Chapter 1
As leaders are gathering for this year’s COP in Baku, one inescapable fact looms large: global emissions continue to grow.
Last month, a report from the United Nations laid bare the scale of the problem.[_] Global emissions reached an all-time high in 2023. Average global temperatures are now 1.45 degrees Celsius higher than the pre-industrial average, a fraction below the commitment in the Paris Agreement to limit warming to 1.5 degrees.[_] The world is on track for a temperature increase of 3.1 degrees under current policy settings.[_]
This shows a growing disconnect in the global climate debate. Last year, at COP28, countries committed to “transition away from fossil fuels in energy systems”. Almost every country has adopted a net-zero pledge. But despite these commitments, rather than transitioning away from fossil fuels, demand for oil and gas continues to rise and is set to continue to increase until 2030.[_] Coal demand may have peaked in 2023,[_] but this is not certain.[_]
Action on the ground is not yet matching global rhetoric, and the gap between global ambition and the temperature goal is being joined by a growing implementation gap.
A critical factor underlying this disconnect is the shifting profile of global emissions. This year the United Kingdom celebrated switching off the country’s last coal-fired power plant and reducing emissions to levels not seen since the Victorian era. While these are significant achievements for the home of the Industrial Revolution, they are only addressing one part of a much larger challenge.
Until the year 2000, North America and Europe had produced more than 70 per cent of cumulative global carbon-dioxide (CO2) emissions. However, in recent decades, this picture has transformed.[_]
In 1990, 61 per cent of annual emissions were produced in Europe or North America.[_] By 2023, North America and Europe were responsible for less than one-third (30 per cent) of global annual emissions,[_] while the majority of both emissions and emissions growth had shifted to emerging markets and developing economies (EMDEs). Between 1990 and 2022, the European Union’s CO2 emissions dropped by 29 per cent,[_] while emissions in Asia increased by 231 per cent.[_]
Developed countries still represent a considerable portion of global emissions, and continued and accelerated domestic action to decarbonise is critical. However, this changing picture of the origin of emissions requires a shift in solutions to the climate challenge.
The reality is that, while the profile of historic emissions tells us what has led the world to this situation, it does not hold the key to addressing the problem. Tackling climate change relies on addressing where emissions are coming from now – and where they will come from in the future if we fail to alter the course of action.
In the past, emissions have been closely linked to economic development. As people in EMDEs move into the middle class and the global population rises, energy demand and fossil-fuel-intensive activities will increase. The global airline fleet is expected to more than double over the next two decades with expanding middle classes.[_] By 2050, increased urbanisation is expected to result in a 40 per cent increase in demand for steel and a 50 per cent increase in demand for cement.[_], [_], [_] India, the world’s most populous country, has an energy demand per person that is one-third of the world’s average and one-fifth of China’s.[_] If energy demand per capita here – and in other EMDEs – grows to meet the world’s average in the absence of clean-energy generation, an emissions target of 2 degrees will be far out of reach.
Developing countries have a right to, and will inevitably, continue to develop in their own self-interest. Curtailing development and energy consumption is not a viable response to climate change – morally, politically or practically.
The challenge for the world now is to find a way to ensure this development can be clean and energy efficient. Developed countries harnessed the power of fossil fuels for their development, but it is now critical to ensure that development going forward can happen through affordable, green sources of energy.
Achieving the goals set out in the Paris Agreement requires radical-but-practical action. To tackle climate change and reduce global emissions, there are two core things that need to happen: first, we need technological development to make clean alternatives the more convenient, cheaper and easier route to growth and development. Second, we need accelerated investment and finance flows into low-carbon alternatives around the world.
Two key solutions will make this happen:
Innovative, market-based approaches to drive the global energy transition, including harnessing the potential of international carbon markets.
Accelerated technology development and deployment for both mitigation and adaptation.
COP29 presents a critical opportunity. On the cusp of the deadline for countries to submit their updated climate targets (their nationally determined contributions), COP29 must secure agreement on both new global standards for carbon markets – Article 6 of the Paris Agreement – and a new global finance goal – the new collective quantified goal.
