Financing Barriers Hinder Global Transition Away From Fossil Fuels

Lack of adequate financing has emerged as a major obstacle to the global transition from fossil fuels to cleaner energy sources, according to officials and experts at an international conference in Santa Marta, Colombia this week.

The gathering comes amid growing pressure on governments to move beyond climate pledges and develop concrete plans to phase out oil, gas, and coal—the primary drivers of global warming. While United Nations climate talks have acknowledged the need for transition, they have produced few practical mechanisms, leaving countries and regions to address the economic challenges largely on their own.

Despite renewable energy sources like solar and wind often being cheaper to generate than fossil fuels, the transition costs remain prohibitively high for many nations. Governments must invest heavily in infrastructure, including power grids and storage systems, while replacing existing oil and gas infrastructure that still underpins many economies.

“The financial system is structured to favor fossil fuels,” explained Amiera Sawas, head of research and policy at the Fossil Fuel Non-Proliferation Treaty Initiative. “Many countries aren’t ideologically wedded to fossil fuels. They can simply access financing for fossil fuels more easily.”

This financing disparity is particularly severe in developing regions. Borrowing costs for renewable energy projects can be dramatically higher in emerging economies—averaging around 15% in parts of Africa compared to approximately 2% in Europe and North America—making it financially more attractive in the short term to continue investing in oil and gas.

The situation has created what researchers describe as a “debt-fossil fuel trap,” where countries rely on oil and gas revenues to service debt and maintain energy access, leaving little financial room to invest in cleaner alternatives. This cycle perpetuates fossil fuel dependency even as global climate targets demand rapid reductions in carbon emissions.

Some governments have begun using fossil fuel revenues themselves to help finance the transition to cleaner energy. Brazil’s Espírito Santo state, for example, is channeling money earned from oil and gas production into emissions-reduction projects and establishing funds aimed at attracting private investment in renewable energy.

Officials at the conference noted that such revenues can provide initial funding in regions where alternative financing is limited and potentially help attract private capital into cleaner energy projects. However, experts cautioned that this approach has clear limitations, as fossil fuel revenues are volatile and tied to fluctuating global energy prices.

“Climate finance is a challenge all over the world, but at the subnational level, it’s even bigger,” said Nicolas Lippolis, founder and executive director of the Centre for Energy, Finance and Development, who moderated a panel at the conference about using royalties for the energy transition.

Wealthier regions are attempting to fill financing gaps through policy and market mechanisms. California, for example, has implemented carbon markets—systems requiring companies to pay for or limit their emissions—and low-carbon fuel standards to generate investment and guide the transition.

“We remain steadfast in our commitment to carbon neutrality by 2045,” said Sarah Izant, deputy secretary for climate policy at the California Environmental Protection Agency. She noted that the shift brings public health and economic benefits despite challenges, including temporary disruptions in fuel supply as refineries close.

Not all participants agree with market-based approaches. In a declaration released Monday evening, Indigenous groups stated that efforts to phase out fossil fuels must not rely on carbon markets or offset schemes—where polluters pay to offset their emissions instead of reducing them—arguing such approaches fail to address climate change’s root causes.

Some regions have taken more direct action. Quebec, Canada has passed legislation to halt new fossil fuel exploration and production entirely. “We decided, with a consensus, to say no to fossil fuel in Quebec,” said Jean Lemire, the province’s climate envoy, while acknowledging ongoing pressures over costs and energy policy.

Lemire warned that global efforts to coordinate the transition remain slow, particularly at the United Nations level, where the consensus-based system requires all countries to agree before decisions are adopted.

Efforts to build momentum outside formal UN talks continue to develop. Tuvalu, a low-lying Pacific island nation highly vulnerable to rising sea levels, announced it will host the next conference focused on fossil fuel transition.

“Tuvalu is not waiting for the rest of the world to act, we are leading the way,” said Dr. Maina Vakafua Talia, the country’s minister of home affairs, environment and climate change. “This is not a negotiating position—it is a matter of survival.”

The discussions in Santa Marta highlight how the energy transition challenge has evolved—from primarily technological barriers to economic ones focused on mobilizing investment and restructuring economies long dependent on fossil fuels.

“There’s a lot of money for war,” Lemire observed, “but there’s one common enemy—climate change—and we don’t find that money.”