As COP29 approaches in Baku, Azerbaijan, the spotlight on climate finance has never been more intense. From technological investments to adaptation measures, the upcoming negotiations aim to shape a new climate finance target. With India and other developing nations at the forefront, achieving a balance between domestic needs and international commitments is crucial. In the lead-up to COP29, securing effective climate finance is as critical as the 2015 Paris Agreement. Discussions on financial flows, domestic challenges, international commitments, and the role of private finance highlight the complexity of the issue.
Legacy of the $100 billion target
In 2009, developed nations committed to mobilising $100 billion annually by 2020 to assist developing countries in their climate efforts. However, this figure has only been reached once, in 2022, with $116 billion mobilised. Yet, reports indicate that developing nations require between $400 billion and $500 billion annually for climate goals, according to UN estimates. Countries like India, with their unique economic and social structures, must navigate these negotiations carefully to secure fair financial commitments that align with their ambitious decarbonization goals.
Ashwini Swain, fellow at the Centre for Policy Research spoke to The Daily Guardian on financing India’s power sector transition, he said, “The biggest risk to private investment in India’s power sector is the low ability to recover costs from consumers. Unless we address that, financing will remain a challenge. India’s energy transition is moving in a unique direction. The international community should recognize this and focus on emissions reduction rather than coal replacement alone. Mobilising private capital requires substantial risk mitigation. The government can play a role here by channelling public funds as catalysts.”
Domestic vs. international climate finance
India’s climate finance largely relies on domestic sources, with estimates suggesting 80–85% of required funding coming from within. In recent years, the global climate finance conversation has primarily focused on international flows, but for nations like India, domestic finance remains the primary source of funding. Domestic financing in India sees an even split between public and private contributions, with public sources including concessional loans from multilateral development banks (MDBs) and government grants, while private sources range from venture capital to utility-scale investment funds.
However, international finance, while covering a smaller share, is still essential. In 2023, data showed that only a fraction of private finance targets, particularly for developing countries, were met. The high cost of capital for renewable projects in developing countries also poses a barrier. For example, solar project financing can reach up to 11.4% in India compared to 2.8% in Germany, highlighting the prohibitive capital environment that inhibits private investment.
India’s green hydrogen transition: Promise and financial burden
In an interview, Prabodh Acharya, Chief Sustainability Officer at JSW, underscored India’s initiatives in green hydrogen production. While green hydrogen offers an alternative to fossil-fuel-based steel production, its current costs make large-scale deployment challenging. At present, green hydrogen production costs are around $5–6 per kilogram, while steel production needs this cost to be below $2 per kilogram to compete with coal. This disparity leads to an estimated doubling of steel prices for consumers, challenging the affordability of green alternatives.
JSW’s aim to install 25 MW of electrolyzers by 2025 is a step towards cleaner steel production. However, to make the technology commercially viable, substantial climate finance and international support are necessary. Achieving the government’s goal of using green hydrogen of 5 million tonnes of green hydrogen by 2030 would require further cost reductions, which depend heavily on global investments and innovation in green energy technology.
Global climate finance needs: New targets and contentious politics
COP29 will be pivotal in setting the tone for climate finance, with developing countries pushing for an ambitious annual target of $1–2 trillion. While the G77 nations, including India, demand this higher target, developed countries have advocated for a multi-layered target structure. This would entail a smaller core public finance commitment and a larger private finance mobilisation commitment. But private finance’s volatility—motivated by profitability rather than public good—has raised concerns over accountability and transparency.
The divide over funding structure is further complicated by developed nations’ calls for expanding the contributor base. The US and EU have suggested that wealthier developing nations like China and Gulf states contribute to the climate finance pool. Developing countries argue that any expansion of contributors should occur through a multilateral, negotiated process, rather than being top-down decisions from wealthier countries.
Adaptation finance: Growing priority for India
Ashish Chaturvedi, Head – Action for Climate and Environment, UNDP India spoke to the media on international climate finance, saying, “Developing countries like India need more support in adaptation finance, especially for vulnerable communities, as private capital rarely flows into adaptation efforts due to low returns. The focus on risk mitigation mechanisms is crucial, but they need more robust backing from state governments and policy changes.”
Further on Just Energy Transition Partnerships (JET-P), Chaturvedi said, “India’s approach to energy transition may differ, but we need to be proactive in setting our investment priorities if international support isn’t aligned with our needs. JET-P funding structures may need reevaluation, as traditional approaches may not work effectively for India’s specific transition requirements.”
Adaptation finance is emerging as a critical point for India and other climate-vulnerable nations. Developing countries are increasingly vocal about the necessity for adaptation funding—particularly for resilience against extreme weather events and climate-induced disasters. In India, adaptation needs are estimated to reach $1.5 trillion by 2030, but adaptation funding often loses out to mitigation projects in international negotiations. The Center for Science and Environment (CSE) stressed that adaptation finance must be separate from loss and damage funds, given its direct impact on sustainable development.
Achieving meaningful adaptation finance requires concessional terms or grant-based funding rather than high-interest loans, which burden developing countries with further debt. India’s adaptation demands are tied not only to physical resilience but also to sustainable development, particularly for the economically vulnerable. As India’s climate risks increase, it is crucial that adaptation finance flows are stable, accountable, and primarily in the form of grants.
Domestic policy and institutional reforms
Domestically, India is also grappling with the energy transition, with 100 GW of renewable capacity planned by 2030. According to CSE, significant reforms in India’s energy sector are needed to attract the scale of private investment required to meet these targets. Issues like cost-recovery challenges, high capital costs, and state-level fiscal constraints hinder India’s ability to attract climate finance effectively.
The Government of India has proposed regulatory changes, including streamlined investment policies and cost-recovery measures. By improving these areas, India could better leverage its resources while positioning itself as a viable partner in global climate finance.
Utkarsh Patel, Associate Fellow at the Centre for Social and Economic Progress (CSEP) says, “India will need an additional $100 billion per year to finance energy and related sectors for decarbonization until 2030. This investment needs to come from both domestic and international sources. We need to fix our policies to attract private investment. Relying solely on developed countries to fund private sector investments may not be viable. The structure of bilateral investment treaties is one example where reforms could lower risks for foreign investors and increase FDI in India.”
A call for action at COP29
The outcomes of COP29 will hinge on equitable climate finance agreements that recognize both historical emissions and future obligations. As India advocates for climate justice and fair financial commitments, it also underscores the need for quality finance—highly concessional loans, grant-based funding, and assured flows—to avoid exacerbating its debt burdens.
India’s approach to COP29 involves pragmatic financial tasks: sector-specific needs, pathways for transitioning coal-dependent regions, and a clear framework for adaptation finance. These demands echo the realities of a rapidly industrialising nation facing rising climate impacts.
Also read: India’s renewable energy investment gap
The pathway to achieving COP29’s ambitions is steep and requires substantial commitment from both developed and developing nations. For India, securing just, transparent, and adequate climate finance will not only support its climate goals but also contribute to a global transition that is equitable and sustainable for all.