There is an urgent need to refocus these multilateral discussions towards decisions that unlock real-world action commensurate with the scale of needs and realities on the ground in EMDEs. This COP will be a key litmus test for the effectiveness of the multilateral process to move beyond discussions of what should be done and set sights firmly on implementation.
We have only a small handful of years before our ability to limit global temperature rise to 1.5 degrees is out of reach.[_],[_] It is now up to leaders around the world to find the solutions to turn the tide.
Chapter 2
The United Nations Environment Programme's (UNEP) Emissions Gap Report 2024[_] makes clear the world has a “runway” of around 200 gigatons of carbon dioxide (Gt CO2) to have a 50 per cent chance of staying under 1.5 degrees of warming.[_] Given that total global emissions in 2023 were at an all-time high of just over 57 Gt CO2e, this means that if emissions continue at current levels, we have only a small handful of years until we exceed 1.5 degrees.[_]
All leaders should be concerned about this. Exceeding 1.5 degrees, even if we limit warming to less than 2 degrees, will have devastating consequences for every country around the world. Warming above 1.5 degrees will bring impacts such as more frequent and severe heatwaves, droughts and intense rainfall events, increased sea-level rise, and greater species and biodiversity loss.[_] These impacts will severely undermine a host of broader development imperatives, driving increased food insecurity, water scarcity, and displacement and migration, as well as exposing countries to more frequent natural disasters with human and economic costs. These impacts will directly or indirectly be felt by every country – harming the global economy and creating a more unstable geopolitical environment.
The evidence is plain to see. This year has witnessed Hurricane Beryl, the earliest category-five storm on record, wreak havoc in the Caribbean; droughts in Zambia undermine food and energy security while compounding the county’s debt challenge; devastating floods and typhoons impact countries from the Philippines to Kenya to Brazil. These impacts are not limited to developing countries. This year the United States has already seen a record 24 extreme weather events whose damage costs exceeded $1 billion, significantly above the average of recent years,[_] and floods and extreme weather have caused significant numbers of deaths as well as economic losses across the EU.
Chapter 3
Significant progress has undoubtedly been made on tackling climate change over the past decade. Renewables are now the largest source of energy generation in 57 countries. This is expected to increase to 68 countries within the next five years.[_] Investment in clean-energy sources has risen by 60 per cent since 2015, with more than $1 billion per day being spent on deploying solar power alone. In 2023, for every $1 invested in fossil fuels, $2 was being spent on clean energy, when just five years earlier this ratio was 1:1.[_]
Yet, despite this effort, global emissions continue to rise.
Oil and gas demand was the highest on record in 2023. The International Energy Agency (IEA) projects that oil demand is set to marginally increase in the coming years. In fact, global oil demand is still forecast to be 3.2 million barrels per day higher in 2030 than in 2023 without policy changes.[_] The supply of unabated natural gas will grow until a peak in 2030.[_] Even coal demand may only have peaked this year, while some projections suggest it will continue to grow until 2026 and will remain high for several years to come.[_]
The reality is that we are fighting an uphill battle. While the energy transition is accelerating, so are the trends that increase emissions.
In recent years, middle-income industrial economies, particularly in Asia, have been following a carbon-intensive growth trajectory similar to that observed over the past century in industrialised nations like the UK, the US and countries in Europe. This pattern poses a significant challenge to global efforts to limit carbon emissions and mitigate climate change.
