Last year’s United Nations Climate Change Conference ( COP29 ) in Baku ended with developed countries agreeing to mobilize US$300 billion annually for climate finance in developing countries. But while this figure is three times higher than the previous US$100 billion target, it falls far short of what’s needed to close the climate funding gap.

The challenge today is more complex than when the Paris climate agreement was signed in 2015. Back then, the US$100 billion figure was largely arbitrary, not based on a full analysis of actual investment needs. By contrast, COP29 had to estimate real costs and determine how much external financing would be required.

A report by the Independent High-Level Expert Group on Climate Finance ( IHLEG ), of which I am a member, finds that developing countries ( excluding China ) will need US$2.4 trillion to US$3.3 trillion in climate investments by 2035. About 60% of this could be financed domestically through higher savings and reduced public deficits. Even so, after reallocating existing investments toward the green transition, a US$1 trillion shortfall by 2030 – rising to US$1.3 trillion by 2035 – remains. Closing this gap will require external funding.

While COP29 acknowledged the scale of the financing gap, it failed to agree on how to close it. Developing countries pushed for wealthier economies to cover the shortfall with public funds, but developed countries offered only US$300 billion annually – and even that came with a caveat: they would only “take the lead” in mobilizing funds rather than guaranteeing direct provision.

The IHLEG report suggests that US$650 billion of the funding gap by 2035 could be met through private investment, including equity and debt. But this exposed a deep divide. Developed countries favoured private capital to ease budget pressures, while developing countries, aware of its volatility, insisted on public funding for accountability and predictability.

Scepticism around private finance is warranted. Many developing countries struggle to attract private investment, relying instead on grants and concessional long-term loans. Shifting these limited public resources to low-income economies means middle-income countries will have to rely even more on private capital – despite investor uncertainty.

Private climate finance will grow from US$40 billion in 2022 to an estimated US$650 billion by 2035, according to the IHLEG. But most investment remains concentrated in a few markets, making access unequal and uncertain. Falling renewable-energy costs could boost green projects over fossil fuels, but the transition’s pace remains unclear.

Even when private capital is available, domestic policies often discourage investment. Many governments artificially lower energy prices for political reasons, making electricity providers financially unviable. Foreign investors understandably see this as a fundamental risk and hesitate to invest. If private finance is to play a bigger role, governments must reform energy pricing, strengthen regulations, and cut bureaucratic red tape to attract investment.

Public sector support remains crucial. Multilateral development banks ( MDBs ) and bilateral institutions can lower risks for private investors through risk-sharing mechanisms while helping governments create stable, investment-friendly environments.

COP29’s failure to secure a stronger funding deal means a renegotiation is unlikely until the next global stocktake in 2028. However, gaps can still be bridged. Expanding MDB lending – which has lagged behind climate needs – could provide much-needed capital while countries work on long-term policy solutions.

COP29’s final statement pointed to an opportunity to make real progress ahead of COP30 in Belém, Brazil. But one key factor will determine success: developed countries’ willingness to commit more financial resources.

This has become even more uncertain with Donald Trump’s return to the White House. His administration’s hostility to global climate efforts, and its push for fossil-fuel expansion, will likely weaken international climate finance. The US is already scaling back existing commitments, further delaying climate negotiations.

Given how slow and bureaucratic these discussions have become, it’s worth asking: Are massive annual COP meetings still the right approach? With tens of thousands of government officials, business leaders, and NGOs gathering each year, the urgency of the climate crisis demands more focused, results-driven decision-making.

One alternative is to delegate key financing negotiations to smaller, specialized groups. The G20, for example, lacks universal representation but includes all major economies – developed and developing – accounting for 80% of global GDP and emissions, and two-thirds of the world’s population. More importantly, its members control the world’s largest multilateral development banks, making it a natural platform for driving climate finance.

Another option is Brics, which has positioned itself as a counterweight to Western-led financial institutions. With China, India, Brazil and other key developing countries playing a central role, the Brics could mobilize alternative sources of green finance, reducing dependence on Western funding and pushing for fairer access to carbon markets.

If either the G20 or the Brics were to take the lead in climate finance, the focus would need to be on expanding MDB lending capacity, leveraging private capital, and incentivizing large-scale investments in climate adaptation and mitigation.

With COP29 failing to secure an adequate funding framework, developing countries are left with more questions than answers. As the financing gap continues to grow, incremental pledges are no longer enough. The real question now is whether the COP process is still the best place for these negotiations.

If major economies keep delaying real commitments, India, Brazil and South Africa may have little choice but to push for climate finance talks to shift to platforms like the G20 or Brics.

For COP30 to succeed where COP29 failed, it must move beyond vague pledges to secure clear, enforceable financial commitments. Otherwise, the world will once again gather, negotiate, and leave with little progress – while the climate crisis continues to escalate.

Montek Singh Ahluwalia is a distinguished fellow at the Centre for Social and Economic Progress and a former deputy chairman of the Planning Commission of India.

Copyright: Project Syndicate