In 2009, developed countries pledged to provide $100 billion annually to support developing countries facing a worsening climate crisis. More than a decade later, this commitments remains largely unfulfilled, leaving the most vulnerable countries to bear the brunt of climate impacts with insufficient resources (Nurhidayat, 2024). The 29th Conference of the Parties (COP29), held this year in Azerbaijan, with climate finance as its central theme, aimed to chart a new course. Negotiations focused on setting the New Collective and Quantified Goal (NCQG) to mobilize the trillions of dollars needed to drastically reduce greenhouse gas emissions and protect livelihoods from the increasingly severe impacts of climate change. However, despite these lofty ambitions, developed countries only committed to provide $300 billion per year until 2035, a figure that is far from sufficient for recipient countries.
The lack of climate finance is not only a broken promise, but also reflection of the structural inequalities that reinforces imbalances in the global economy. While developed countries push for greener trade practices, their failure to provide sufficient financial and technological assistance places an unfair burden on developing nations, marginalizing them in global trade.
Persistent Structural Challanges
The shortcomings seen at COP29 reflect deep-rooted challenges in global environmental governance. Two significant political hurdles have consistently hindered progress. First, the political framework of international agreements such as the Paris Agreement is based on voluntary commitments. This allows major polluters like the U.S. and China to participate selectively, thus weakening the capacity of global norms to drive significant change, as compliance is not consistently enforced across countries.
Secondly, the historical conflicts between the Global North and South remain unresolved. Developed nations, which have benefited from industrial growth through environmentally destructive practices, now advocating for stringent international environmental regulations that developing countries must adopt and follow. This expectation often overlooks the financial and technological challenges faced by the South.
The principle of Common but Differentiated Responsibilities and Respective Capabilities (CBDR-RC) is crucial in this regard. It recognizes that both developed and developing countries share the obligation to undertake environmental protection, but emphasizes that developed countries should bear more significant financial and technological responsibilities due to their historical roles in climate change. Despite its importance, the application of this principle has been inconsistent, as highlighted by the contentious discussions at COP29.
The Unspoken Trade Crisis of the Climate Finance Gap
Another aspect of inequality is brought to light by the relationship between international trade and climate action. Green trade policies are adopted more often by developed countries, often at the expense of poorer countries, to achieve their own economic and environmental goals. The European Union’s Carbon Border Adjustment Mechanism (CBAM) is a clear illustration of this.
The cost differential between imported goods from countries with lenient or non-existent carbon pricing regimes and domestic industries subject to stringent carbon pricing regulations is meant to be addressed by CBAM (Larbprasertporn, 2014). Importers are required to purchase carbon credits under CBAM that are equivalent to the carbon price that would be charged if the goods were made in the EU. CBAM aims to stop industries from switching to “carbon-free” practices by balancing the cost of carbon. CBAM aims to address cost disparities between domestic industries, which face strict carbon pricing policies, and imported products from countries that have weaker or no carbon pricing systems. Under CBAM, importers must purchase carbon certificates equivalent to the carbon price that would have been applied if the goods had been produced within the EU. By equalizing carbon costs, CBAM seeks to prevent industries from relocating to “carbon havens” and ensure the integrity of global efforts to limit carbon emissions. However, this regulations disproportionately affects exporters from the Global South. These countries often rely on carbon-intensive industries due to limited access to cleaner technologies and high costs of transitioning to greener alternatives—an inequity largely overlooked during the industrial rise of developed countries. As a result, developing countries, already facing significant financial and technological challenges, are now expected to meet stringent environmental standards that the developed countries largely avoided during their own industrialization. For many developing countries, such as those in Africa and Asia, CBAM could have a significant impact on the competitiveness of their export, particularly in industries like steel, cement, and textiles, which are key to their economies (Jha, 2023).
Look at Zimbabwe, for instance. The country exports 92% of its iron and steel to the EU, but its carbon intensity is over seven times higher than the EU average because it relies on coal-fired electricity for steel production. Meeting CBAM requirements would mean costly technology upragdes—costs Zimbwabwe simply can’t shoulder. India faces a similar challenge, with industries like cement and stell now scrambling to comply with CBAM’s carbon accounting rules while trying to remain competitive (Maliszewska et al., 2023).
Not only countries, policies like CBAM pose unique challenges to small and medium enterprises (SMEs) in developing countries. These businesses must not only adopt carbon accounting measures but also ensure independent verification of emissions (Maliszewska et al., 2023). This is an added compliance burden that can prove very challenging for small and medium enterprises in developing economies that must first understand the complex legislation and pay a hefty price for their exports that don’t meet advanced decarbonization standards set by the EU. For SMEs with limited resources, these compliance requirements can lead to supply chain disruptions and increased costs for goods exported to green markets.
Moving Forward
The climate crisis knows no borders, yet current approaches to climate finance and trade continue to deepen existing global inequalities. COP29, which symbolized this inequality, again ended with a shortfall in funding commitments for developing nations. This persistent gap underscores the urgent need for transformative solutions to effectively address the crisis.
A critical step forward lies in establishing legally binding regulations to ensure accountability and drive tangible progress. This can strengthen trust between developed and developing countries, ensuring compliance while promoting inclusive trade practices that empower developing countries to compete on an equal footing in the global market.
Equally important is the need for robust auditing mechanisms to enhance transparency and ensure the efficient use of resources. Independent oversight, led by the United Nations or coalitions of developed and developing nations, could prevent the misuse of funds and maximize their impact.
Finally, the principle of CBDR-RC must be operationalized more effectively, with developed nations providing the financial and technological support needed for the Global South to meet green standards. Only through comprehensive and inclusive measures can the world move toward a sustainable and equitable future.
The climate crisis demands collective action, but that action must be fair and just. The decisions made today will shape not only the planet’s future but also the global economy’s inclusivity. It’s time for developed nations to honor their commitments, not as acts of charity, but as a shared responsibility to ensure a livable planet for all.