This means that the areas where emissions come from has been rapidly shifting:
Between 1990 and 2022, the EU’s CO2 emissions dropped by 29 per cent. In the same period, emissions in Asia increased by 231 per cent.[_]
CO2 emissions in the BRICS bloc have increased by a total of 178 per cent since 1990, compared with a decrease of 10 per cent across G7 countries.[_]
Since 2000, Organisation for Economic Co-operation and Development (OECD) countries have decreased their coal-generated electricity by 48 per cent. In this same period, Association of Southeast Asian Nations (ASEAN) countries have increased theirs by 627 per cent.[_]
Since 1990, the UK has reduced its carbon intensity by GDP by 70 per cent, from 0.40 kilograms of CO2 per dollar (kg/$) to 0.12 kg/$, while India has only reduced by 18 per cent, from 0.33 kg/$ to 0.27 kg/$.[_]
Renewables are currently the largest energy source for electricity generation in 57 countries; however, these countries represent just 14 per cent of global power demand. Even the 68 countries that will have renewables as their main power-generation source by 2028 still only account for 17 per cent of global demand.[_]
Emissions growth in many EMDEs are set to continue and accelerate. As these countries expand their industrial base and the middle classes grow, their reliance on fossil fuels and energy intensity will, without action, continue to rise.
In regions such as sub-Saharan Africa and parts of South Asia, millions of people still lack reliable access to electricity. In sub-Saharan Africa, the number of people without reliable access to power has plateaued at around 600 million over the past five years.[_] Projections indicate that the continent’s population will experience significant growth, making it critical to decouple economic progress from carbon-intensive practices. For low-income countries, the challenge is thus not just transitioning existing energy systems but also building new capacity to meet the growing demand that comes with economic development.
An examination of sectoral emissions also tells a challenging tale:
The impact of rising development means that China consumed as much cement in 2020 and 2021 as the US did in the 20th century. Demand for cement and steel is projected to rise by 1.5 times and 1.4 times, respectively, by 2050.
The global airline fleet is expected to more than double[_]over the next two decades as the middle classes in countries such as India and China expand and demand for air travel increases.[_] Further forecasts[_] suggest that from 2023 to 2042, total passenger traffic worldwide is predicted to grow at an annual rate of 4.3 per cent,[_] and global passenger traffic is expected to reach 20 billion in 2042, double the 2024 projection.
These trends show that the world needs a new plan – one that accelerates implementation and aligns development and growth with climate action. This is the world’s only chance to come anywhere near meeting the Paris Agreement’s goals.
Chapter 4
While the case for action is clear, there are financial, technological and political barriers blocking accelerated progress, which require corresponding solutions.
Financial
To scale and deploy the transformative technologies the world needs to address climate change will require unlocking trillions of dollars in investments in sustainable development. The IEA has said that investment in the transition in developing countries excluding China needs to increase from $770 billion to $2.8 trillion per year by the early 2030s to keep the world on track for 1.5 degrees, requiring a more than four-fold increase over the coming years.[_] To unlock these trillions, we need practical solutions on a global scale.
However, there are several barriers to scaling up climate finance. In the lead-up to COP28, TBI published data showing that despite commitments, private investment in climate-responsive infrastructure projects in EMDEs is going down, not up. This is down to a number of factors including:
A lack of financeable project pipelines
Perceived and real macro risk, such as currency risk, deterring international investors
Insufficient enabling environments and lack of upstream capacity in governments to set in place robust plans and strategies
Limited access to low-cost capital, including from international climate funds, which is particularly important for capital-intensive projects like renewables
Sovereign debt, which is at record levels and limits the capacity of governments to leverage public resources
These factors together mean that the weighted average cost of capital in Africa now stands at 15.6 per cent – more than three times higher than in developed regions like Western Europe and the US, where rates typically range between 2 per cent and 5 per cent.[_] This is a challenge when it comes to the uptake of clean technologies, including renewable energy, and green industrial processes and manufacturing.
International support will be critical to bridge the gap. Developed countries finally met the target of mobilising $100 billion per year in developing countries, with $115.9 billion mobilised in 2022.[_] However, this finance is far below the level required to satisfy needs. The approach to international climate finance is slowly becoming more sophisticated, with the emergence of “country platform” approaches that bring public and private financiers together in a coordinated manner around a nationally owned plan, seeking to drive blended finance at scale.
However, these and other programmes still struggle to impact the fundamentals in many high-emitting economies, and in some cases fail to get off the ground by setting climate targets that clash with broader national developmental objectives. Efforts are urgently needed to deliver support that is truly sensitive to national priorities and conditions. Development partners must better de-risk private investment, including through the use of innovative instruments like guarantees, and enhance work upstream to create markets for long-term impact. The use of carbon markets, including through Article 6, can also provide opportunities for circumventing key barriers, including currency and capital risks.
