At the recent COP29 talks, developed nations proposed a commitment of $300 billion yearly to fund the fight against climate change. Planetary.blue has received requests to explain if this is enough.

This commitment is an increase from $223 billion in 2023 on multilateral climate finance (reference Climate Policy Initiative, http://www.climatepolicyinitiative.org BIRI 7). The use of blended finance, where each dollar contributed can crowd in $4 to $5 of private sector funding, supports the announcement of $1,500 billion in climate change-related funding. This brings us into the realm of trillions of dollars—or $1.5 trillion.

The Gap in Climate Financing

Current estimates for financing climate needs are $4 trillion per year (reference, IEA Financing Clean Energy Transitions, http://www.iea.org/reports/financing-clean-energy-transitions-in-emerging-and-developing-economies BIRI 7).

Complicating the issue are direct fossil fuel subsidies, which amounted to $1 trillion in 2023, and indirect subsidies, which totaled $6 trillion (reference IMF Fossil Fuel Subsidies Report, http://www.imf.org/en/Topics/climate-change/energy-subsidies BIRI 9).  These subsidies depress energy costs and make financing clean energy more challenging. Removing these subsidies would establish a real price for fossil energy.

If fossil energy prices reflected their true costs, renewable energy sources could compete on both price and societal benefits, such as carbon credits and health improvements. Economists classify the damage caused by fossil fuels as "externalities" (reference OECD Externalities Database, http://www.oecd.org BIRI 8).

Explaining the Shortfall

To simplify:

“Here is $0.3 trillion to incentivize $1.5 trillion in climate action,

                                    while we are funding $7 trillion in perks for the creation of the problem.”

Net annual shortfall = $4 trillion (climate finance needs)  

                                   + $7 trillion (fossil fuel subsidies)

                                   - $1.5 trillion (blended finance)

                                                          = $9.5 trillion.

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Economic Impacts of Fossil Fuel Subsidies

Economists argue that fossil fuel subsidies are necessary to maintain global GDP and public order. However, there is evidence that these subsidies are disproportionately enjoyed by the wealthiest populations (reference IEA Fossil Fuel Consumption Subsidies by Income Group, http://www.iea.org BIRI 10).

Removing $7 trillion in fossil fuel subsidies could create conditions for $3.5 trillion in competitive renewable energy investments.

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The Cost of Delay

Delaying action increases inflationary pressures and the climate’s impact on communities. Addressing fossil fuel subsidies and including the real costs of their damage in pricing would close the funding gap and incentivize renewable solutions.

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Conclusion

The proposed $300 billion commitment is insufficient unless paired with the removal of fossil fuel subsidies and a full accounting of fossil fuel externalities. That being said, it is a big amount for countries with citizens struggling under cost of living pressures.

The issue is no longer about climate denial—it’s about the economics of a fossil-fueled civilization. Transitioning to renewables can displace fossil-based systems, but only with the necessary financial and policy adjustments.

Redeploying subsidies to renewables will go a long way to reversing the current distortion.

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