Climate finance challenge: Climate policy is moving from pledges to pricing. For developing economies, the issue is no longer only how fast they can cut emissions. It is also how much they must pay for the transition, who will finance it, and whether climate rules will become another layer of trade discrimination.
The shift is already visible. The European Union’s Carbon Border Adjustment Mechanism entered its definitive phase on January 1, 2026, requiring importers of covered goods to account for embedded carbon emissions. The UK will introduce its own CBAM from 2027. These measures are presented as tools against carbon leakage. For developing economies, they also raise the cost of exporting steel, aluminium, cement, fertilisers and other carbon-intensive goods into rich-country markets.
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Climate finance gap and carbon trade barriers
The timing is poor. The United States has again stepped back from multilateral climate engagement. Its withdrawal from the Paris Agreement became effective in January 2026, after an executive order in 2025 that also rescinded the US International Climate Finance Plan. The UK has reduced its international climate finance allocation, with the latest government plan setting aside around £6 billion over three financial years, lower than the earlier £11.6 billion five-year commitment.
Developed countries did belatedly cross the earlier $100 billion climate finance goal. The OECD says they exceeded it for a third consecutive year in 2024. But this does not settle the equity question. Much of the finance has come as loans, not grants. Adaptation remains underfunded. The new climate finance goal agreed at COP29 promises at least $300 billion a year for developing countries by 2035, with efforts to mobilise $1.3 trillion annually from public and private sources. The hard question is how much of this will be predictable public finance, rather than a hope placed on private capital.
This will not help the world decarbonise faster if it creates a structural imbalance. Countries with lower historical responsibility are being asked to decarbonise at higher speed, with higher financing costs and growing exposure to carbon-linked trade measures.
India’s climate policy is now shaped less by global signalling and more by domestic necessity. The Carbon Credit Trading Scheme, renewable consumption obligations, extended producer responsibility rules, and India’s updated 2031-35 climate goals point to a more defined national framework. India’s latest NDC says non-fossil fuel power capacity had reached 52.57% of installed capacity by February 28, 2026, and sets a 2035 target of reducing emissions intensity by 47% from 2005 levels.
The West Asia crisis has also underlined a basic constraint. Climate policy cannot be separated from energy security. India must decarbonise while protecting growth, energy access and industrial competitiveness. This is also the central challenge for much of the Global South.
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BRICS climate agenda under India
The multilateral climate process has not delivered equitable outcomes for developing economies. BRICS therefore has an opportunity, and a responsibility, as India chairs the grouping in 2026. India assumed the BRICS presidency on January 1, 2026, and has listed sustainability and resilience among its key pillars.
The expanded BRICS now includes Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Iran, Saudi Arabia, the UAE and Indonesia. Partner countries include several others from Asia, Africa and Latin America. This gives the grouping scale, energy-market weight, industrial depth and negotiating leverage. It also makes climate cooperation more complicated, because the bloc contains fossil-fuel exporters, major manufacturers, large emitters and climate-vulnerable economies.
Yet BRICS should not be treated as a ready-made climate coalition. Its strength is also its complication. The grouping includes large emitters, fossil-fuel exporters, clean-technology manufacturers, forest economies and climate-vulnerable states. This makes a common position harder, but also more useful. If BRICS can agree on practical instruments such as guarantees, carbon-market standards, adaptation finance and emissions-data systems, it can offer the Global South more than negotiating rhetoric.
The first task is finance. The New Development Bank has made climate finance a stated priority. Its 2022-26 strategy aims to direct 40% of total financing to climate mitigation and adaptation, and the bank says it approved $2.5 billion in climate finance in 2024, equal to 55.3% of annual approvals. BRICS discussions on a Multilateral Guarantees initiative are therefore important. The Rio de Janeiro Declaration of July 2025 says the proposed BRICS Multilateral Guarantees initiative would de-risk strategic investment and improve creditworthiness in BRICS and the Global South.
Such a facility should not become another announcement. It must lower the cost of capital for clean energy, grids, storage, resilient infrastructure and adaptation. Guarantees, risk-sharing instruments and credit enhancement can stretch limited public funds. But their success will depend on governance, project selection, currency-risk treatment and transparency.
The second task is technology. BRICS countries have complementary strengths. Brazil has bioenergy and agro-technologies. China dominates large-scale solar, wind and clean-tech manufacturing. India has experience in distributed renewables, smart grids and low-cost deployment. A South-South technology platform could pool research, standards, procurement and adaptation solutions. The goal should be deployment, not seminar-room cooperation.
The third task is carbon markets. Global momentum is building. The Coalition to Grow Carbon Markets, co-chaired by Kenya, Singapore and the UK, was launched in 2025 to strengthen demand for high-integrity carbon credits. Brazil’s Open Coalition on Compliance Carbon Markets, endorsed during COP30, seeks cooperation among regulated carbon markets, including monitoring, reporting, verification and accounting.
India should help shape these rules. As a low-cost provider of emission reductions, it can benefit from credible carbon markets. But the larger issue is governance. Standards, transparency and pricing must not be written only by capital-importing or credit-buying countries. For BRICS, aligning monitoring, reporting and verification systems can reduce transaction costs, improve liquidity and support cross-border carbon flows. Done well, this can direct finance to cost-effective mitigation. Done poorly, it will create another market where developing economies supply cheap credits while others write the rules.
The fourth task is adaptation. Climate finance still leans too heavily towards mitigation. For poorer and climate-exposed economies, adaptation is not secondary. Coastal protection, climate-resilient agriculture, urban drainage, early-warning systems, water security and ecosystem restoration protect livelihoods and reduce future fiscal losses. BRICS should make adaptation bankable without forcing vulnerable communities into debt-heavy models.
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Climate and trade must be handled together
The final task is trade. COP30 brought this issue into the centre of climate diplomacy. Brazil launched the Integrated Forum on Climate Change and Trade at COP30 as a venue outside the WTO and UNFCCC to examine how climate policies affect trade, technology transfer, carbon accounting and the energy transition.
BRICS should use this forum seriously. The objective should not be to block climate ambition. It should be to prevent climate rules from becoming disguised protectionism. CBAM-type measures will expand unless developing economies offer a credible alternative framework. That framework must combine domestic carbon markets, transparent emissions data, clean-technology cooperation and finance for transition.
This is where India’s 2026 BRICS presidency matters. It can move the grouping beyond declarations and towards a practical agenda: guarantees for climate investment, interoperable carbon markets, technology partnerships, adaptation finance and a common position on climate-linked trade rules.
In a fragmented world, BRICS can turn climate equity from rhetoric into policy. It cannot do so by opposing decarbonisation. It can do so by insisting that decarbonisation must be financed, fairly priced and governed by rules that developing economies help write.
Prachi Priya is a Mumbai-based corporate economist. Views are personal.