Climate action has gained momentum over the past decade, driving real economic opportunities. However, current efforts are not keeping pace with rising risks. Higher ambition and more effective implementation of climate action is needed to keep the Paris Agreement’s goals within reach and preserve the prosperity of current and future generations. This report provides evidence that countries do not have to choose between ambitious climate action and strong, inclusive and resilient economic development. It shows that by adopting ambitious, implementable and investable climate plans – enhanced Nationally Determined Contributions (NDCs), countries can catalyse climate action, unlock finance and deliver wider growth and development benefits.
Investing in Climate for Growth and Development
The Case for Enhanced NDCs
Abstract
Ten years since the Paris Agreement was adopted, climate action has gained momentum, delivering tangible benefits for people and the planet, creating jobs and improving livelihoods. Rapid progress in key clean energy technologies has enabled the emergence of a new economy increasingly driven by market demand as these technologies become cost-effective alternatives, creating jobs and growth opportunities. The Paris Agreement requires countries to submit new climate plans – Nationally Determined Contributions (NDCs) – every five years, reflecting progressively higher ambition and taking into account each country’s capacity. At the end of 2024, the adoption of NDCs had narrowed the warming projected by the end of the century from an estimated 4°C before the adoption of the Paris Agreement to a range of 2.1-2.8°C, and many countries had successfully decoupled emissions from economic growth.
At the same time, there are large gaps in both the ambition and implementation of current climate commitments. Collectively, current NDCs would amount to a 14% decline in emissions by 2030 – far below the 43% needed to keep warming to 1.5°C relative to pre-industrial levels (OECD, 2024[1]). The world remains on an upwards emissions trajectory and climate action is losing momentum as countries face a range of geopolitical, financial and economic challenges that slow its pace and scale. Without further action climate risks will intensify, and rising disasters, economic instability and financial system vulnerabilities will threaten long-term growth and development. The new round of NDCs, due in 2025, is an opportunity to outline countries’ climate actions through to 2035, and develop comprehensive and ambitious climate plans to ensure future climate resilience, prosperity and wellbeing.
1.1.1. Climate action has gained momentum over the past decade, driving emission reductions and unlocking real economic opportunities
Since the adoption of the Paris Agreement in 2015, national governments have taken significant steps to set ambitious climate targets and adopt climate policies. Significant progress has been made in advancing climate policies at both national and subnational levels. As of May 2025, more than 110 countries – responsible for nearly 87% of global emissions – had pledged to reach net-zero emissions by the middle of the century; 185 regions and 271 cities worldwide had committed to net-zero goals and nearly 60% of the 2 000 biggest publicly-listed companies had set a net‑zero target. In 2023, 42% of global emissions were covered by a positive, though insufficient, net carbon price (OECD, 2023[2]; World Bank, 2024[3]; OECD, 2024[1]).
Climate policies have also fostered the emergence of a fast-growing clean energy market, driving innovation, employment and investment. The clean energy transition is under way, driven initially by policies, and now propelled by market forces, thanks to rapid cost declines and technological advances (Figure 1.1). In 2023, clean energy represented 80% of new capacity additions to the world’s electricity system and electric cars represented 25% of vehicles sold globally. The global clean energy sector created 1.5 million new jobs – outpacing the 940 000 added in the fossil fuel sector for the third year in a row (IEA, 2023[4]). Clean energy is also reshaping global trade and finance: global investment in clean technologies reached USD 2 trillion, twice the investment in fossil fuels (IEA, 2024[5]), albeit at high concentration in the advanced economies and China. While emerging and developing economies (EMDEs), excluding China, account for only 15% of global energy spending, clean energy investment in EMDEs has risen by 50% since 2020, with renewable power representing half of new power sector investments. Foreign direct investment in renewables increased from under 1% of global greenfield FDI in 2003 to over 26% in 2023 (OECD, 2024[6]).
Governments worldwide have harnessed the economic opportunities associated with this market growth and enhanced their supply chain resilience, energy security and industrial competitiveness. The IEA estimates that in 2023, clean energy contributed approximately USD 320 billion to the global economy, driving 10% of global GDP growth. Its impact varied by region – just under 5% of GDP growth in India, 6% in the United States, 20% in China, and more than 30% in the European Union.1 In the UK, the net-zero economy added over USD 107 billion in gross value between 2023 and 2024. It also supported a 10.2% rise in employment and strengthened energy independence (Energy & Climate Intelligence Unit, 2025[7]). While national green industrial policies help push the technical frontier and accelerate the transition, they also raise concerns about trade fragmentation and market distortions. To ensure developing countries are not left behind, development co-operation and increased financial support from all sources are critical (see Chapter 3) (OECD, 2024[8]; OECD, 2025[9]).
The world economy is becoming more efficient, progressing towards decoupling economic and emission growth. Between 1990 and 2022, global emissions rose by 60%, while the world’s GDP grew by 170%. Over the period, more than 40 countries – including over 15 non-OECD countries – have decoupled economic growth from greenhouse gas (GHG) emissions2 (Crippa et al., 2024[10]; World Bank, 2024[11]). Between 1990 and 2019, the United Kingdom reduced its greenhouse gas emissions by 43% while growing its GDP by nearly 80% (UK Department for Energy Security and Net Zero, 2024[12]). In Argentina, Australia, Brazil, Japan, Korea, Mexico and South Africa, low-emission electricity sources grew by over 20% between 2018 and 2023. This growth outpaced electricity demand, leading to a decline in fossil fuel use. Between 2015 and 2022, global GDP grew by 22%, while emissions grew by only 7% (see Chapter 2, Figure 2.2).
Note: LCOE: levelized cost of electricity
Source: Authors, based on data from the International Energy Agency (IEA) and International Renewable Energy Agency (IRENA) (IRENA, 2024[13]; IRENA, 2024[14]; IEA, 2024[15]).
1.1.2. Despite progress, current efforts are not keeping pace with rising risks
There remain significant gaps in both the ambition and implementation of current climate commitments. To limit global warming to 1.5°C, global GHG emissions must peak in 2025 and fall by 43% by 2030 and by 60% by 2035 on 2019 levels, reaching net-zero carbon dioxide (CO2) emissions by 2050 (IPCC, 2022[16]). However, the world remains on an upwards emissions trajectory and in 2024, global CO2 emissions hit a new record. Most current NDCs are not ambitious enough – even if all pledges were met fully, the world would still be on track for around 2.4°C of warming by the end of the century (UNEP, 2024[17]). Moreover, there remain large gaps in implementing countries’ current climate mitigation and adaptation targets (see Chapter 6).
Progress is plateauing and climate momentum risks being lost. Mounting economic uncertainty, geopolitical tensions and rising public debt are shifting priorities and straining government budgets, particularly for climate. Financial constraints remain one of the most significant challenges, particularly for developing countries with high debt burdens and a lack of access to affordable climate finance. Weak policy frameworks and institutional capacity often hinder the translation of national pledges into concrete, enforceable actions. Many governments also struggle with political and economic pressures, as transitioning away from fossil fuels can bring opposition from entrenched industries and concerns about job losses and competitiveness. Social and equity concerns, including the need for just transitions that protect vulnerable communities, further complicate the speed and scale of climate action. In 2022 and 2023, the pace of climate policy adoption and strengthening dropped to just 1-2% annually, compared to 10% per year in previous years (OECD, 2024[1]).
A slowdown in climate action risks delaying much-needed investments, weakening economic resilience and increasing climate damages with far-reaching social, economic and financial consequences. The impacts of climate change are already disrupting communities, ecosystems and economies worldwide. 2024 was the first 12-month period to average over 1.5°C of warming above pre‑industrial levels and saw rising temperatures and shifting rainfall patterns trigger extreme weather across the globe. Impacts from climate change are accelerating. In 2024, Munich Re estimated economic losses due to weather-related extreme events to be USD 320 billion, of which 44% were insured.3 Unchecked emissions will drive increasingly severe climate disasters, with far-reaching consequences. Without urgent action, climate risks will intensify, threatening people, prosperity and financial stability (OECD, 2024[1]) (see Chapter 3).
