clear return on investment, such as through profits made from the sale of renewable energy. But mitigation is only half the puzzle.
4. Adaptation
We also need to understand adaptation. If mitigation is about preventing tomorrow’s problems, adaptation is about dealing with what’s happening today. It focuses on providing communities with the resources they need to survive the impacts of climate change right now. This could mean building seawalls against rising sea levels, setting up drought-resistant agricultural systems, or improving water conservation systems in arid areas.
Why is that adaptation projects receive just a fraction of the funding mitigation sees? Partly because these projects don’t promise the same kind of profits as investing in something like renewables might, and partly because it’s hard to project how much damage they prevent (and money they save) in the long run. These factors usually make investors more hesitant to put money behind what they perceive to be riskier bets, but that doesn’t make adaptation any less important.
5. Loss and Damage
Loss and damage focuses on the unavoidable destruction caused by climate change, like homes swept away by floods or farmlands scorched by prolonged droughts. This devastation obviously costs communities and countries economically, but it can also lead to long-term health crises, social instability, and lost educational opportunities. It’s not just about dollars lost — it’s about justice.
This issue is particularly urgent for developing countries. The establishment of a Loss and Damage Fund at COP28 was a major victory for these nations, but wealthier nations are resisting making commitments to the Fund mandatory, perhaps unsurprisingly, given that climate-related damages could reach $580 billion annually by 2030.
6. New Collective Quantified Goal (NCQG)
One of COP29’s primary goals has been getting all parties to agree on a NCQG — or, translating this UN jargon into plain language, a new global climate finance target for all countries across the world to strive towards, as well as a plan for how, where, and when to allocate that money.
The main problem with agreeing on a NCQG? You guessed it: Climate costs are extraordinarily expensive, and most countries drag their feet on chipping in more than they have to. In 2009, developed countries agreed to a $100 billion annual pledge that went unmet until 2022, which is all the more disappointing because this figure falls drastically short of the estimated $1 trillion annually needed by 2030. It’s a funding gap that’s more like a chasm, and updating this figure will be no small feat.
7. Common But Differentiated Responsibilities (CBDR)
Enshrined in the 1992 UN Framework Convention on Climate Change, the CBDR is the moral backbone of climate finance. It acknowledges that while all nations share responsibility for combating climate change, wealthier countries, having historically contributed the most emissions, should shoulder a greater share of the financial burden.
It’s not just an economic argument, but one also founded on climate justice. Wealthy nations built their present prosperity through resource-intensive industrialization, and many believe that the “Polluter Pays” principle should apply, especially since the countries contributing the fewest emissions yet suffering the worst impacts today are often the least financially equipped to handle them.
However, wealthier nations argue that the global landscape has changed since 1992, and the list of countries expected to pay up should be expanded accordingly. For example, China, now the world’s largest emitter, and strengthened economies like India or Qatar could theoretically contribute much more than they could three decades ago when these classifications were last set. As it stands, none of them are legally required to pitch in to the global climate finance pot, and any contributions they do make are not counted towards the current $100 billion goal.
8. Just Transition
In a similar vein, a just transition refers to a shift to a green, low-carbon economy that’s based in fairness, ensuring that any benefits created are shared widely and equitably across societies. For communities and workers reliant on fossil fuel industries, this means investing in job training and social safety nets to ease a rapid shift away from coal, oil, and gas. A great example is found in Germany, which has invested heavily in retraining coal workers for new careers in renewable energy. This strategy also happens to be good PR for moving away from fossil fuel — when people learn about new economic opportunities promised by the green economy, they’re more likely to get behind climate action.
9. Nationally Determined Contributions (NDCs)
Under the Paris Agreement, countries submit NDCs, or climate action plans outlining their targets for reducing emissions and adapting to climate impacts. They’re supposed to be updated every five years, reflecting growing ambition to limit global warming under the agreed-upon 1.5°C goal.
We believe that NDCs need to be bold, inclusive, and actionable. Crucially, this means including input from diverse stakeholders, especially Indigenous voices and marginalized groups. It also means setting specific, measurable adaptation targets with clear accountability systems in place to ensure progress is truly made.
10. Fossil Fuel Subsidies and Levies
Any climate financing plan would be incomplete without introducing systemic financial reforms, including new taxes, reallocating Special Drawing Rights (SDR) through multilateral development banks, or nudging the private sector to help get us over the trillion-dollar climate financing finish line.
Governments could do this by finally phasing out fossil fuel subsidies (government-funded tax breaks that make coal, oil and gas artificially cheap), as the G7 first pledged to do back in 2016. But subsidies for oil, gas, and coal production have only exploded since then, hitting $1.5 trillion in 2022 (which, if you’ll notice, is more than what’s needed to cover 2030’s global climate goals). Redirecting these funds towards a just transition instead could dramatically shift the trajectory of climate change.
Additionally, introducing levies, or taxes on fossil fuel profits, billionaires, and high-polluting activities like shipping or aviation, could also help close the trillion-dollar financing gap and ensure that those with the biggest carbon footprints contribute to climate solutions.
What This All Amounts To
Here’s the bottom line: without proper financing, policy and climate goals remain empty promises. Whether it’s scaling up renewable energy, safeguarding vulnerable communities, or compensating nations for irreparable losses, money determines what’s possible.
Understanding the language of climate finance isn’t just for policy wonks — it’s essential to fully engaging with possible solutions on the table and holding decision-makers accountable to their promises. With the stakes as high as they are, clarity alongside action is essential in any efforts to advocate for a sustainable, equitable future for all, so that no country is left behind.