Developing Nations Need Higher Mobilisation Of Local Resources To Meet Climate Goals: UN Official

Developing countries face a widening financing gap for renewable energy and other climate investments that external funding alone cannot bridge, requiring greater mobilisation of domestic resources to meet climate targets, a UN official said.

Developing countries need as much as $365 billion a year to meet their climate action goals, a substantial portion of which is linked to the energy transition, while external financing currently covers less than 10% of that requirement, said Michał M Podolski, associate economic affairs officer at the UN Economic and Social Commission for Asia and the Pacific (UN ESCAP).

"High perceived risks, shallow domestic capital markets, fossil-fuel subsidies and limited concessional flows further raise the cost of capital for renewable energy, grid expansion, modernisation and energy storage projects," Podolski said in a written response to PTI.

The mismatch between the scale of investment required and available financing indicates that purely commercial funding is unlikely to be sufficient, he said.

Podolski advocated greater use of blended and concessional finance from multilateral and national development banks, alongside green bonds and deeper sustainable capital markets to meet the funding gap.

The comments come as developing economies face mounting pressure to expand clean energy investment while dealing with high borrowing costs and limited fiscal space.

According to the 2025-26 Economic Survey, about 83% of mitigation finance and 98% of adaptation finance in India is sourced domestically, even as overall climate finance remains well below developing countries' requirements.

Non-fossil sources accounted for 51.93% of India's installed power capacity at the end of December 2025, surpassing the country's target of 50%, the 2025-26 Economic Survey said.

Podolski said financing reforms would need to be accompanied by policy changes, including phasing out fossil-fuel subsidies to create fiscal space.

He also called for improving coordination between finance and energy ministries and strengthening domestic resource mobilisation.

Asked whether battery energy storage system (BESS) manufacturing could realistically be localised, Podolski said partial localisation of green value chains "is both feasible and highly desirable".

"However, manufacturing any equipment required for the green transformation, including BESS, faces significant barriers. These typically include the time-intensive process of building or redirecting human capital and supply chains and, in the case of green technologies, securing reliable supplies of critical minerals,” the UN ESCAP official said.

The UN official further noted that, "Favourably, the region's strong resource base, including substantial shares of global lithium, nickel, graphite and rare-earth reserves, creates major opportunities for expanding and diversifying green value chains, supported by strong regional and global demand".

The UN official further noted that progress will be slowed by challenges such as lengthy and complex approval processes arising from the environmental and community impacts of resource extraction and processing, constrained financing and the need to build human capital.

"National policies that support local production must carefully weigh long-term positioning against market forces, taking full account of costs, efficiency and product competitiveness," he said.

According to Podolski, long-term strategies should aim to develop sectors that can ultimately stand without ongoing government subsidies or sustained state backing, adding that full localisation of the entire value chain faces cost disadvantages and multi-year timelines for minerals and advanced chemistry.