Luxembourg bets on public spending luring investors after tense climate talks

COP29 ended close to two days late with a deal that many find insufficient, but for Luxembourg environment minister Serge Wilmes, the decision to triple annual public investments into climate change sends the right message to private businesses.

After two weeks of negotiations fraught with tensions – partly due to Donald Trump’s re-election in the US – the Azerbaijani COP presidency in the early hours of Sunday presented its deal.

Developed countries have pledged to provide at least $300 billion annually by 2035, through a wide variety of sources, including public finance as well as bilateral and multilateral deals to help poorer countries deal with the impact of climate change and future-proof their economies.

The agreement also calls on parties to work toward unleashing a total of $1.3 trillion a year, with most of it expected to come through private financing.

“If we want to gather the trillions we need, that only works with private funds. It’s wrong to think we’ll get to trillions with public investments alone. It’s only with trillions that we can do that,” Wilmes told the Luxembourg Times in an interview.

Sending out a message

One of the first drafts tabled by the EU, US and other rich states had proposed to update the $100 billion annual funding set in 2009 and increase it to $250 billion. Many developing countries deemed the number too low.

How much each rich country has to contribute has not been determined, but Luxembourg, alongside Denmark, announced they would proactively increase their contribution. The gesture is “an enormous asset for the EU”, said Wilmes.

“For Luxembourg, this concretely means that, since there is no allocation right now, we decided in advance that over the next five years we should increase our investments by another €100 million in climate finance,” Wilmes said.

For the Grand Duchy, this would represent €320 million invested in climate change projects over a five year period, or, as Wilmes underlined, €100 per capita per year.

Luxembourg is not an island, and “climate change doesn’t stop at the border” so “we’re dependent on what happens in the world,” Wilmes continued, adding that the country needs to “take responsibility” and support the countries that cannot achieve a green transition on their own.

By upping its own public investments, Luxembourg aims to attract private investments through the “leverage effect”, and divert financial flows from fossil fuel projects “that are running out of time” towards adaptation projects and renewable energy, Wilmes said.

Further progress

“What’s important too is that we can extend the voluntary contributor base with countries like China, who are motivated but who see themselves as a developing country,” the minister also said.

China in 1992 was determined to be a developing country, but debates have arisen repeatedly over recent years to re-evaluate its status in light of its development.

The COP parties also reaffirmed their support of the UAE Consensus adopted during last year’s climate summit, which foresaw heavy investments in renewable energy and the phasing out of fossil fuels.

A separate text calls on parties to “contribute to the global efforts” toward that landmark agreement, without explicitly naming fossil fuels.

Tense negotiations

Argentina withdraw from this year’s COP negotiations shortly after they started. In the US Donald Trump was re-elected into office and is set to withdraw the country from the Paris Agreement a second time. This left COP talks in a “tense mood”, said Wilmes, who attended negotiations during the second week.

“You could tell that there was a lot of wrestling to come to an agreement,” he said.

The Azerbaijani presidency “seemed overwhelmed and without clear plans”, which was “a really big issue” for the event, the environment minister said.

“There was no clear leadership” which made keeping the 1.5°C goal from the Paris Agreement within reach difficult. Some of the rich countries, alongside India and China collaborated to push for a deal, he said.

The promised funding, however, falls short of the trillions of dollars poor and vulnerable nations say they need to climate-proof their economies. They also want more of that money to come in the form of grants and other affordable financial support, since market-based loans risk deepening their debt burdens.

India was among the countries contesting the final deal.

The climate story is more urgent than ever and the Luxembourg Times is making all of its COP29 coverage available for free. You can support our journalism by choosing a subscription that works for you. Visit our online shop to view our monthly, 3-month and yearly plans.