At the mid-point of this decisive decade, countries have an opportunity to deliver on their climate, growth and development goals through their new NDCs. In 2025, countries are due to put forward new NDCs, setting out their efforts to reduce national emissions to 2035. This new cycle of NDCs provides a critical opportunity for the step-change needed to get the world on track to reach net-zero and build resilience. It is also a chance for countries to take a more integrated, collaborative approach and consider NDCs within the framework of their wider growth and development strategies. The OECD-UNDP economic modelling assessment conducted for this report provides new evidence that accelerating climate action through enhanced NDCs is not only feasible; it also makes economic sense, driving growth, unlocking development dividends and sparing losses from climate disasters.
Using the OECD’s ENV-Linkages computable general equilibrium model (see Chapter 3), the modelling framework in this report assess how different climate policy pathways interact with economic growth and emissions trajectories. It compares economic and environmental outcomes to 2040 for two distinct scenarios:
Current Policies scenario: This scenario models the impacts of policies already in place or legislated, thus incorporating the existing ambition and implementation gap in current NDCs. Under this scenario, global GHG emissions are projected to decline by 7% by 2040 compared to 2022, leading to an estimated 2.45°C of warming by the end of the century.
Enhanced NDCs scenario (Box 1.1): This scenario models the accelerated climate policies and investments needed to achieve emission reductions in line with the “well-below 2°C” goal of the Paris Agreement. Under this scenario, global emissions are reduced by 34% by 2040, putting the world on a pathway consistent with limiting global warming to 1.7°C by the end of the century (see Chapter 2).
The 2025 round of NDCs provide a timely opportunity to deliver the step-change needed to get the world on track to reach net zero by or around mid-century and to build resilience to the impacts of climate change. Ensuring this next round of NDCs are ambitious, implementable and investable (referred to in this report as enhanced NDCs) can catalyse climate action, unlock finance and deliver wider growth and development promises. What ambitious, implementable and investable NDCs mean in practice is set out briefly here and elaborated in Section 1.4 (Figure 1.7).
Ambitious: Setting clear emission reduction targets aligned with the Paris Agreement’s goal of limiting global warming to well below 2°C and pursuing efforts to stay within 1.5°C (Section 1.2).
Implementable: Ensuring NDCs are integrated in the ecosystem of national, sectoral and subnational policies, aligned with national development priorities, supported by robust governance arrangements and inclusive stakeholder processes. (Sections 1.3 and 1.4).
Investable: Creating conditions that enable public and private investment to mobilise sufficient resources for the structural changes needed to achieve the ambitious emission reduction targets (Section 1.5).
The Enhanced NDCs scenario is based on the IEA’s 2023 World Energy Outlook and models the accelerated climate policies and investments needed to achieve emission reductions in line with the “well-below 2°C” goal of the Paris Agreement. Under this scenario, global emissions are reduced by 34% by 2040, putting the world on a pathway consistent with limiting global warming to 1.7°C by the end of the century (see Chapter 2).
In the Enhanced NDCs scenario, energy-related investment grows by 40% between 2022 and 2030. Clean energy investment accounts for USD 3.1 trillion of the USD 3.8 trillion invested in energy in 2030, while fossil fuel investment falls from USD 1.1 trillion in 2022 to USD 0.7 trillion in 2030. Energy system transformation sees global installed capacity of renewable power sources almost tripling by 2030. The share of renewables in electricity capacity increases from 42% in 2022 to 64% in 2030 and 75% in 2040, while the share of fossil fuels decreases from 52% in 2022 to 28% in 2030 and to 13% in 2040. The global energy intensity, measured by the quantity of energy required per unit of GDP, improves at an average rate of 3% per year compared to a 2% annual rate under current policies.
Source: Authors; (EBRD, 2024[18]; OECD, 2024[19]; IEA, 2023[4])
1.2.1. Accelerated climate action can be a powerful driver of growth
The Enhanced NDCs scenario has a small but positive effect on global GDP growth in the next 15 years: global GDP in 2040 would be 0.2% higher than under the Current Policies scenario (Figure 1.2). Investing in clean energy and energy efficiency increases productivity and innovation, balancing the economic impact of policy constraints on prices and consumption. Reinvesting carbon revenues can further boost GDP while ensuring a just transition and securing public support for climate policies.
Decomposition of changes in global GDP between the Current Policies and Enhanced NDCs scenarios, in 2021 USD (PPP)
Note: The figure presents projected changes in global GDP (in trillion constant 2021 USD at Purchasing Power Parity (PPP)) between the Enhanced NDCs and the Current Policies scenarios for the years 2030, 2035, and 2040 decomposed by the main mechanisms connecting climate action to economic outcomes. The bars for Current Policies and Enhanced NDCs show the absolute level of global GDP (in trillion 2021 US$ PPP) in each respective year (with a different y-scale for each year). The intermediate bars show the incremental effect of the key mechanisms that drive the Enhanced NDCs scenario on global GDP relative to the Current Policies baseline.
Source: OECD ENV-Linkages model, with inputs from the NiGEM and IEA’s GCEM models.
The net macro-economic impact of an Enhanced NDCs scenario in the medium term is a combination of four key effects: policy constraints, energy transition, increased investment and revenue recycling. The benefits from reduced climate damages materialise in the second half of the century (see below). The extent to which the four key effects, triggered by climate policies, balance each other and interact determines the overall economic consequences of climate action:
Policy constraints: When countries initially implement and scale up climate mitigation policies, production and consumption patterns are constrained to adjust to pricing mechanisms and regulations, driving GDP down.
Energy transition: The large-scale deployment of energy efficiency technologies triggered by climate policies partly counterbalances these costs, reducing energy expenditures and thereby facilitating consumption and production.
Increased investment: Accelerated investment in energy and clean technologies driven by climate policies stimulates aggregate demand in the short term and increases aggregate supply and the productive capacity of economies in the longer term.
Revenue recycling: Governments can decide to invest additional revenues generated by carbon pricing policies in low-carbon infrastructure projects or climate priorities, or to use them to limit distributive impacts and increasing the acceptability of climate policies.
Accelerated investment is the strongest driver of growth in the Enhanced NDCs scenario. In 2040, the projected effect of policy constraints alone (increase of fossil fuel prices, reduced private consumption, structural changes in the economy) reduces global GDP by -0.87% relative to the Current Policies. This effect is counterbalanced by energy efficiency gains resulting from a faster energy transition (+0.34%), the reinvestment of carbon revenues generated by carbon pricing policies (revenue recycling +0.09%) and increased public and private investments in the low-carbon transition, giving a boost of +0.66% of GDP by 2040. In this scenario, carbon revenues4 are also partially redistributed to households through reduced labour taxes to help limit negative effects on consumption and labour markets, further supporting the political acceptability of the transition.
A low-carbon economy is a more efficient economy. Accelerated climate action will lead to the absolute decoupling of emissions from economic growth. Enhanced NDCs would lead to robust global economic growth while cutting emissions, bringing these back to close to their 1990 levels by 2040. While current global emissions are around 0.34kg of CO2 equivalent per dollar of economic output, under an Enhanced NDCs scenario emission intensity would drop by more than half to 0.14kg by 2040. This would exceed progress made since the 1990s, which saw the relative decoupling of global emissions from GDP.