This work needs to happen quickly. Many developing countries are at a critical juncture, needing to make investment decisions in the next decade that will determine the make-up of their energy systems for a generation. Unless the economic case for clean-energy investment is clear, they are likely to continue to invest in fossil-fuel plants or enter into long-term commitments to purchase coal and gas that risk crowding out renewable investment.
Technology
Technological progress in fossil-fuel alternatives has been staggering over the past few decades. The cost of producing electricity using solar energy has fallen by 89 per cent since 2010,[_] meaning it is now the cheapest source of energy almost everywhere. Battery costs have fallen by over 97 per cent in the last three decades.[_] We have a lot of the technologies needed to decarbonise the world – and at a competitive cost.
However, despite of all this progress, we do not yet have all the technological solutions, at the right price point, needed to fix the problem in a way that is aligned with development and growth. For example:
Options to decarbonise aviation are technically feasible but limited in availability and come with a significant cost premium. According to the European Union Aviation Safety Agency, sustainable aviation fuel currently makes up just 0.05 per cent of the fuel used in the EU, and costs between three and five times as much as “regular” jet fuel.[_]
Industries like cement, steel and chemicals are essential for construction, manufacturing and development, but also highly carbon intensive. While new solutions are increasingly being developed and commercialised, green solutions often come at a price that means that these remain out of reach for many economies.
Long-duration storage alternatives to coal and gas, such as gas-fired plants with carbon capture and storage, are significantly more expensive, and hydrogen-fired generation is not yet proven at scale.
Agriculture contributes up to 12 per cent of global emissions[_] but lacks scalable solutions. Emissions come from various sources, including deforestation, livestock production and synthetic fertilisers. Scalable solutions to address biogenic methane in particular (which is produced by the digestive systems of animals and has a much higher warming impact in the short term than CO2), remain elusive, as do scalable alternatives to nitrogen fertilisers.
This highlights the centrality of driving technological innovation and scaling new solutions. Just like the Industrial Revolution ushered in the age of fossil fuels, we need to usher in a new age of emission-free technologies to power the future, at a price that makes them accessible to all.
However, unlike the Industrial Revolution, this process will not drive itself at the urgent pace needed. It will require concerted efforts from governments to create the right incentives and frameworks, provide funding for research and development, and support innovation in both the financial markets and regulatory settings that will enable technology to create better, cheaper and more convenient solutions.
Policy and Politics
Underpinning the barriers to finance and technology solutions are a range of political barriers.
Bending the curve of emissions growth in high-emitting developing countries will ultimately only work if it delivers for the interests of their governments and citizens. The path forward must be one that decouples development from the environmental impacts that characterised growth in developed countries.
Much of the challenge is one of domestic politics: do leaders want to use their often-limited political capital battling incumbent interests, or imposing higher energy costs on voters? International partnerships need to enable the transition by supporting these leaders in creating and demonstrating green growth opportunities, driving the changes needed in domestic markets.
A further challenge sits with creating enough political momentum to drive planning reform. The insufficient expansion and modernisation of grid systems poses a critical challenge to deploying renewable energy, with delays to enabling regulatory changes, approval processes and bureaucratic hurdles all undermining the ability of private investors to deploy capital. Reforming planning systems to enable rapid construction of new green infrastructure such as the electricity grid and low-carbon generation is critical. Planning reform is an essential part of enabling investable projects to move forward, and inadequate funding and strategic planning for grid upgrades has become an urgent priority for sustaining the clean-energy transition.
The necessary pace of uptake of clean technologies will never be resolved unless we find a way to de-risk capital in developing countries and address the regulatory barriers that stand in the way of financial flows.
Chapter 5
Accelerating emissions reductions hinges on the ability of leaders around the world to grapple with the true nature of the problem and face these challenges head on.
Solving the climate challenge requires changes to finance and policy settings. Solutions include:
Innovative, market-based approaches to drive the global energy transition, including harnessing the potential of international carbon markets.
