NEW DELHI–India faces a $6.5 trillion financing shortfall in its efforts to achieve net-zero carbon emissions by 2070, underscoring the need for greater international investment and reforms to domestic capital markets, according to a new report released ahead of the COP31 United Nations climate conference.
The report, prepared by Australian economist Nicki Hutley, estimates that international financing will need to cover at least 40% of the projected funding gap to support India’s transition toward a low-carbon economy.
Citing an analysis by Indian government policy think tank NITI Aayog, the report estimates that India will require approximately $22.7 trillion in cumulative investment through 2070 to meet its net-zero emissions target. The energy sector alone is expected to account for roughly half of that requirement.
According to NITI Aayog, domestic financial resources could potentially cover slightly more than 70% of the country’s total investment needs. However, reaching that level of financing would require substantial reforms to India’s financial system.
The report identifies several priorities, including expanding corporate bond markets, channeling pension savings into long-term investments, encouraging greater participation from insurance companies and increasing the issuance of green bonds.
It also suggests that partnerships with established financial markets in developed economies could help India strengthen its domestic capital markets and attract additional investment.
The financing challenge reflects a broader shortfall in international climate funding for developing countries, despite decades of commitments from wealthier nations.
The report notes that international climate finance has been part of global climate negotiations since the adoption of the United Nations Framework Convention on Climate Change in 1992, which established the principle that developed countries should provide financial assistance to developing economies.
However, efforts to translate those commitments into funding at the scale required have made limited progress.
“Where we stand now, debate on climate finance, and what is required, has increased in prominence in recent years, as the subject of research, on a range of sectoral conference agendas, and as a key thematic at COPs. This increased focus reflects the urgency of the Net Zero transition and the need to financially support developing economies,” the report said.
The financing requirements of developing countries have also expanded as insufficient progress in reducing greenhouse gas emissions has increased the need for investment in climate adaptation.
While mitigation financing supports efforts to reduce emissions, adaptation funding helps countries prepare for and respond to climate-related risks, including extreme weather events and other environmental disruptions.
The report argues that financial commitments from governments and private investors remain substantially below the levels needed to address both challenges.
It also raises concerns about the failure of developed economies to meet earlier climate financing commitments on schedule.
Following the 2009 Copenhagen climate summit, developed nations pledged to mobilize $100 billion annually by 2020 to support climate action in developing countries.
That target was eventually reached in 2022, two years later than promised, with approximately half of the funding coming from multilateral development banks rather than directly from developed-country governments.
The report also notes that some climate financing has been redirected from existing foreign aid budgets, limiting the amount of additional financial support available to developing nations.
Even after the $100 billion annual target was achieved, the report found that the amount was already far below the estimated financing requirements for emissions reduction efforts across developing economies.
For India, closing the multitrillion-dollar funding gap will depend on expanding domestic investment capacity while securing substantially greater financial support from international sources.
The report concludes that stronger public and private financing commitments, along with structural reforms to capital markets, will be essential to supporting India’s long-term transition to net-zero emissions. (Source: IANS)