All regions can benefit from robust economic growth in an Enhanced NDCs scenario, though at different paces
Under an Enhanced NDCs scenario, accelerated climate action is compatible with sustained global economic growth in all regions, while building more efficient and resilient systems (Figure 1.3). The results of the modelling analysis show that the global economy would continue growing at a sustained rate in the coming decades, consistent with projections of population growth and increasing living standards. In the Enhanced NDCs scenario, global GDP is projected to grow by 60% by 2040, compared to 2022. Regionally, GDP is projected to grow by 37% in high-income countries, 69% in middle-income countries, 104% in low-income countries and 42% in oil producing countries by 2040 compared to 2022. While GDP growth remains comparable to the Current Policies scenario, enhanced climate policies can promote cleaner, more resilient economies by reducing emissions, boosting resource efficiency and supporting long-term sustainability.
The macro-economic impact of accelerated climate action will depend on country specific contexts, calling for tailored climate strategies. In countries with ambitious carbon pricing policies, the benefits of revenue recycling can be substantial. For countries with limited capacity to implement carbon pricing but high fiscal costs from fossil fuel subsidies, revenue recycling can still deliver significant gains by redirecting funds from subsidy reforms – estimated at over USD 1 trillion globally in 2023 (OECD, 2024[20]). Fossil fuel-importing countries stand to improve their trade balances, enhance energy security, and strengthen resilience to commodity price shocks – supporting greater energy independence. In contrast, fossil fuel-exporting countries may face economic challenges from declining export revenues as global demand shifts toward cleaner energy sources. Strategic responses to economic diversification – exemplified by initiatives such as the Future Made in Australia (Box 1.4) and Vision 2030 in Saudi Arabia – can help mitigate such challenges. In many developing countries, with well-designed policies, higher investments, and enhanced support from the international community, emissions reductions can be achieved with rates of economic growth that are similar to current trends, as also shown in the World Bank Country Climate and Development Reports (World Bank Group, 2024[21]).
% change in GDP in the Enhanced NDCs scenario in 2030, 2035 and 2040 with respect to 2022 levels, by country grouping
Note: ENV-Linkages model regions and countries are grouped into Low-income, Middle-income and High-income country aggregates based on their national income. Oil producers are economies which rely predominantly on extracting and exporting fossil fuels, regardless of income levels.
Source: OECD ENV-Linkages model, with inputs from the NiGEM and IEA’s GCEM models https://www.iea.org/reports/global-energy-and-climate-model.
The economic case for climate ambition is even stronger in the long run, particularly when factoring in avoided climate damages
The bulk of environmental and economic benefits from accelerated climate action will be realised in the second half of the century. Assuming that the trends of the Enhanced NDCs scenario continue beyond 2040 thanks to the policies implemented, by 2100, emission reductions would limit global average temperature rise to 1.75°C above pre-industrial levels, compared to 2.45°C under current policies. This lower global temperature rise will limit the expected economic and physical impacts of climate change, such as ecosystem degradation, more frequent extreme weather events and rising sea levels, compared to a Current Policies scenario. Reducing physical damages and risks from climate change will generate significant economic and welfare benefits, e.g. enhancing food security, minimising productivity losses and health impacts due to heat stress, lowering risks to the financial system, and decreasing expenditures on disaster recovery, social protection, insurance and infrastructure repairs.
By reducing the risks of climate-induced events, an Enhanced NDC scenario could result in global GDP being up to 3% higher in 2050 and up to 13% higher in 2100 compared to a Current Policies scenario (Figure 1.4). Collective global action to mitigate climate change in the Enhanced NDCs scenario could lead to global GDP benefits from reduced physical impacts – such as from sea level rise, health or agricultural crop yields – ranging from 0.2-3% by 2050 and to 1-13% by 2100, based on three different damage functions (Howard and Sterner, 2017[22]; Kotz, Levermann and Wenz, 2024[23]; Barrage and Nordhaus, 2024[24]). While the precise scale of their economic benefits remains uncertain, avoided climate damages are likely to be substantial and increase over time. The benefits of climate action will vary by region, with less developed and more climate-vulnerable areas – especially poorer populations and those reliant on climate-sensitive sectors – gaining significantly due to their heightened exposure and limited adaptive capacity (O’Neill, 2022[25]; Tol, 2024[26]; Bilal and Känzig, 2024[27]). Additional benefits from reduced damages could be achieved by investing in climate change adaptation but are beyond the scope of analysis in this report.
The environmental and economic benefits of climate action may be underestimated. Current models do not account for the heightened risk of crossing critical climate tipping points such as collapsing ice sheets or reversing ocean circulation patterns – which could lead to irreversible climate shifts, accelerated global warming, and severe societal and economic consequences. (OECD, 2022[28]). Based on a synthesis of the tipping point literature by McKay et al. (2022[29]), the higher warming implied by the Current Policies scenario would likely lead to the crossing of two additional tipping points: the collapse of the Labrador Sea circulation; and the loss of mountain glaciers. Furthermore, the crossing of three other tipping points would become possible: the collapse of East Antarctic Subglacial Basins; the dieback of the Amazon rainforest; and the increased intensity of the West African monsoon. If triggered, these events could set off cascading climate feedbacks, further accelerating global warming and leading to severe societal and economic disruptions (see Chapter 2).
Global GDP loss from climate damages by scenario, % potential GDP
Note: Damages are expressed as the percentage reduction in potential GDP relative to a no-warming counterfactual scenario. Each bar represents the range of estimated global damages made up from the point estimates of the three damage functions applied to a given scenario and year.
Source: Authors, based on three damage functions - Howard & Sterner (2017[30]), DICE 2023 (Barrage and Nordhaus, 2024[24]) and Kotz, Levermann & Wenz (2024[23]) - as well as inputs from IEA’s GCEM model and the 2024 NGFS climate scenarios (NGFS, 2024[31])
Aligning climate and macroeconomic policies could further support growth
Achieving the deep economic transformation needed for Paris-aligned emissions reductions will require co-ordinated climate, fiscal, and monetary policies to align growth, price stability, and investment required for the low-carbon transition (see Chapter 2). Economic modelling shows that the economic benefits of the transition hinge on governments' ability to create macroeconomic conditions that support both climate investment and broader economic activity, while safeguarding price stability and fiscal sustainability. Appropriate fiscal reforms and flexible monetary policy can enhance the short-term and long‑term economic impacts of the transition, whereas poor policy choices risk delaying progress and harming GDP.
Policy certainty is crucial for both emissions reduction and economic growth. In a macroeconomic uncertainty scenario, unclear or inconsistent policies can erode investor confidence, leading to delayed or reduced clean energy investments. This could lower global GDP by up to 0.75% in 2030 compared to projections under the Enhanced NDCs scenario. These findings highlight the crucial importance of stable and predictable policies in supporting the low‑carbon transition and safeguarding economic resilience more generally.
Fiscal consolidation can help create fiscal space for climate investment and support medium‑term growth. In a scenario where countries reduce their budget deficits by 1%, global GDP could rise by up to 0.25 percentage points by 2040.
Central banks also play a crucial role in managing the short-term inflationary effects of climate policies while supporting investment. A moderate monetary loosening – lowering interest rates by 0.2 to 0.5 percentage points – could further boost global GDP by around 0.2 percentage points by 2030. In contrast, uncoordinated or overly restrictive monetary responses risk slowing growth and delaying the climate transition.
Scaling up private investment is critical to fully realize the economic benefits of the low‑carbon transition (see Chapter 8). In a scenario where improved market conditions lower equity and investment risk premia by 0.2% across all countries, global GDP could rise by 0.1 percentage points by 2030 and 0.2 percentage points by 2040. However, if climate investments displace private investment in other sectors (i.e., crowding out), growth gains could be offset.
