The global energy crisis poses significant challenges to climate finance, as geopolitical tensions and rising debt levels limit available resources.
Financial leaders and representatives from 191 nations are gathering in Bangkok, Thailand, for the annual meetings of the International Monetary Fund (IMF) and the World Bank. The event, dominated by discussions on the global energy crisis, highlights the obstacles facing climate financing measures ahead of COP31, which will take place in Turkey in one month.
The Thai capital, which is recovering from torrential rains that caused an estimated $178 million in damages, serves as the backdrop for these urgent discussions. Forecasts of further storms underscore the need for immediate action, particularly for developing countries facing a dual burden: mounting debt and the increasing frequency of climate-related disasters, such as the recent tragedy in Nepal.
The Shadow of Fossil Fuels on National Budgets
The global budget for climate action is under intense scrutiny. The war in the Middle East and the resulting oil prices hovering above $100 per barrel are impacting energy security and diverting essential resources. Developed nations are grappling with high interest rates, while emerging economies are sinking into debt, with national budgets increasingly tied up in energy subsidies.
In Thailand, the fuel subsidy fund recorded a deficit of $2.8 billion as of September. Indonesia estimates it needs an additional $5.9 billion for energy subsidies, and Malaysia has doubled its monthly spending on gasoline and diesel to approximately $1.3 billion. In Brazil, revenue losses intended to keep fuel prices in check reached 41 billion reais through October, with forecasts of additional subsidies costing another 15 billion reais by the end of the year.
The global economy is being pulled in two opposite directions: a negative shock to energy supply and a positive shock to demand resulting from AI – Kristalina Georgieva, Managing Director of the IMF.
Inflation, Interest Rates, and the Uncertain Path of Transition
IMF Managing Director Kristalina Georgieva warned that rising energy costs are fueling inflation and slowing global growth. This reality is prompting central banks to raise interest rates, such as the Federal Reserve in the U.S., or to remain cautious about cutting rates, as seen with Brazil’s Central Bank. The IMF’s global GDP projections for 2026 and 2027 remain around 3%, reflecting this dynamic.
The Super El Niño phenomenon is adding further inflationary pressure and risks to food security. At the same time, the rise of artificial intelligence (AI), while driving growth, requires massive amounts of energy, exacerbating supply tensions.
The Call for Climate Finance
The G24 group, representing developing nations, highlighted in a statement the urgent need for lower-cost financing and intensified climate action, especially for adaptation measures. The bloc is calling for the timely delivery of at least $300 billion annually in climate finance by 2035, as established at COP29.
Murat Kurum, Turkey’s Minister of Environment and President-elect of COP31, urged governments to demonstrate the same level of resolve in climate funding as they do in defense spending. The reassessment of the role of multilateral organizations like the World Bank, which has modified its targets related to climate credits, reflects current complexities and pressures. The need for affordable and renewable energy, even in the face of unstable fossil fuel markets, points to a challenging yet essential path for the global energy transition.
