Fossil fuel financing is being reduced by countries belonging to CETP, yet the shortfall in funding for clean energy remains a persistent issue.

The upcoming COP29 summit in Baku, Azerbaijan, is set to be a critical meeting for the future of the global climate change agenda. One of the key sticking points at this year's summit will be the issues of fossil fuel subsidies and financing the energy transition in the Global South.

According to a report by the International Institute for Sustainable Development (IISD), most funding for lower- and middle-income countries has been provided as loans, exacerbating the debt crisis in the global South. This situation, as research by Debt Relief International reveals, has led to debt servicing costs in these regions consuming 41.5% of budget revenues and nearly half of government spending.

Adam McGibbon, campaign strategist at Oil Change International and co-author of the report, notes that the progress is despite broken promises from the U.S., Italy, Germany, and Switzerland. These countries need to honor the commitments they made in Glasgow or face increasing international pressure.

The IISD report advocates for providing finance to the Global South on fairer terms to prevent further escalation of the debt crisis. It also calls for signatory states to end all fossil fuel subsidies, a move that could help reduce global fossil fuel subsidies, which increased to $7.1trn in 2022 and could exceed $8trn by 2030 (IMF data).

The United States, Italy, and Germany reduced but did not eliminate support for coal, oil, and gas. In 2023, CETP members provided $21.3bn for clean energy, an increase of just 16% from the 2019-2021 baseline. The IISD sees this reduction as a sign that the pact is working, but many believe more needs to be done.

Last year's COP28 summit succeeded in raising additional funds for the energy transition in the Global South, but the topic of fossil fuel subsidies was largely excluded from the official agenda. With COP29 to be held in another oil-producing nation, there is a risk that the topic of fossil fuel subsidies will be marginalized again.

The IEA warns that traditional frameworks for ensuring electricity security will not be sufficient amid rapidly growing demand for electricity. The International Energy Agency (IEA) predicts renewable energy could account for up to 45% of all electricity generation worldwide by 2040.

Natalie Jones, lead author of the report and policy advisor at the IISD, encourages leaders to scale up investment in clean energy for all, including targeted support for the countries that need it most. Countries under particular pressure to fulfill their promises to end fossil fuel subsidies and increase funding for clean energy at COP29 in Baku in November 2023 include members of the G7, who have shown signs of "net-zero fatigue," along with major fossil fuel subsidizing nations.

The issues of fossil fuel subsidies and financing the energy transition in the Global South are expected to be key topics at this year's COP29 summit. The success of the summit could determine the future trajectory of the global fight against climate change and the financial stability of lower- and middle-income countries.

Fossil fuel financing is being reduced by countries belonging to CETP, yet the shortfall in funding for clean energy remains a persistent issue.