1.2.2. Accelerated climate action delivers far-reaching benefits beyond GDP growth
Economy-wide policy action could strengthen growth while delivering on immediate health and environmental benefits
Reducing emissions in sectors like transport and energy brings immediate air quality and health gains, lowering disease rates, cutting healthcare costs and boosting productivity. While the economic benefits from reduced climate damages will take time to materialise due to climate system inertia, environmental and health benefits can be felt immediately. In 2019, air pollution caused 6.7 million premature deaths, with 62% linked to ambient particulate matter (PM2.5), and 89% of those deaths occurring in low to middle-income countries (OECD, 2021[32]). Cutting fossil fuel combustion lowers emissions of harmful pollutants like black carbon – a short-lived climate forcer with serious health effects – and methane, which is projected to decline by 30% by 2040 under Enhanced NDCs. Methane also drives ground-level ozone formation, harming health, biodiversity and crop yields. A modelling analysis estimates that a Paris-aligned scenario could generate air quality benefits worth USD 8 to USD 40 per tonne of greenhouse gases abated in 2030 (Vandyck, 2020[33]).
Spreading policy action across all sectors in the economy can bring additional benefits by further reducing emissions of non-CO2 greenhouse gases. The analysis shows that under a stylised Economy‑wide scenario in which all regions implement economy-wide climate action rather than specific sectoral policies, relying on a uniform carbon tax on all sectors and sources of emissions, GDP growth would be 1% higher in 2040 than in the Enhanced NDCs scenario, thanks to a more efficient allocation of policy action across sectors and gases. This scenario shows that abating non-CO2 GHGs can have strong health and environmental benefits in addition to contributing to climate change mitigation. The case of methane is particularly compelling, as anthropogenic methane emissions cause approximately half a million premature deaths globally due to ground level ozone (UNEP, 2021[34]), and can also lead to negative impacts on crop yields, as well as plants in general (see Chapter 4).
Agriculture, Forestry and Other Land Use (AFOLU) holds significant untapped cost-effective mitigation potential, along with unique environmental and social co-benefits. Nature Based Solutions and removals of GHG emissions with forest restoration, sustainable farming and reduction of high pollutants, have significant potential to deliver on climate and other development objectives. In the Economy-wide scenario by 2040, agricultural emissions are reduced by 14% compared to the Current Policies scenario, and only by 2.5% in the Enhanced NDCs scenario compared to the Current Policies scenario. By incentivising better land-use practices, most AFOLU mitigation measures help to conserve biodiversity and ecosystem services, protect water quality and supply, soil fertility, food security and livelihoods, while also offering adaptation potential and enhanced resilience to droughts, floods and other climate-related disasters (Nabuurs et al., 2023[35]). In countries where the AFOLU sector represents a high share of national emissions and/or has large potential for carbon land sinks, AFOLU policies can be a central part of optimal climate policy mixes. The extent to which countries rely on carbon dioxide removal – such as forest carbon sequestration – can have a major impact on the overall cost of the climate transition. However, progress on AFOLU mitigation policies to date has been slow, especially for market‑based policies (OECD, 2024[36]; OECD, 2022[37]), except in a few countries, such as Costa Rica (Obando-Vargas and Obando-Coronado, 2020[38]).
Climate and development strategies can be mutually reinforcing
In developing countries, accelerated climate action can be an efficient way to help meet development targets, driving progress on health, energy security and access, and poverty reduction. Many developing countries are struggling to keep up with the investments needed to satisfy the basic needs of their citizens – to build efficient cities, roads, housing, schools and health systems. The fact that much of the infrastructure in developing countries is yet to be built offers opportunities to put in place resilient infrastructure systems that simultaneously deliver on climate and development objectives. NDCs can support the delivery of several Sustainable Development Goals (SDGs), such as poverty reduction, education, health and energy access. While accelerated climate action is often perceived as a cost or constraint to economic development, aligning national climate plans with national development priorities can lead to significant co-benefits.
Policies that integrate human development objectives with equitable and sustainable energy systems contribute significantly to poverty reduction. According to UNDP analysis done for this report using the International Futures (IFs)5 model, integrating climate and development strategies could help one in five people in extreme poverty escape the poverty trap by 2050 (Figure 1.5). The findings demonstrate how co-ordinated- investments in governance, social protection, green transitions and digital infrastructure can drive both energy equity and climate progress. By aligning energy transition efforts with development strategies, up to 90% of low-human development countries (Human Development Index (HDI) below 0.55) could achieve substantial development improvements, potentially lifting an additional 175 million people out of extreme poverty by 2050. The analysis emphasises the vital role of energy systems in both climate mitigation and adaptation, and illustrates that integrating climate action with SDG‑focused investments yields significantly greater benefits than climate action alone.
Change in the SDG Push 3.0 scenario with respect to the Equitable, Low Carbon Pathways scenario, 2050
Note: The Equitable, Low-Carbon Pathways scenario corresponds to the Enhanced NDCs scenario presented above. The SDG Push 3.0 scenario adds effort and investments to meet the SDGs in addition to the climate action outlined in the Enhanced NDCs scenario, focusing on promoting health through dietary changes, agricultural improvements to strengthen food security, prioritised social spending in infrastructure, sanitation, clean water and modern cooking technologies, and governance reforms to enhance spending efficiency.
Source: The International Futures model. See Annex A for a description of the model.
Enhanced NDCs can help countries strengthen their energy security
The global energy crisis, exacerbated by Russia’s war of aggression against Ukraine, has underscored the vulnerabilities of fossil fuel-dependent economies, putting energy security at the forefront of policy agendas. The energy transition implies lower reliance on fossil fuel imports, which are concentrated in a limited number of regions, and a higher reliance on low-emissions energy, such as electricity renewables, which is primarily produced domestically. In 2022, 86% of the global population lived in fossil fuel-importing countries (IRENA, 2024[39]). In these countries, shifting energy dependencies from the global to the national level could enable them to increase their energy independence and reduce exposure to international geopolitical disruptions and fossil fuel price volatility. Furthermore, by diversifying energy supply and investing in clean technologies, countries can mitigate supply disruptions, stabilise energy prices and strengthen energy independence. Important social implications around just transition and jobs will need to be addressed (Section 1.3).
By tapping into their renewable energy potential, countries can reduce their exposure to volatile fossil fuel markets, lower import bills, stabilise energy prices and enhance self-sufficiency. Projections show that in an Enhanced NDCs scenario, fossil fuel imports are expected to decrease across all income groups, bringing widespread economic and strategic benefits. The Enhanced NDCs scenario sees increased renewable electricity production across all global regions, in the range of 28-70% in 2040 compared with Current policies. Fossil fuel import volumes decrease most – by 30% overall – in high‑income countries, where policies are most stringent. These are followed by low-income countries, where fossil fuel import volumes are projected to be 17% lower overall compared to Current Policies by 2040.
The net-zero transition brings new energy security risks, particularly around critical mineral supply chains and infrastructure resilience. As fossil fuel demand declines, market concentration may rise, increasing short-term risks. Meanwhile, clean energy technologies – such as solar PV, wind, batteries and heat pumps – are heavily reliant on manufacturing and mineral refining concentrated in China and Indonesia. By 2040, demand for critical minerals is projected to be over three times higher than in 2023, with China dominating much of the refining capacity (IEA, 2023[4]). The transition also depends on reliable energy storage, digital infrastructure and skilled labour, while increasing exposure to cyber threats. Addressing these challenges will require global co-operation, supply diversification, recycling, and greater energy efficiency. Supporting demand-side measures, such as targeted incentives for energy-efficient technologies, will also be key (OECD, 2024[40]).