Accelerated technology development and deployment for both mitigation and adaptation.
Market-Based Financing for the Global Energy Transition
At the aggregate level, investment in climate mitigation is increasing rapidly. Total investment in low-carbon energy reached $557 billion in 2022, up from $356 billion in 2018, sparked by a sharp decline in technology costs. However, the majority of this investment is taking place in developed economies and China, with only 14 per cent reaching EMDEs outside China.[_]
International efforts to support EMDEs have grown and matured in recent years, with the OECD tracking almost $116 billion of Official Development Assistance-based finance mobilised in developing countries in 2022, of which around $70 billion went to reducing emissions.[_] In addition to numerous bilateral and multilateral funds, cooperative “country platform”-style approaches have been developed, such as the Just Energy Transition Partnerships, seeking to bring a coordinated group of public and private financiers together around a country plan.
Many of these efforts, however, have suffered from shortcomings including:
A focus on isolated projects, rather than programmes, upstream planning support and market creation.
Prescriptive approaches to the transition that have failed to account for developing countries’ broader development, growth and trade prospects.
An over-reliance on project-based concessional loans, which take a toll on the borrower, fail to address macro risks such as currency risk and often fail to leverage the private sector.
What is needed is a shift in focus towards building robust and sustainable markets that can not only attract investment at scale, but also reduce the cost of energy and drive sustainable growth.
This requires:
International country-platform partnerships that facilitate the inflow of private capital and are truly based on national country plans, reflecting local economic conditions and trade prospects.
Innovative financing mechanisms such as guarantees to de-risk investments and lower capital costs.
Greater upstream support to do the often-thankless work of policy, planning and pipeline generation.
Political leaders in developing countries must ultimately own and be the drivers of national transitions. Leaders must act to lay the ground for external investment by setting strategic direction and wherever possible putting in place the policies, regulatory reforms and market structures into which this capital can flow.
This strategic focus on building market-driven solutions rather than isolated investments is crucial for ensuring that economic growth and energy transitions go hand in hand. By aligning investment flows with local economic needs and international climate goals, we can create the conditions for sustainable and inclusive growth.
Capitalising on International Carbon Markets
One effective way to support emissions reductions globally is through the international carbon market. Article 6 of the Paris Agreement outlines how countries can work together to cut emissions, allowing them to transfer some of their emissions reductions in exchange for financial support. Specifically, Article 6.2 allows for direct transactions where one country can pay another for emissions reductions and then count the emissions reductions purchased towards its own climate goals.
By tapping into a broader carbon market, countries can reduce greenhouse-gas emissions more affordably by focusing on the geographic areas where reductions cost less. This approach can be more efficient than each country meeting its targets domestically. Using Article 6 could significantly cut the resources needed to meet climate goals,[_] compared to each country working alone. If the savings from these cooperative efforts were reinvested, they could more than double emissions reductions for the same spend.
Carbon markets should be included in both current and future climate commitments (including in Nationally Determined Contributions). Rather than focusing solely on domestic targets, high-income countries should aim to use Article 6 arrangements strategically, making the most of available funds and even exceeding their original goals without extra costs. This shift in focus would prioritise investment where it’s most urgently needed for immediate climate impact, rather than simply measuring progress by who reduces emissions at home the fastest.
Despite allowing emissions reductions to occur at a fiscal and economic cost that is less than reducing emissions domestically, international carbon markets have sparked debate. Critics argue that such cooperation delays domestic decarbonisation and redirects funds that could otherwise support domestic climate initiatives or public services, like health care and education.
These concerns are important, but they don’t eliminate the urgent need to cut emissions wherever possible, as fast as possible. Given rising global emissions, it’s essential to make every dollar count by focusing on reductions where the most can be achieved for any investment. High-income countries should therefore consider investing some of their resources in emissions reductions EMDEs. This approach allows them to keep working on long-term decarbonisation strategies at home while also supporting critical short- and long-term reductions abroad.
