Climate Finance: Who Pays?

How money flows to help developing countries cut emissions and adapt, the promises rich countries made, and the debate over whether they are enough.

Developing countries need large investments to build clean energy and adapt to climate change. Many argue rich countries, which emitted most historically, should help pay. This money is called climate finance.

The 100 billion dollar promise

In 2009, at the Copenhagen climate conference, developed countries pledged to mobilise 100 billion dollars a year in climate finance for developing countries by 2020. According to the OECD, this goal was met only in 2022, two years late. Critics noted that much of the money was in loans rather than grants, and some was counted in generous ways.

The new goal

At the COP29 conference in Baku in 2024, countries agreed a New Collective Quantified Goal: developed countries would lead in providing at least 300 billion dollars a year by 2035, with a broader aim of scaling up total finance from all sources to 1.3 trillion dollars a year. Many developing countries, including India, criticised the amount as far too low compared with their needs.

Sources of climate finance

Public grants and loans from rich-country governments.
Multilateral development banks, such as the World Bank and Asian Development Bank.
Private investment mobilised by public money.
Dedicated funds, such as the Green Climate Fund, set up under the UN climate process.

Loss and damage

Beyond cutting emissions and adapting, some climate damage cannot be avoided. At COP27 in 2022, countries agreed to create a fund for loss and damage to help vulnerable countries recover from climate disasters. It was made operational at COP28 in 2023, though initial pledges were modest.

Why the debate is hard

Fairness: developing countries emphasise historical responsibility.
Budgets: rich-country governments face pressures at home.
Accounting: disagreements over what counts as climate finance.
Effectiveness: ensuring money reaches projects that work.

The cost of capital

Building a solar farm in a developing country may cost similar amounts in equipment as in a rich country, but investors demand much higher interest rates because of perceived risks. Higher borrowing costs can make clean energy far more expensive. Public finance that lowers risk, such as guarantees, can make projects viable and attract private investment.

Thinking climate finance is charity

Many see climate finance as reflecting responsibility for past emissions and self-interest, since emissions anywhere affect everyone. It is also often loans and investments, not only grants.

Key takeaways

Developed countries pledged 100 billion dollars a year by 2020, met only in 2022.
COP29 in 2024 set a goal of at least 300 billion dollars a year by 2035.
Finance comes from governments, development banks, private investors and dedicated funds.
A loss and damage fund was created at COP27 and made operational at COP28.