Climate change mitigation policies offer long-term benefits – especially for low-income groups, women, the elderly and rural populations, who are likely to be most affected by climate impacts. However, these same groups may face short-term challenges from rising costs or reduced incomes. The distributional and labour market effects of climate change mitigation policies compatible with the goals of the Paris Agreement need to be carefully assessed and managed. Modelling results in OECD countries show that although overall labour market impacts are modest, sectoral and occupational shifts will be geographically concentrated and require targeted support, such as skills development. Well-designed policies can help ensure a fair sharing of costs and benefits of climate mitigation policies on households and workers. A just transition calls for a balanced, place-based approach that integrates climate objectives with inclusive social policies to avoid exacerbating existing vulnerabilities.
1.3.1. Anticipating and addressing distributional impacts of the transition for equity and social acceptability
In the long run, climate change mitigation policies offer long-term benefits to people, particularly for lower-income groups that tend to be disproportionately exposed and vulnerable to climate change due to their limited adaptive capacity. While high-income groups have more means to shield themselves from the effects of rising temperatures, lower-income households are more exposed and lack the resources to adapt (Hodok and Kozluk, 2024[41]). For Latin America and the Caribbean, a study by the Inter‑American Development Bank (IDB) suggests that more than 78 million poor people live in areas that are highly exposed to climate related‑shocks (Bagolle, Costella and Goyeneche, 2023[42]). Effective climate action would mitigate such risks and deliver co-benefits like improved air quality, especially for marginalised communities.
However, the effects of climate policies can be regressive in the short term, disproportionately affecting disadvantaged groups, particularly low-income households with limited financial flexibility and restricted access to cleaner alternatives. Climate policies affect households differently across and within income groups – by factors such as gender, employment status, age, family size and geography – primarily through price changes in essentials like energy and food, shifts in income and employment due to evolving production technologies, and structural transformations in labour markets. While the net social benefits of enhanced NDCs are positive in the long term, even modest increases in living costs can severely impact low-income populations, highlighting the need for climate policies to integrate compensatory and redistributive mechanisms – such as carbon revenue transfers, targeted tax relief and inflation-indexed social benefits – to ensure both fairness and public support, as well as to potentially enhance equity in the longer term (see Chapter 5).
Anticipating and addressing distributional impacts of the transition is crucial to secure trust and acceptability of climate policies. Support for climate policies rises when the policies are considered to be effective in reducing carbon emissions and when related costs are not disproportionately borne by vulnerable households (Dechezleprêtre et al., 2022[43]). Households frequently rank economic concerns (such as unemployment, price growth or poverty) more prominently than environmental ones; voters may resist climate action if they perceive that it will create significant costs for them. Failing to address these concerns not only risks inequitable outcomes, but could also lead to public opposition, slowing or halting of the transition.
To ensure a fair and equitable climate transition, support policies – particularly well-designed compensation mechanisms – are essential for mitigating financial burdens on low-income and disadvantaged households. Carbon pricing and the phase-out of fossil fuel subsidies can generate public revenues, which, if redistributed effectively, can offset adverse distributional impacts of climate policies. Simple uniform lump-sum transfers can significantly benefit low-income groups, but they often fall short of fully protecting all vulnerable households. Tailored compensation strategies, aligned with households’ specific support needs, are both more equitable and fiscally efficient. Such targeting reduces regressive impacts while preserving the incentive structure of carbon pricing. While full compensation may not always be possible due to competing budget demands, integrating climate-related compensation in existing social protection systems offers a viable approach. Ultimately, stakeholder consultation, careful revenue recycling and targeted support are critical for public acceptability and for minimising unintended social consequences of climate action (see Chapter 5) (Elgouacem et al., forthcoming[44]). While carbon pricing’s distributional effects are well-studied, other mitigation policies also have equity implications, underscoring the need for thorough distributional assessments to guide policy design and implementation (Peñasco, Anadón and Verdolini, 2021[45]).
1.3.2. Evaluating and managing labour market impacts of accelerated climate action for a fair climate transition
Climate action is already changing the job market and creating new job opportunities. In OECD countries, around 20% of workers are already employed in “green-driven occupations”, while high-emission sectors – responsible for 80% of emissions – employ just 7% of the workforce, meaning that only a small portion of the workforce will face direct displacement risks from more ambitious climate policies (OECD, 2024[46]). The most substantial shifts in sectoral production under a net-zero scenario occur within the energy system which is marked by a sharp decline in fossil fuel production and significant growth in renewable energy. The International Energy Agency (IEA) estimates that, more people worked in the energy sector in 2022 than in 2019, almost exclusively due to growth in clean energy, which now employs more workers than fossil fuels (IEA, 2023[47]). Between 2011 and 2022, the share of green-driven occupations in total employment increased by 2% on average in European-OECD countries and by 15% in the United States. While fossil fuel‑related jobs fell by 1% over the 2019-2023 period, employment in clean energy rose by 15% globally (IEA, 2024[48]). Green-driven occupations also tend to be characterised by higher wages and fewer temporary contracts than other occupations (OECD, 2024[46]).
Aggregate employment effects of ambitious climate policies are expected to be small but positive in the next 15 years. The transition will reduce output and therefore jobs in high-emitting sectors, which employ a small fraction of the working population, and will create new jobs in more labour-intensive and cleaner sectors, such as services and clean energy sectors. Compared to the Current Policies scenario, aggregate global employment in the Enhanced NDCs scenario is projected to be virtually unaffected and slightly higher (+0.08% in 2040).
Employment (billions of persons)
Note: Note: The figure presents projected changes in global aggregate employment under the Enhanced NDCs scenario for the years 2030, 2035 and 2040 decomposed by the main mechanisms connecting climate action to economic outcomes. The bars for Current Policies and Enhanced NDCs show the absolute level of global employment (in billions of persons) in each respective year. The intermediate bars show the incremental effect of the key mechanisms that drive the Enhanced NDCs scenario global employment relative to the Current Policies baseline.
Source: OECD ENV-Linkages model, with inputs from NIESR’s NiGEM and IEA’s GCEM models.
Job displacement risks tend to be concentrated in specific industries, regions and communities that are often already performing below national averages. Following structural changes in the economy, jobs will be created in expanding low-emission activities, while others will be lost in shrinking GHG-intensive industries (OECD, 2024[49]; OECD, 2023[50]). Many jobs will also be maintained and transformed as tasks and working methods become greener. The main challenge for labour market policies will therefore be to help workers and companies transition from emission-intensive sectors and occupations to other jobs (Figure 1.6). Regions facing significant transformation challenges, due to a high dependence on hard-to-decarbonise sectors, perform poorly on various socioeconomic indicators. In OECD countries, it is 24% more costly to lose a job in a high-emission sector than in other sectors, because workers tend to be older, less educated and tend to have wages that are difficult to match in the new jobs they can access (OECD, 2024[46]). These factors exacerbate the challenges of transition and may widen the socioeconomic disparities between regions (OECD, 2025[9]). With appropriate supportive policies, however, disruption can lead to long-term innovation, new industries and economic renewal for those areas. For instance, long a cornerstone of European heavy industry, the Ruhr region in Germany has undergone a profound economic transformation which can serve as an inspiration for the transition to net zero (see Chapter 5).
Addressing labour market impacts of the transition is an opportunity for governments to build more resilient communities through place-based approaches. The transition to net zero comes at a time when labour markets are experiencing other transitions, such as technological advances, especially in artificial intelligence, the reorganisation of global value chains and rapid demographic ageing. A coherent set of labour market policies to prevent mass redundancies, accompany workers and steer them towards growing sectors of the economy is key to help workers navigate the transition (Table 1.1). Effective and targeted training programmes are needed to provide workers, especially the low-skilled, with skilling and reskilling opportunities to help them move out of high-emitting sectors (OECD, 2024[51]). Income support schemes can cushion the financial impact on workers who have lost their jobs, while strengthening incentives to move into new jobs and investing in education . Adopting a place-based approach can enable policymakers to tailor measures to the needs and opportunities of different local contexts. Place-based policies specifically help vulnerable regions transition from emissions-intensive industries, promote the creation of local green jobs and adapt to emerging climate risks. Consultations with social partners at the outset can provide essential inputs for designing effective measures to support workers, households and regions (OECD, 2025[9]).