Accelerating Technological Development
As many as 90 per cent of the technologies needed to reach net zero already exist. However, only around 10 per cent of these are commercially competitive, with a further 45 per cent commercially available but not at price parity with their polluting alternatives.[_] It is therefore essential that we continue finding new scalable solutions to displace fossil fuels and rapidly drive down the cost to make these feasible alternatives to fossil-fuel-based technologies.
High-income countries must thus take decisive steps to accelerate cooperation on research and development to scale new and existing climate technologies and accelerate their deployment.
International collaboration and competition in innovation are well-established as key drivers for reducing costs and improving product quality, so coordinated international action will be key to driving advances in technologies that can decarbonise economies worldwide.
Many high-income countries have made strides in establishing international climate-focused partnerships, such as the UK-EU Horizon Europe programme, which fosters research cooperation, and initiatives like Mission Innovation and the IEA’s Technology Collaboration Programme. Further action is necessary to expand these efforts on a global scale.
High-income countries should also prioritise forming new international partnerships to leverage advancements in artificial intelligence for breakthroughs in climate technology. For instance, Canada and the UK recently initiated a collaboration to explore AI applications in climate research. Expanding this model to other countries could bring together governments, private-sector compute providers and industries to harness AI for solving critical challenges, especially in hard-to-abate sectors.
This approach could focus on issues such as enhancing battery technologies, machine learning for dynamic energy modelling or developing low-carbon production methods, such as using quantum computing to reduce the carbon intensity of fertiliser manufacturing. Improving the affordability and efficiency of such technologies could provide significant benefits to low-income countries, where high costs often hinder agricultural productivity and local food security.
Chapter 6
Climate change is a global public-goods problem. Addressing it will require collaboration, comparability and transparency of action, and the means to ensure a level playing field. Developing countries with no broader recourse demand a platform to engage with large emitters who have caused the problem. As such, a multilateral approach will always be needed.
However, with the establishment of the Paris Agreement and its rulebook, the COP process has largely done its job. Consensus has been secured on the headline mitigation goal, and a robust transparency framework has been set in place, accompanied by a periodic ratchet mechanism to drive up ambition. COP29 can add the final pieces of the puzzle with a decision on the new collective quantified goal that is commensurate with the scale of the need, and an Article 6 decision that helps unlock potentially tens of billions of dollars for decarbonisation in developing countries through the use of carbon markets.
To be most effective moving forward, parties should work to streamline and structure the proliferation of funds, sector initiatives and coalitions that have developed in recent years. While well-intended, the complexity of the current architecture risks limiting the bandwidth of key actors to deliver impact. Considering three-year cycles through a troika of presidencies is a good start, and greater coordination and forward planning can strengthen this model. Formalising and solidifying the action agenda for non-state actors would also add value. Ultimately, these events must pivot from being platforms for discussion to drivers of implementation, leading to action and investment in the real economy.
Chapter 7
Tackling climate change will require acknowledging the drivers that make it so hard to reduce emissions. Emissions are still growing, demand for oil and gas remains at its peak, and development and growth in EMDEs will make it challenging to reverse this trend.
But there is still a chance to turn the tide. Recognising these facts allows us to recalibrate how leaders across the world approach the climate question.
In order to have a chance of staying within global temperature goals, high-income countries should now be focusing on addressing the rapidly rising emissions from EMDEs, as well as their own domestic decarbonisation.
High-income countries should be including, within their plans to meet their next climate targets, tangible commitments to finance emissions reductions in other jurisdictions. Investing in decarbonisation in other economies would not only support market creation, it could also deliver significantly greater levels of abatement in the short term. This requires a major shift in climate policy, with a focus on financing the global energy transition, harnessing the potential of the international carbon market, and accelerating technology development for both mitigation and adaptation.
By taking these steps, the world can move closer to achieving the 1.5-degrees target and mitigate the worst impacts of climate change. However, time is of the essence. Without urgent action, the window of opportunity to prevent catastrophic climate impacts will soon close. It is therefore critical that leaders reimagine the strategy to reduce global emissions, and work to accelerate the transition to a sustainable, low-carbon future.