In 2025, the gap between climate ambition and financial reality has grown wide enough to swallow the very notion of transition. The rhetoric is urgent: net zero, resilience, just transition. Yet the reality remains blunt. Fossil fuel is still cheap, subsidised, and entrenched. Climate finance, though rising, is underpowered and often misdirected.
This is not a failure of knowledge. It is a failure of will. The data is clear. What is missing is the courage to act. This report reads the ledger, not the press release, to highlight the financial contradiction at the heart of climate policy. It focuses especially on the G20, where the power to shift the system is greatest.
Fossil fuel subsidies: The cost of standing still
By the end of 2022, fossil fuel subsidies had reached over $7tn, equivalent to 7.1% of global GDP. That figure includes direct support, tax breaks and the unaccounted costs of pollution, health impacts and lost revenue from tax exemptions. Instead of funding transition, we are financing inertia.
China led in total subsidy volume, followed by the US. Saudi Arabia topped the list per capita. These figures reflect both explicit subsidies, such as fuel tax cuts and price caps, and implicit ones, such as the failure to implement carbon pricing or properly account for pollution costs.
In wealthy economies, implicit subsidies are often the more damaging of the two. They make fossil fuels appear cheaper than they are and render clean alternatives less competitive. In Australia, which has no economy-wide carbon price and provides generous fossil tax incentives, this imbalance is structural.
Fossil fuel subsidies increased after the Ukraine invasion
The energy crisis following Russia’s invasion of Ukraine prompted many governments to increase fossil fuel subsidies. Though labelled temporary, such measures often become permanent. Once introduced, subsidies rarely disappear without significant political effort. They become politically protected entitlements.
Even after energy prices stabilised, fossil subsidies in 2023 totalled $620bn, compared with just $70bn in public support for clean energy. That is a ratio of nearly nine to one in favour of the problem. Across the G20, countries continue to protect fossil fuels with tax breaks and reliefs, even while promoting green ambitions. In the UK, tax relief for North Sea oil and gas coexists with offshore wind rhetoric.
Some countries have taken steps in the right direction. India reduced its fossil fuel subsidies by 76% between 2014 and 2022, and Morocco has made moves to liberalise fuel pricing. But overall, the trend is not reform. It is rebranding. The language changes, the support remains.
This contradiction is especially stark given that all G20 countries pledged to phase out inefficient fossil fuel subsidies in 2009. That commitment has been repeated many times since. Yet subsidies are not falling in real terms, they are increasing. The issue is no longer oversight. It is intent.
G20 finance still backs fossil fuel
Beyond subsidies lies a more telling layer of support: capital. It is the investment, lending and insurance that signal confidence in what the future is expected to look like, not in theory but in infrastructure.
In 2022, G20 public finance for fossil fuels totalled around $1.4tn. A third of that was directed towards expanding infrastructure such as pipelines, export terminals, and drilling operations. This is not legacy spending. It is the future, written in fossil carbon.
Governments justified much of this under the banner of energy security. Gas, in particular, was rebranded as transitional. But transitional infrastructure has a habit of sticking around. Germany, for instance, replaced one form of fossil dependence with another and called it progress.
Meanwhile, G20 countries channelled around $50bn annually between 2019 and 2021 into overseas fossil projects, supported by export credit guarantees and development banks. Despite COP26 promises to halt such funding, implementation has been slow. Some countries simply reclassified gas and carried on.
Private finance also pays into fossil fuel use
Private finance is more revealing still. Since the Paris Agreement, the world’s 60 largest banks have poured almost $7tn into fossil fuels. In 2023, they added another $705bn, of which nearly half was for expansion, not decline.
The top financiers, JP Morgan Chase, Wells Fargo and RBC, also issued climate pledges. They speak of portfolio alignment, science-based targets and net zero by 2050. But when Canada tightened its green finance laws in 2024, RBC withdrew its $500bn sustainable finance target. Other banks followed, leaving alliances rather than face scrutiny.
This was not a retreat from fossil finance. It was a retreat from accountability.
Clean energy is attracting more capital, particularly in electricity generation. In 2023, renewable capacity investment outpaced fossil capacity by ten to one in some regions. That is progress, but not alignment. As long as fossil expansion remains financially viable, the crisis will persist.