The next round of NDCs could be a catalyst to deliver the growth and development benefits identified in the economic modelling analysis presented in this report. To realise this opportunity, NDCs must shift from being technical exercises led largely by climate ministries, with limited buy-in across relevant government departments and stakeholders, to become more inclusive, collaborative processes that demonstrate clear benefits to key economic actors and add value to existing efforts, particularly by supporting wider development goals and attracting investment to support national priorities.
To unlock their full potential, NDCs need to be ambitious, implementable and investable so they can secure buy-in from relevant actors, channel finance from a variety of sources and leverage the multiple benefits of strengthened climate action. Experiences with current NDCs highlight the importance of not only setting out a country’s near-term climate ambitions, but also the foundations for how the commitments will be delivered to build confidence that the NDC is achievable (Jeudy-Hugo et al., 2024[52]). In this report, enhanced NDCs refer to NDCs that are ambitious, implementable and investable (see Chapter 6). An ambitious NDC signals a country’s overall ambition and direction of travel on climate change guided by the outcomes of the first GST. Investable, implementable NDCs are underpinned by supporting documents that help to translate NDC targets into credible and actionable pathways, supported by strong governance, co-ordination and inclusive stakeholder engagement. Each dimension of an enhanced NDC can be supported by different instruments and approaches (Figure 1.7).
Note: Examples of potential instruments and approaches listed are illustrative and will vary depending on the country context and circumstances.
An ambitious NDC provides clear signals of a country’s overall direction of travel and policy intent on climate change. By signaling a country’s near-term ambitions on climate change, NDCs can help public and private actors identify priority mitigation or adaptation opportunities in a country. The more clarity an NDC can provide, the stronger the signalling function it can play. Important signalling elements in an NDC include clear, quantified targets (e.g. economy-wide GHG reduction targets, increases in renewable energy capacity, reductions in non-CO2 emissions) and the identification of priority sectors (e.g. sector‑specific targets or plans for industry or forestry) guided by the global stocktake (GST).6 Responding to the calls in the first GST would represent an increase in ambition from current efforts in many countries, and some governments are already stepping up to this challenge. For example, in its new NDC the UK has committed to a reduction in absolute GHG emissions of 81% by 2035 from 1990 levels, following the recommendation of its Climate Change Committee (CCC) and in line with 1.5°C scenarios. Other important signalling elements in an NDC include alignment with wider development priorities that can provide a foundation for effective implementation of an NDC; while providing initial estimates of costs and funding gaps in an NDC can lay the groundwork for subsequent investment planning.
While NDCs can provide an important high-level signalling tool, to be considered implementable and investable they need to be supported by actionable pathways setting out clear next steps and responsibilities for delivery that can guide stakeholder decisions and steer financing to support NDC implementation. Actionable elements can be set out in separate documents (e.g. NDC implementation plans, investment or financing strategies) linked to relevant national/sectoral strategies, or elaborated and mainstreamed within existing planning documents (e.g. national development plans, sector-specific decarbonisation roadmaps, Integrated National Financing Frameworks, National Adaptation Plans) to enhance coherence with wider processes. For example, a roadmap for the industrial sector can set objectives for high-emitting priority sub-sectors – such as iron and steel and cement production – that are aligned with the economy-wide NDC target, and outline pathways for deployment and investment in low-carbon technologies, such as improving energy efficiency, substituting fossil fuel use for process heat generation with direct use of renewables, increasing reuse and recycling, and decarbonising production processes (OECD, 2022[53]; UNIDO, 2025[54]). Finally, robust governance arrangements and inclusive processes that secure buy-in from stakeholders within and beyond government are essential enablers of ambitious, implementable, investable NDCs.
Against this backdrop, the following three key actions can create the enabling conditions for implementable and investable NDCs: 1) building political ownership across government for delivering the next NDCs; 2) strengthening policy coherence, alignment and accountability at national, sectoral and subnational levels; and 3) pursuing social acceptance and private sector collaboration from the start (see Chapter 7).
1.4.1. Build political ownership across government for delivering the next NDCs
Current siloed approaches to NDCs limit ownership across government and hinder effective delivery. In many countries, NDCs are developed in isolation by Ministries of Environment, without clear integration in other planning and reporting processes. This siloed approach risks relegating NDCs to the sidelines as sectoral ministries remain focused on delivering their current mandates, while synergies with parallel reporting processes, including through Biennial Transparency Reports (BRTs), are often overlooked, leading to inefficiencies and missed opportunities for learning (Lo Re et al., 2025[55]). Additionally, limited linkages to wider strategic documents, such as national development plans and long‑term climate strategies, undermine the prioritisation of NDCs by relevant actors (Gerhard, Ellis and Abebe, 2022[56]).
Robust inter-governmental co-ordination structures can strengthen accountability for NDC delivery, while early engagement of key actors, including centres of government (CoG) and Ministries of Finance, Development, Economy and Planning, can secure buy-in. The role and configuration of different government actors across the NDC cycle – from planning and design to implementation and evaluation – will depend on the national context, institutional capacities and starting points. Establishing formalised co-ordination mechanisms to underpin the NDC cycle (or climate action more broadly) can improve engagement with line ministries responsible for managing the short-term impacts of ambitious climate goals (e.g. Ministries of Finance, Labour, Industry). It can also help to mainstream NDCs in existing national, sectoral and local processes, ensure targets set are ambitious and robust, and increase confidence among the private sector that NDC commitments will be delivered. Engaging government departments with cross-departmental mandates and convening power, such as Ministries of Finance, Development, Economy and Planning, and centres of government such as the Office of the President or Prime Minister, can enhance co-ordination and buy-in.
Ministries of Finance (MoFs) already play a role in supporting climate action in several countries. Such efforts need to be scaled up and the wider benefits of NDCs clearly demonstrated to bring key actors on board, while strengthening their capacities for meaningful engagement. In countries such as Rwanda, the active engagement of the MoF has led to concrete results (Box 1.2). However, the engagement of MoFs in the NDC process in many countries remains low and limited buy-in for NDCs across different ministries and subnational actors remains a key challenge. In some countries, capacity constraints limit the ability of government stakeholders at the sectoral and subnational level to engage in the NDC process. For government stakeholders to be invested in the NDC process, it is important to demonstrate its added value. For example, for MoFs, ambitious NDCs can be framed as a tool to mobilise resources from different sources that can help to achieve their core priorities of macro stability, growth and the responsible management of public finances, while building technical capacities of MoF staff and strengthening their institutional mandates for climate action (Coalition of Finance Ministers for Climate Action, 2023[57]).
In Rwanda, the Ministry of Finance and Economic Planning (MINECOFIN) co-ordinates a comprehensive NDC implementation framework through sector working groups; integrates climate considerations in planning and budgeting processes, including through climate budget tagging and the development of five-year sector strategic plans; and leads the tracking of finance for NDC delivery through Rwanda’s Integrated Financial Management Information System. Building on this implementation framework, sectoral ministries and agencies submit investment proposals for NDC‑aligned projects to MINECOFIN for approval. MINECOFIN has also established a Climate Finance Department to mobilise diverse finance sources and streamline co-ordination among stakeholders. Since 2020, Rwanda has made substantial progress in mobilising resources from domestic and international sources, as well as through innovative financing mechanisms. It achieved a 93.3% fund mobilisation rate for the 2020-2025 period of its current NDC through various efforts, including institutional mechanisms like the Rwanda Green Fund (FONERWA), and robust fundraising strategies.
Source: (Republic of Rwanda, 2024[58])...
