Opinion India has to be pragmatic on climate finance
The cynicism and weariness among donors and recipients with regard to the effectiveness of aid are equally true for climate finance. Also, debt is at an all-time high, especially in advanced economies
People walk outside the venue for the COP30 UN Climate Summit in Belem, Brazil. (AP Photo/Joshua A. Bickel) Each year after the signing of the Paris Agreement, delegates descend from across the world to forge agreement on targets for emissions reduction and financial contributions. This year, too, voices in Belém advocated loudly for a more ambitious text that would bring all fossil fuels within the scope of emission reduction. But, at its conclusion, countries left with a status quo. The request for more climate finance and a “just” transition by India was heard. But to what avail, only time will tell.
Reports pencil in trillions of dollars for climate finance; the puzzle to solve is who will write the checks. Recent developments in financial markets seem to add more pieces. The finance gap is too wide to be filled without a shot of altruism. Belém underlined this fractured world. Two major economies seem to be taking diametrically opposing approaches. The US abstained from COP 30 while revealing plans for strategic oil and gas partnerships. On the other hand, the EU has tightened the noose on its trading partners with a trade-based tax or carbon border adjustment mechanism (CBAM). Caught in the middle are economies such as India that are committed to transitioning, although at a pace different from the EU. The final decision text of COP recognises that trade-based unilateral measures should not be arbitrary and discriminatory. The win is partial as CBAM goes live in January 2026.
The IEA’s and OPEC’s projections are not the same for short-term oil demand — the latter’s are higher. The US’s shale boom also coincides with the IEA moving the peak for oil demand from 2030 to 2050. Even on the finance side, the statistics pique curiosity. As per the IEA’s estimates, $3.3 trillion was invested in the energy sector in 2024, of which $2.2 trillion was in renewables. But less is known about how much of this has to do with a slowdown in investments by oil-producing countries. The oil and gas market’s resilience is desirable to maintain the fiscal balance among resource-rich economies, including COP 30’s host, Brazil. This explains the resistance to including fossil fuels in the outcome document. For investors, the mixed signals do not make a clear case for putting their weight behind transition.
The hopes of additional finance should be tempered by a pinch of pragmatism. The cynicism and weariness among donors and recipients with regard to the effectiveness of aid are equally true for climate finance. Also, debt is at an all-time high, especially in advanced economies. The market for green finance is already dominated by debt and the limited scope for expanding public debt leaves financing to other forms of capital. There too, investments are not quite aligned. The AI market dominates equity investors’ interests.
Unfortunately, requests by countries like India fall on deaf ears as developed countries are locked in their own echo chambers. The US is on a quest to drill, while the EU is trying to resurrect its competitiveness. India has been pragmatic to set its own terms of oil imports and it is about time it does so on transition finance. India should work its medium-term emission reduction targets based on its domestic savings and investment trajectory. Putting a price on carbon could help navigate private finance questions better.
The writer is associate professor, NIPFP
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