Climate finance: Growth without sufficiency
Climate finance is no longer marginal, but it remains insufficient. Between 2021 and 2022, global climate finance flows averaged $1.27tn per year. By 2023, that figure likely exceeded $1.5tn. Yet fossil fuel subsidies in 2022 totalled more than $7tn. Even direct fossil subsidies nearly matched the total amount of climate investment.
The disparity becomes even starker when narrowed to public spending. In 2023, governments allocated $620bn to fossil fuels and just $70bn to support clean energy consumers. This is not an oversight. It is a deliberate prioritisation of the status quo.
The contrast between developed and developing countries is perhaps the most striking. The $100bn pledge to help poorer countries deal with climate change was likely met in 2023, but only just – and only via creative accounting. Loans, export credits and minimal climate benefit investments were included. Definitions were stretched.
As a result, much of the so-called climate finance adds to debt burdens, benefits donors more than recipients and flows through mechanisms that prioritise market efficiency over human need. Meanwhile, climate impacts are intensifying in the very countries receiving this support.
Climate change affects the whole world
Small island states face rising seas and collapsed fisheries. Sub-Saharan Africa faces drought, failed crops and heatwaves. For these countries, climate finance is not a nice-to-have. It is a matter of survival.
The UN estimates that developing countries (excluding China) will require at least $2.4tn annually by 2030 to meet climate goals. Current flows are nowhere near that. Even if the $100bn is replaced with a higher target, the delivery model remains flawed.
What is emerging is a dual-track climate economy. In one lane, capital flows freely into profitable clean tech in the Global North. In the other, finance crawls towards vulnerable communities, burdened with conditions and delays. This is not climate justice. It is climate hierarchy.
Greenwashing and the illusion of progress
With growing pressure to act, many financial institutions and corporations have focused more on appearing green than becoming green. This is greenwashing on an industrial scale.
In 2024, a review of 430 ESG-labelled funds (Environmental, Social and Governance) in Europe found that more than 70% held significant investments in fossil fuel companies actively expanding production. Some even held shares in coal firms.
Asset managers point to ESG ratings. But many such ratings reward corporate governance and financial performance more than emissions reduction. A fossil fuel company with strong diversity policies can outrank a small clean tech firm.
Regulators are beginning to respond. The EU has strengthened sustainable finance rules. The UK’s Financial Conduct Authority will soon require stricter standards for use of the terms “green” and “ESG”. Canada has started legal action against misleading climate claims.
Progress is being made, but it is uneven. In many places, sustainability remains a marketing label rather than a measurable outcome.
The worst abuses occur in the carbon offset market. In theory, emissions in one place can be neutralised by reductions elsewhere. In practice, the system enables polluters to purchase credibility without reducing emissions.
Rainforest deforestation offsets not happening
Avoided deforestation has dominated the offset market. But investigations by The Guardian, Die Zeit and SourceMaterial revealed that over 90% of rainforest offsets issued by certifier Verra were worthless. The forests were not under threat. The emissions remained.
Multinational firms like Shell, Disney, and Gucci used these credits to claim carbon neutrality. But many of the credits were sold for land already protected or for schemes that displaced local communities.
These are not isolated failures. They are systemic. Oversight is weak, and the volume of dubious credits continues to grow. Reforms have been proposed, but there is no binding global standard. The illusion persists.
Conclusion
The financial truth is clear. In 2022, we spent $7tn dollars maintaining the problem and just over $1tn trying to solve it. Banks continued to fund fossil expansion. Governments protected subsidies. The $100bn climate pledge limped over the line on a technicality.
We know how to fix this. We know how to end subsidies, enforce standards and fund climate justice. But the financial system, as it stands, was built to protect wealth – not the planet.
The architecture is beginning to shift. Some countries are phasing out subsidies. Some regulators are cracking down on greenwashing. Some institutions are reforming. But change is slow, and the balance still favours delay.
The key question is no longer whether climate finance is increasing. It is whether fossil finance is decreasing. Until it does, we are not in transition. We are in denial.
And that denial, as the numbers show, is neither accidental nor free. It is paid for. It is deliberate. And unless we change course, it will be catastrophic.
The main source for figures in this article was the International Monetary Fund’s 2023 report ‘Global Subsidies for Fossil Fuels Resurged in 2022’ (IMF Working Paper 2023/147), with additional data from the International Energy Agency and the OECD.
