The global climate finance gap – estimated at $2.4 trillion annually for developing countries – is not just a number. It’s a reflection of the scale of ambition needed to avert climate catastrophe. While international support remains vital, the reality is that over $1 trillion must come from domestic sources. That’s why domestic resource mobilisation (DRM) must be at the heart of climate finance strategies.
In the forthcoming publication Policy-Driven Climate and Development Finance: Strategies for Equitable Solutions, a dedicated chapter explores the broad range of fiscal, monetary, administrative, capacity-building and regulatory measures needed to unlock the full potential of domestic resources in bridging the financing gap for climate action. The chapter emphasises that an enabling international economic and financial environment, together with targeted development co-operation, is essential to help countries fully realise their potential in mobilising domestic resources.
DRM is not merely a technical fix – it’s a political imperative. Countries must deploy a full spectrum of fiscal, monetary and regulatory tools to raise climate finance from within. But these efforts must be matched by international co-operation that addresses systemic barriers, enhances fiscal space, reduces debt burdens and ensures access to affordable finance and technology. Only through such an enabling global environment can national efforts translate into real climate and development gains.
A comprehensive DRM strategy should include several things. First, it should make climate finance a strategic objective of national budgets. Climate action must be embedded in fiscal planning, with dedicated revenue streams and expenditure frameworks that prioritise resilience and decarbonisation.
It must also implement carbon taxation and pricing tailored to national contexts. These instruments can generate revenue, send clear price signals and incentivise low-carbon behaviour, while remaining administratively feasible.
And it is critical to phase out harmful fossil fuel subsidies. Reforming subsidies frees up public resources and corrects market distortions. However, for developing countries, such reforms must be carefully sequenced and supported by international co-operation to avoid exacerbating energy poverty or social inequality. The transition should be just, equitable and inclusive, ensuring that vulnerable populations are protected and that affordable, clean energy alternatives are made available before subsidies are withdrawn.
A DRM strategy should also involve establishing national climate funds (NCFs). These funds can channel domestic revenues into targeted climate initiatives, bridge capacity gaps and engage the private sector.
Countries should engage central banks and monetary authorities. These institutions can direct credit to green sectors, adjust interest rates and support climate-aligned financial systems.
Equally, it is essential to use financial regulations and incentives to align capital flows with climate goals. Disclosure requirements, sustainable finance frameworks and long-term targets can mobilise private investment and ensure financial stability.
It is also critical to develop local financial markets. Strong domestic capital markets are essential for financing long-term climate projects. International support is needed to build infrastructure and capacity. And countries must leverage public funds to attract private investment. Public–private partnerships can de-risk investments and scale up climate finance, especially in sectors like renewable energy and public transport.
These measures are not optional. They are essential for a just and effective global transition. But they must be supported by a fair and inclusive international system. That means harmonised carbon pricing, global tax co-operation and scaled-up, predictable development and climate finance aligned with national priorities.
The principle of common but differentiated responsibilities must guide our collective response. Developing countries are doing their part. It’s time for the global community to match their ambition with solidarity and generous support. Our shared future depends on it.
The views expressed herein are those of the authors and do not necessarily reflect the views of the United Nations.
Dr Mahmoud Mohieldin is UN special rapporteur on financing sustainable development
Navid Hanif is assistant secretary-general for economic development at the UN Department of Economic and Social Affairs (Desa)
