The Political Economy of Climate Change: Who Pays for the Planet?

The jute-and-tin house once stood around half a kilometre from the Bay of Bengal, a fragile structure that could not battle the monsoon winds year after year. The house belonged to the Rahman family for a very long time, but now it is no more. The sea did not destroy the settlement in one go; it did so slowly, attempt after attempt, tide after tide. Some waves were milder, and some carried more intensity, corroding the land beneath them. As a result, Rahman, along with thousands of others, had to become a climate refugee — not by choice but by force. They then somehow found shelter in the dusty passages of Dhaka after losing their peaceful home.

This story shows how humans do not succeed in safeguarding a global public good, i.e., the Earth's climate. The crisis has been largely created by the wealthiest sections of society, but unfortunately, people with the least contribution have to face the hardest consequences.

The Earth’s climate is the most obvious global public good we all depend on, and its breakdown shows exactly what happens when a shared resource is overused and underprotected. Overcoming this collective action dilemma requires compelling economic reforms and a robust cooperative financial architecture designed to internalise cross-border externalities. This article analyses the political contestation over cost allocation. The persistent failure to reconcile economic efficiency (carbon pricing) with international equity (CBDR-RC) and domestic political viability (backlash risk) results in chronic underfunding of critical needs. We confront the political-economic question: Who pays for the planet, and how do we enforce a financial transfer aligned with historical responsibility ?

WHO CAUSED THE CRISIS? THE ANATOMY OF CARBON DEBT

The core of the climate challenge is the emissions inequality rooted in history, making the crisis a question of reparative justice.

The Normative Battle: Liability vs. Capability The principle of Common but Differentiated Responsibilities and Respective Capabilities (CBDR-RC) affirms that while all states share responsibility, developed nations must take the lead due to their historical role as the leading contributors of greenhouse gas emissions. Many argue that the richer countries should pay the price, as they have massively gained from years of unregulated pollution that the rest of the world is now suffering from. This viewpoint gets weakened by the way the current system is set up. The Paris Agreement retained CBDR-RC but added the phrase “in light of national circumstances,” allowing developed countries to shift the focus from strict historical liability to current capability. This tactically lessens the financial liability and burden of historical emitters, but, at the same time, pressurises the growing middle-income nations to increase their contributions. PROVOCATION: The West built its wealth using cheap, carbon-heavy energy. Now it often criticises developing countries for their rising emissions and expects them to pay more for costly green technology. Many feel this reinforces the old economic imbalance, where poorer nations carry a burden created long before their time.

CLIMATE FINANCES: PROMISES, LOANS & LIABILITY

The NCQG and the Adaptation Deficit The New Collective Quantified Goal (NCQG), established at COP29, sets a new floor of at least $300 billion annually by 2035 from developed countries, replacing the previous $100 billion goal (which was exceeded in 2022 with $116 billion delivered). However, this $300 billion is merely a fraction of the $1.3 trillion estimated to be needed annually from abroad by developing countries (excluding China).

THE SHAM: The structure of delivery is the primary political failing. While the Glasgow Pact aimed to double adaptation finance to 40 billion dollars by 2025, government funding reached only 26 billion dollars in 2023. This gap may look small on paper, but it matters a lot. Mitigation activities still accounted for the majority of funds. Adaptation is the support that vulnerable people need the most, yet it receives far too little money — almost twelve times less than what experts say is required.

THE DEBT TRAP: Much of the finance is delivered via Multilateral Development Banks (MDBs) as concessional loans, not grants. This structurally transfers the debt obligation onto recipient countries. The IMF notes that the costs of climate damage already exceed the GDP of many developing nations. Asking these nations to go into debt to protect themselves from externally caused damage is the core political injustice.

CASE STUDIES: THE HUMAN COST OF INSOLVENCY

1) Bangladesh: The Economic Drain of Displacement Bangladesh is the zero ground for climate displacement. According to the World Bank, approximately 13.3 million people in Bangladesh could be forced to move by 2050 due to sea-level rise and erosion. This internal movement puts extra strain on urban areas such as Dhaka, adding to the poverty challenges they already face. The burden of supporting this large urban shift and rebuilding damaged areas is carried entirely by an economy that is already one of the most vulnerable in the world.

2)Maldives and Pacific Islands: Existential Liability For Small Island Developing States (SIDS), the crisis might lead to the complete collapse of their nation. The majority of the Maldivian landmass is barely above sea level. This is the ultimate threat to their very existence: a sovereign state faces obliteration due to external emissions. Their appeal for global recognition of their potential loss as a nation requires the strongest response in terms of climate justice. The ultimate cost of climate damage is the complete loss of national identity and territory.

3)The Philippines: The Risk Multiplier The Philippines shows how climate change can amplify risks that already exist. Intense super-typhoons, including events like Haiyan, repeatedly undo development efforts that took many years. Rebuilding costs so much that it drains money from future development. This traps the country in a cycle of devastation and debt.

WHO SHOULD PAY? THE BLUEPRINT OF CLIMATE JUSTICE

The lack of adequate funds and the scale of human loss show that we need to move the discussion toward climate justice, where the highest emitters take full responsibility for the harm they’ve caused.

A. The Loss and Damage Battleground

The political dispute centres on the Loss and Damage (L&D) Fund, established at COP28, to address unavoidable climate impacts. Despite the massive need — estimated to be at least 400 billion dollars per year by 2030 —the Fund has barely collected 760 million dollars. The Fund has barely collected 760 million dollars. This is less than 0.2% of the estimated annual required funding. The controversy is about control. Developed countries insisted that the Fund should be managed by the World Bank, and because of the Bank’s structure, they now have a lot of control over how the money has to be allocated and what rules have to be applied. The question shifts from “Who pays?” to “Who controls the payment?”

B. The Mechanisms of Reparations and Accountability

A true solution requires a radical and bold shift in the political economy, moving away from systems that allow for the externalisation of costs:

Taxing the Polluters: New mechanisms must generate dedicated, large-scale public revenue. Proposals include a maritime levy, a global wealth tax, or dedicated levies on international transportation emissions, which the IMF estimates could raise to $200 billion per year.

Addressing Domestic Backlash: Effective domestic policy, such as carbon pricing, often faces intense resistance, for instance, the Gilets Jaunes (Yellow Vest) protests in France. The backlash was triggered by citizens who somehow perceived that they were being required to carry the costs of transition while the government provided exemptions for corporations. This can be addressed by returning revenue from carbon taxes to citizens in a transparent manner, reducing the burden on lower-income groups.

CBAM Conflict: Trade policy is a new political battlefield. The EU's Carbon Border Adjustment Mechanism (CBAM) is perceived by countries like India as a non-tariff trade barrier that undermines CBDR-RC by imposing a uniform carbon price that disregards disparities in historical emissions. Revenue recycling from CBAM to affected developing countries is necessary to mitigate this conflict and maintain the principle of differentiated responsibility.

CONCLUSION: THE BILL IS OVERDUE

The political economy of climate change is currently rigged: the powerful pollute, and the poor pay the price. The failure of finance and the scale of the crisis in vulnerable nations show a deep failure, both morally and economically, through unpaid climate damage and growing debt pressures. Future generations will also inherit catastrophic costs. On the other hand, those who pay the least include major historical emitters, whose financial obligations are politically diluted. The fossil fuel industry also pays very little and continues to benefit from policy obstruction. The bold truth is this: until high-emitting nations accept their full financial responsibility, based on historical emissions and the principle of reparations, the developing world will remain trapped in a crisis it did not cause. The planet is paying the price, and the bill is overdue.

-Ankur Kumar Raman