The global discourse on climate finance is at a critical juncture. The United Nations Environment Programme (UNEP) defines climate finance as funding that supports climate action, sourced from various channels. However, the current framework is insufficient and heavily skewed towards mitigation efforts rather than adaptation. Despite agreements like the one reached at the UN climate conference in Baku, concerns persist regarding financial mechanisms and transparency. Developing nations, including India, have expressed dissatisfaction with the lack of adequate financial support to meet their climate goals.

Insufficient Climate Finance Fuels Controversy and Calls for Reform

In the heart of this debate lies the issue of inadequate climate finance, which remains a contentious topic despite international agreements. Only 13 out of 195 countries that signed the Paris Agreement submitted their Nationally Determined Contributions (NDCs) by the February deadline. India, among others, missed this deadline, highlighting ongoing frustrations over climate finance commitments made at COP29 in Baku. According to India’s latest Economic Survey, the climate finance deal at the last UN climate conference does not align with the urgent needs of this decade, emphasizing the gap between agreed-upon funds and actual requirements.

Developed countries are primarily responsible for providing climate finance, following the polluter-pays principle introduced in the 1992 Rio Declaration. This principle mandates that those responsible for environmental damage should bear the cost of addressing it. In 2009, developed nations pledged to mobilize $100 billion annually by 2020 to support climate actions in developing countries. However, the OECD's 2024 report, which claimed that developed countries had mobilized $115.9 billion in 2022, has been widely questioned due to its methodology. Experts argue that debt and equity should not qualify as financial support, as they are returnable capital.

Furthermore, climate finance remains highly concentrated on mitigation efforts, with nearly 60% of total finance directed toward energy and transportation projects. Adaptation initiatives, crucial for vulnerable communities, remain underfunded. Debt-based financing dominates, accounting for 72% of all climate finance, while grants make up only 25%. This model dilutes the benefits of funded initiatives, as returns must flow back to lenders, reducing resources available for long-term climate action.

Pathways to Reform and Equitable Distribution of Climate Finance

The outcome of COP29 has sparked discussions on ensuring sufficient climate finance mobilization. Suggestions range from better accounting methods to structural reforms of financial institutions. The ADB Institute policy brief calls for an enhanced evaluation process to assess initiatives accurately and balance funding mechanisms between mitigation and adaptation, as well as debt versus equity. Similarly, a paper by the Stockholm Environment Institute advocates for reforms in debt practices, taxation systems, and financial institutions to address climate finance shortfalls.

Rohit Azad, an assistant professor at Jawaharlal Nehru University, emphasizes the need for a neutral international body to fairly distribute climate finance based on historical emissions. He also stresses the importance of an alliance among Global South countries to strengthen negotiations. While securing finance from developed countries remains crucial, experts highlight the necessity of exploring domestic resource mobilization. Barua notes that many developing countries are not fully tapping into their domestic funding potential, especially as climate finance may dry up after significant geopolitical shifts, such as the U.S. withdrawal from the Paris Agreement.

In conclusion, the path forward requires comprehensive reforms in climate finance mechanisms, equitable distribution of funds, and stronger alliances among developing nations. Only through these measures can we hope to bridge the gap between agreed-upon commitments and the urgent needs of this critical decade.