By Kundan Pandey
Since 2017, the union government has tabled the annual budget on February 1. When union Finance Minister Nirmala Sitharaman finished presenting the 2025 budget, a familiar pattern emerged. Allocations for renewable energy, irrigation, disaster response and resilience had increased. None of these heads were labelled as climate finance. Yet all of them paid for climate action.
Together, these heads account for billions of rupees in public spending.
This domestic expenditure on climate action far exceeds the climate finance India receives from international sources. It highlights a core reality. In India, and countries like it, climate action is financed mainly through local resources rather than global funds, despite the country’s limited role in causing the climate crisis and its high vulnerability to climate impacts.
This has caused frustration among developing countries. This was evident during COP29, held in Baku in 2024. It was described as a “finance COP,” and was expected to deliver a new climate finance goal- the financial support from developed to developing countries for meeting climate goals. India, along with other developing nations, argued that the scale of finance must reflect real needs. It also stressed that public finance, not loans or private capital, should form the backbone of support.
But the New Collective Quantified Goal (NCQG), agreed at the last minute, drew criticism from developing countries. India formally registered concerns, both over the way the agreement was reached and over the final figure of $300 billion.
The money question lingered
Although Baku gavelled a finance deal, climate finance remained at the centre of climate diplomacy through 2025. The issue also dominated domestic transition debates. The mid-year climate talks in Bonn reflected this tension. The meeting was delayed by nearly two days due to disagreements over the agenda. Developing countries pushed for formal discussions on the climate finance obligations of developed nations. They also raised concerns over unilateral trade measures such as the European Union’s Carbon Border Adjustment Mechanism.
Finance discussions in Bonn included the Baku-to-Belém Roadmap. The roadmap aims to mobilise $1.3 trillion in climate finance from all sources by 2035. Yet disagreements over responsibility and scale continued.
In July, the International Court of Justice issued a landmark advisory opinion on climate change. It affirmed that countries have legal obligations under international law to address climate change and uphold climate justice. The advisory stressed that wealthy, high-emitting nations must lead emissions reductions and provide reparations for climate harm. It strengthened the legal position of vulnerable countries seeking support.
Brazil, the host of COP30 — described as an “implementation COP” — pressed countries to find ways to mobilise climate finance- the $1.3 trillion Baku-to-Belém Roadmap. However, a report released two days into the summit highlighted the gap between ambition and reality. It is estimated that developing countries, excluding China, would need $2.4 trillion annually by 2030. This requirement could rise to about $3.2 trillion by 2035.
These assessments also exposed other limitations. For instance, the World Bank, which plays a central role in channelling climate finance, faces capacity constraints. Private investment, long projected as a solution, continued to fall short. Risk perceptions and systemic biases against emerging economies kept capital costs high. It made green transitions more expensive for developing countries.
At the same time, new ideas began to emerge. Economists Abhijit Banerjee, Esther Duflo, and Michael Greenstone proposed a framework combining taxation, direct benefit transfers, and insurance. The aim was to raise and distribute climate finance more effectively and equitably.