1.4.2. Strengthen policy coherence, alignment and accountability at national, sectoral and subnational levels
Anchoring NDCs in wider strategic processes, including the national development plan and long‑term climate strategy, is important to reconcile NDCs with wider growth and development goals. There are different approaches to operationalising alignment between the various strategic planning processes. Some countries use Integrated National Financing Frameworks (INFFs) to align their NDC targets, national development goals and broader financial strategies (UNDP, 2024[59]). For example, the Gambia’s INFF strategy supports implementation of its Recovery-Focused National Development Plan (RF-NDP) for 2023-2027 and its 2021 NDC through actions such as climate budget tagging and prioritising climate finance in reforms to improve public financial management and attract private investment. There are different analytical tools and resources available to help countries align their climate and development objectives, such as the World Bank Group’s Country Climate and Development Reports (CCDRs) (World Bank Group, 2025[60]). Despite several calls for countries to align NDCs with long-term low emission development strategies (LT-LEDS), including most recently in the GST (World Bank, 2024[11]), this remains a challenging exercise with approaches varying according to different country contexts and starting points. Some countries have taken steps to co-ordinate institutional arrangements and stakeholder consultations across their near-term NDC commitments and their longer-term climate strategies. For example, Costa Rica used climate modelling, stakeholder consultations and 1.5°C-aligned decarbonisation trajectories from its long-term climate strategy to inform the preparations of its 2020 NDC update and enhance coherence across the different processes.
Some countries are already mainstreaming their NDC commitments across sectoral ministries and subnational governments, improving policy coherence and establishing accountability for NDC delivery across government. For example, in Chile, effective stakeholder engagement, cross-ministerial collaboration and multi-level governance supports implementation of its current NDC, underpinned by a strong legislative foundation in the Climate Change Framework Law (Box 1.3). Similarly in South Africa, the Climate Change Act underpins the development of co-ordinated sectoral strategies for adaptation and mitigation to support implementation of its current NDC. Close engagement with sectoral line ministries can help to mainstream NDCs in relevant sectoral policy portfolios and legislative decisions to support NDC delivery, improve policy coherence and increase buy-in for the NDC process.
Subnational governments, including cities, states, districts, regional and local governments, have a pivotal role to play in driving local climate action to help meet NDC ambitions. For example, in 2019 subnational governments were responsible for an average of 63% of climate‑significant public expenditure and 69% of climate‑significant public investment in 33 OECD and EU countries (OECD, 2022[61]). Despite their potential contribution to climate efforts, most current NDCs do not include subnational actions (UN-Habitat, UNDP and SDU.Resilience, 2024[62]), with some exceptions though. For example, in 2021 Canada was the first country to dedicate a section of its NDC to the climate commitments and actions undertaken by its provinces and territories, and its first BTR recognises the various cross‑cutting measures being implemented by these actors (Government of Canada, 2024[63]). Engaging subnational governments throughout the NDC cycle can enhance alignment between local and national climate goals, ensure subnational data, trends, targets, risks, policies and actions are integrated in NDC design, and inform subsequent tracking in BTRs (Naidoo et al., 2024[64]).
Chile’s 2022 Climate Change Framework Law mainstreamed the implementation of its current NDC across 17 government ministries, with sectors held accountable for their sectoral carbon budgets through budgetary sanctions. The Climate Change Law also decentralised NDC implementation across levels of government, with 16 Regional Climate Change Committees (CORECC) developing and implementing regional climate action plans in collaboration with the central government, municipalities and other non‑state and subnational actors to support implementation of the current NDC.
The design of Chile’s current NDC was informed by extensive stakeholder consultations within government and with external actors – including civil society, regional groups, indigenous communities, the private sector and academia - through the “Mesa NDC” (NDC table) process. This early stakeholder engagement helped enhance public acceptance of the final NDC and secure collaboration with the private sector. It led, inter alia, to the closure of 11 coal-fired power plants to date, 9 more in the pipeline for 2025 and will conclude with the closure of the remaining 8 coal-powered plants in the country by 2040.
1.4.3. Pursue social acceptance and private sector collaboration from the start
Stakeholder engagement in the NDC process helps build social acceptance and political acceptability, improves understanding of potential distributional impacts and can inform the design of just transition plans. How the stakeholder engagement process is managed (and the resources available to deliver it) is an important factor to ensure it is meaningful and truly inclusive. Early engagement with affected communities can ensure diverse perspectives are considered and improve understanding of the distributional impacts of climate policies on different groups. This can in turn help to design effective compensation mechanisms to address distributional impacts and trade-offs and ensure just and equitable transition plans are an integral part of NDCs, helping to build social acceptance for the speed and scale of transformative actions. Governments play a crucial role in minimising negative impacts of the transition through targeted support for affected communities and workers, such as reskilling programmes, robust economic diversification strategies and policies that ensure a just transition. Governments, such as in Australia, are already stepping up to this challenge (Box 1.4).
The Net Zero Economy Authority (NZEA) in Australia supports workers, communities and regions significantly affected by the transition to net zero. The NZEA supports the development of Regional Workforce Transition Plans, which provide targeted career guidance, skills training, job search assistance, financial advice and wellbeing support to affected communities. The NZEA also administers the Energy Industry Jobs Plan, which establishes a framework that ensures workers affected by impending power station closures can access support to prepare for and transition to their next job.
The NZEA plays an important role to support the government’s Future Made in Australia agenda announced in 2024, which aims to maximise the economic and industrial benefits of the transition towards a global net-zero economy. Under the agenda, the government is also investing in strategic sectors, enhancing skills and training of the workforce, and undertaking efforts to encourage private sector investment in priority industries. For example, a new Front Door will make it simpler for investors with major, transformational investments to identify, navigate and co-ordinate regulatory and approvals frameworks, existing grant programmes and public financing. The agenda also establishes Community Benefit Principles, enshrined in law, that will apply to every Future Made in Australia project, ensuring that the benefit of public investment and the mobilised private investment flows to communities.
Close engagement and collaboration between governments and the private sector from the outset can help to identify barriers and create enablers for NDC-aligned investments. Active engagement between relevant public and private sector actors – including investors and real economy corporates, as well as central banks, multilateral development banks (MDBs) and national development banks – from an early stage in the NDC process can be mutually reinforcing. Dialogues with the private sector can help governments understand the practical challenges to financing NDC-aligned activities and making them investable across subsectors (OECD, 2022[53]). Government policies can create a predictable, stable environment for private sector NDC-aligned investments taking into account the specific country context and circumstances, while their collaboration can support the co-development of robust pipelines of NDC‑aligned projects.
Well-designed country-led platforms and partnerships that build on lessons learnt from current experiences can unlock finance from development partners and the private sector to support NDC delivery. In recent years, country platforms such as Egypt’s Nexus of Water, Food and Energy Platform (Box 1.5) and Brazil’s Climate and Ecological Transformation Investment Platform have emerged as a promising model. Other approaches include: Just Energy Transition Partnerships launched in South Africa, Indonesia, Vietnam and Senegal; Country Packages for Forests, Nature and Climate adopted in the Democratic Republic of Congo, Ghana and Papua New Guinea under the Forest and Climate Leaders’ Partnership; and the Climate Club’s Global Matchmaking Platform, which supports the decarbonisation of heavy-emitting industries in emerging markets and developing economies. The success of such approaches depends on various factors, including high-level political ownership, robust governance arrangements and enabling policies, effective feedback loops between governments (sectoral leads and MoFs) and private investors focused on specific sectoral/programmatic priorities and credible, sustained commitment by partners. Moreover, to secure buy-in from the host government it is important to have a dedicated funding envelope available to take forward the country platform once it is set up, for example a robust package of concessional financing or a dedicated climate action window under the Global Environment Facility allocating funding to NDC-aligned country platforms. Building on lessons from experiences and emerging design principles, effective country platform‑like models could provide a basis for country-led approaches to co-ordinating investment and support from different partners towards priority commitments in the next NDCs (Tanaka, Garnak and Orozco, 2024[72]; World Bank, 2024[73]; Bhattacharya et al., 2021[74]; Robinson and Olver, 2025[75]).
