Ahead of COP30, the tension between the ever-growing scarcity of concessional finance for the energy transition, and the weight of what is needed to be on track for 1.5 degrees, can only be resolved with renewed understanding of how public and private finance can work together to mobilise clean financial flows at the scale needed.
Despite another year of record renewable energy investments, global financial flows remain far from Paris-aligned. The investment gap is estimated at ~US$2 trillion annually to 2030 – more than double current levels. The maturity of the renewables sector in particular markets and the record investments have led to confidence in the ‘wall’ of private finance ready to fill this gap.
But this underestimates the persistent challenges that emerging markets and developing economies (EMDEs) face in attracting this investment and the political and technical complexity of the energy transition. Meanwhile, new fossil fuel projects are resurging in 2025 – a reminder that the energy transition is not yet inevitable.
Energy remains at the heart of the global financing challenge
The success of the global energy transition depends on accelerating clean energy investment in EMDEs. While much of this will be delivered domestically and via the private sector, the International Finance Corporation (IFC) and the International Energy Agency (IEA) estimate that $80-100 billion in concessional finance is needed annually by the 2030s to unlock the necessary finance in emerging markets. These economies continue to face structural barriers that limit access to finance, with emerging markets (excluding China) only receiving 15% of all clean energy investments last year – and Africa in isolation receiving 2%.
High risk perception, limited fiscal headroom, underdeveloped capital markets, and currency volatility all combine to increase the cost of capital – often to levels two or three times higher than in advanced economies. Private investors have shown growing interest in emerging markets, but bankable project pipelines remain thin, and policy uncertainty still dampens investor confidence.
This underscores the importance of international public finance not as a replacement for private capital, but as a catalyst – one that can de-risk investments, build capacity, and create the enabling conditions for markets to function. However, with public finance increasingly constrained by aid cuts and competing global demands and with renewables increasingly cost-competitive, how public finance is used must evolve.
Unlocking finance through smarter mechanisms and strengthening architecture for delivery
There is a need to re-envision and reinvigorate the role of international public finance as a catalyst. Below, we suggest a number of measures that could expand in response:
- Guarantees remain an underused tool despite their strong potential to unlock private capital and ability to mobilise finance with less impact on scarce donor budgets. The Green Guarantee Group, launched at COP28, and the Global Guarantee Platform proposal – linking MIGA with national development banks – illustrate how risk-bearing instruments can multiply the impact of limited public funds, especially if action is also taken on a number of regulatory challenges holding them back from meeting their full potential.
- Origination and securitisation: Asset recycling models such as IDB’s ReInvest+ offer a pathway to free up local bank balance sheets by securitising existing climate loans and reinvesting proceeds into new green projects. These are especially relevant for energy assets which, once built, have all of the attributes needed to provide a stable return.
- Country platforms: These enable co-ordination of international finance into country-led plans and a number are expected to show progress at COP30. As well as capital investment, maximising their potential will require multi-year, flexible technical assistance of the type needed to build local capacity and enable predictability. Such an approach has already been utilised to great effect by the Green Climate Fund in supporting Brazil’s Climate and and Ecological Transformational Investment Platform (BIP).
- Funding auxiliary activities critical for a just transition: Maximising the immense potential for local economic growth and maintaining public support for the transition requires investment in associated activities, such as re-training programmes. Public finance can provide the necessary support for these activities, without which clean energy growth will be slower, less predictable and less able to foster international partnership.
- Blended finance platforms like FAST-P, a Singapore-led initiative, are injecting capital into Southeast Asia’s energy transition – demonstrating how partnerships can blend public and private capital to finance industrial transformation. With renewables now cost-competitive in most-regions, these should focus on supporting grid enhancement and deeper decarbonisation measures, such as in heavy industry. To enhance scale potential and ensure a more efficient architecture, the pooling of donor resources into established funds such as the Climate Investment Funds (CIFs) and the Green Climate Fund (GCF) should be prioritised.
- Mechanisms for fossil fuel asset retirement, including the ADB’s Energy Transition Mechanism and the CIF Accelerating Coal Transition (ACT) programme, are testing new ways to use concessional capital to accelerate coal phase-out.
- Preserving and expanding incentives for global public goods: Financial incentive frameworks, such as those agreed under the World Bank’s Evolution agenda, offer a scalable means for generating concessional finance for emissions reductions. These can help the attractiveness of clean energy projects in MDBs, especially as established and broadly supported policies to encourage the acceleration of clean energy development are called into question by a minority of shareholders.
Each of these innovations speaks to a broader truth: the challenge is not just in finding the finance needed, but using it more effectively.
At a critical time for the intersection of climate and development finance, and following the publication of a number of relevant recommendations in last week’s Circle of Finance Minister’s report, there is a risk of inertia in responding to this challenge or of a fragmented response meaning that initiatives are not supported at the scale required to have impact.
As countries respond to the Baku to Belem Roadmap at COP30, they must keep in mind the urgent need not only to agree an overarching reform framework but also to get on with implementing specific reforms at scale and pace. But governments should be under no illusion that there is not a continued role for international public finance as a catalyst.
