Monty Singh Ahluwalia: Former Vice Chair of the Planning Commission of India, is a distinguished fellow at the Centre for Social and Economic Progress.
New Delhi – The United Nations Climate Change Conference (COP29), held in Baku last year, concluded with developed nations agreeing to mobilize $300 billion annually to fund climate initiatives in developing countries. However, while this figure is three times the previous target of $100 billion, it still falls far short of what is needed to bridge the climate financing gap.
Today’s challenge is more complex than it was when the Paris Climate Agreement was signed in 2015. At that time, the $100 billion figure was largely arbitrary and not based on a comprehensive analysis of actual investment needs. In contrast, COP29 had to estimate real costs and determine how much external financing would be required.
The report from the High-Level Expert Group on Climate Finance (IHLEG), of which I am a member, finds that developing countries (excluding China) will need $2.4-3.3 trillion in climate investments by 2035. About 60% of this amount can be financed locally through increased savings and reduced public deficits. However, after reallocating current investments toward green transitions, a gap of $1 trillion remains by 2030, increasing to $1.3 trillion by 2035. Closing this gap will require external financing.
While COP29 acknowledged the size of the financing gap, it failed to agree on how to address it. Developing countries pushed wealthier economies to cover the shortfall through public funds, but developed nations offered only $300 billion annually – with the caveat that they would take “leadership” in mobilizing the funds instead of guaranteeing direct provision.
The IHLEG report indicates that $650 billion of the financing gap by 2035 could be met through private investment, including equity and debt. However, this highlighted a significant divide. Developed countries preferred private capital to alleviate budget pressures, whereas developing nations, aware of its volatility, insisted on public financing to ensure accountability and predictability.
Skepticism about private financing is warranted. Many developing countries struggle to attract private investments, relying instead on grants and concessional long-term loans. Channeling these limited public resources into low-income economies means that middle-income countries will have to increasingly rely on private capital – despite investor uncertainties.
Private climate financing is expected to grow from $40 billion in 2022 to around $650 billion by 2035, according to the IHLEG report. However, most investments continue to concentrate in a few markets, making access unequal and uncertain. Decreasing renewable energy costs may boost green projects at the expense of fossil fuels, but the pace of transition remains unclear.
Even when private capital is available, local policies often deter investment. Many governments artificially lower energy prices for political reasons, leaving electricity providers financially unable to sustain operations. Foreign investors see this as a fundamental risk and are hesitant to invest. If private financing is to play a larger role, governments must reform energy pricing, enhance regulations, and reduce bureaucracy to attract investment.
Public sector support remains crucial. Multilateral banks and bilateral institutions can mitigate risks for private investors through risk-sharing mechanisms while helping governments create stable and attractive investment environments.
The failure of COP29 to secure a stronger financing agreement means that renegotiation is unlikely until the next global review in 2028. Nevertheless, gaps can still be closed. Expanding lending from multilateral banks – which have lagged in meeting climate needs – can provide the much-needed capital while countries work on long-term policy solutions.
The COP29 closing statement highlighted an opportunity for significant progress before COP30 in Belém, Brazil. However, a key factor will determine success: the willingness of developed nations to commit more financial resources.
This has become increasingly uncertain with Donald Trump’s return to the White House. His administration’s anti-global climate efforts and push for expanded fossil fuel use are likely to undermine international climate financing. The U.S. is already scaling back existing commitments, further slowing climate negotiations.
Given the slow pace and bureaucracy characterizing these discussions, one might question whether the massive annual COP meetings remain the most suitable approach. With tens of thousands of government officials, business leaders, and NGOs gathering each year, the climate crisis requires more focused decision-making and clear outcomes.
One alternative is to delegate key financing negotiations to smaller, specialized groups. For instance, while the G20 does not provide global representation, it includes all major economies – both developed and developing – that account for 80% of global GDP and emissions, as well as two-thirds of the world’s population. Notably, its members control the largest multilateral development banks, making it a natural platform to drive climate financing.
Another option is BRICS, which positions itself as a counterweight to Western-led financial institutions. With China, India, Brazil, and other major developing countries playing central roles, BRICS can mobilize alternative sources of green financing, reduce reliance on Western funding, and advocate for fairer access to carbon markets.
If the G20 or BRICS is to take the lead in climate financing, efforts should focus on expanding lending capacity from multilateral banks, utilizing private capital, and stimulating large-scale investments in climate adaptation and mitigation.
As COP29 failed to secure a sufficient financing framework, developing countries are left with more questions than answers. With the financing gap continuing to grow, incremental commitments are no longer sufficient. The real question now is: Is the COP process still the best venue for these negotiations?
If major economies continue to postpone real commitments, India, Brazil, and South Africa may have no choice but to push for transitioning climate financing negotiations to platforms like the G20 or BRICS.
For COP30 to succeed where COP29 failed, it must go beyond vague commitments to secure clear and actionable financial obligations. Otherwise, the world will gather again, negotiate, and leave without making significant progress – while the climate crisis continues to escalate.