Egypt’s Nexus of Water, Food and Energy (NWFE) platform is a strategic co-ordination mechanism to mobilise climate finance and foster strategic partnerships across the water, food and energy sectors. It plays an important role in supporting Egypt’s current NDC by highlighting investment opportunities and serving as a co-ordination platform for international public and private finance. The Energy Pillar of NWFE is expected to deliver substantial benefits, including an annual reduction of 17 million tonnes of CO₂ emissions by 2030 and the mobilisation of over USD 10 billion in green investments to support Egypt’s transition to a low-carbon future. Under the Energy Pillar, between 2022 and 2024, the platform secured USD 7 million in grants to retire thermal plants with a capacity of 1.2 gigawatts (GW,) mobilised USD 4 billion in development financing to support solar and wind energy projects totalling 4.2 GW, as well as USD 1.2 billion in development financing for grid transmission investments. Technical assistance has also been provided through support programmes aimed at strengthening green supply chains, improving the electric network and promoting a just energy transition.
Source: Authors; (EBRD, 2024[18]; OECD, 2024[19]).
Translating NDCs into actionable, investable pathways requires dedicated financing or investment strategies to provide a strong foundation to mobilise resources from different sources. NDC financing or investment strategies can take various forms, from standalone documents to provide a roadmap for mobilising resources for NDC implementation, to being an integrated part of broader national development strategies, climate policies, economic recovery plans, or sector-specific investment strategies. Regardless of the format, it is important that countries clearly identify specific projects and measures required to achieve their NDC targets in alignment with sectoral and development priorities and explicitly detail how these investments will be financed. A well-structured NDC financing or investment strategy rests on four interrelated components, as set out in Figure 1.8.
Despite their importance, few countries have developed NDC financing or investment strategies to date, and many developing countries lack the capacities and resources to do so. A review of NDCs submitted until April 2025 showed that fewer than 20 countries explicitly reference such strategies. Based on publicly-available information, reviews of NDC documents and resources from related organisations, including the NDC Partnership, only 16 countries were identified as having publicly available, economy‑wide financing or investment strategies currently in place to support their NDC. Countries that have developed these strategies often present them as separate documents, sometimes published independently of the NDC itself. In addition to the strategies identified, exchanges with practitioners including the NDC Partnership reveal that several countries have developed financing or investment strategies for internal planning purposes but have not made them available for public use, limiting their opportunity for impact (Lo Re et al., 2025[55]). As developing comprehensive financing or investment strategies demands substantial capacities and resources, tailored support is essential. Moreover, when locating and retrieving existing financing strategies is challenging, their visibility to investors, development partners, and other stakeholders is limited. Efforts to enhance their transparency and accessibility, as well as building the capacity required to produce them, can support co-ordination across actors, enable more targeted support from development partners and help crowd in private investment.
Note: Guidance and resources on each step, with corresponding methodologies, tools, and case studies, can be found in the following documents: (GCF and NDC Partnership, 2023[76]; NDC Partnership, 2023[77]; Riva et al., 2020[78]; OECD, 2025[79]).
Once the foundations of an NDC financing or investment strategy are in place, the focus shifts to identifying concrete strategies for mobilising the necessary resources. Figure 1.9 sets out three avenues for mobilising finance for NDC implementation, i.e. optimising public finance, redirecting private finance and strengthening international support. These require mobilising the financial ecosystem and its key actors. As described in the sections which follow, finance and domestic policies set the foundation by directing resources to climate priorities and creating investment incentives. Private sector mobilisation is crucial for scaling up funding, requiring clear policy signals and risk mitigation. International support helps bridge gaps, providing concessional finance, technical assistance and MDB engagement. These avenues are deeply interconnected and the balance across the three will depend on a country’s socioeconomic context and national circumstances. Table 1.2 at the end of the section provides a detailed summary of key actions that different actors can take in this context.
1.5.1. Optimise public finance for NDC implementation
Public finance plays a foundational role in enabling NDC actions, particularly for non‑revenue‑generating activities, such as ecosystem restoration or early warning systems. The economic modelling analysis in this report shows that strategic fiscal reforms, including public investment for climate action and fossil fuel subsidy reforms, can improve growth prospects in the medium and long term.
Optimising public finance for NDCs requires co-ordinated efforts across several fronts:
Aligning national budgets with NDC targets to ensure climate priorities are integrated in fiscal planning and expenditure. Some countries are already acting along these lines, for example, the Ministries of Finance in Bangladesh and Korea have successfully integrated climate considerations into public financial management, demonstrating how strategic budgetary reforms can drive climate action (Box 1.6). To improve transparency and accountability, green budgeting and climate budget tagging can help to track climate-related expenditures, assess fiscal risks and strengthen decision making. As well as optimising existing resources, ensuring public spending does not contradict NDC commitments is equally important. Many governments continue to channel substantial resources to fossil fuels and carbon-intensive activities, which constitute a significant drain on scarce public finances and divert funding away from other priorities. Recent OECD and IEA data show that the global fiscal cost of support measures for fossil fuels in 82 economies in 2023 was USD 1.1 trillion (OECD, 2024[20]). A full reform of fossil fuel subsidies would raise revenue up to USD 4.4 trillion in 2030, with some regions, including the Middle East and North Africa, and South Asia, reaping the greatest economic benefits (IMF, 2024[80]). The resources saved could be incorporated in national budgets to finance priority actions, including NDC delivery.
Raising additional public resources for financing NDC action through specific mechanisms, such as sovereign climate bonds or carbon pricing. Sovereign climate bonds exemplify how governments can secure low-cost, long-term capital specifically for NDC implementation. Some countries are already pursuing these opportunities. For example, Uruguay’s 2022 issuance of a USD 10.5 billion sustainability-linked bond (SLB) was integrated with Key Performance Indicators directly tied to its NDC, ensuring alignment between financial flows and climate targets (LSE, 2023[81]; IDB, 2022[82]). Carbon pricing mechanisms, including carbon taxes and emissions trading systems, can also provide valuable revenue streams to support NDC priorities, while also addressing distributional concerns.
Leveraging public procurement to support NDC actions by driving investments in low‑carbon and climate-resilient projects and incentivising private sector mobilisation. Green public procurement (GPP) has become an essential policy instrument for governments seeking to meet their climate commitments, including targets set out in their NDCs. For example, in Indonesia, the government has set mandatory energy efficiency standards for air conditioning units purchased by public agencies, aligning procurement with the country’s broader climate goals (Erizaputri, Bechauf and Casier, 2024[83]). GPP exerts a wider influence on private sector behaviour, shaping preferences by defining clear environmental standards and signalling long-term demand for low‑carbon goods and services (OECD, 2024[84]).
Bangladesh has mainstreamed climate change across its entire budget process, from initial budget calls to parliamentary expenditure reports, leading to a 1.5-fold increase in climate-related allocations, with 78% directed toward adaptation sectors in 2023-24. This comprehensive approach also enabled the government to secure a USD 1.4 billion International Monetary Fund (IMF) loan under the Resilience and Sustainability Facility.
Korea, meanwhile, has introduced a pioneering GHG Reduction Cognitive Budgeting System, requiring ministries to assess and report the expected emissions impact of their budget proposals. This system, which classified 294 projects in its first two years, ensures alignment with Korea’s Carbon Neutrality and Green Growth Plan, embedding climate considerations into long-term fiscal planning and investment decisions.
1.5.2. Mobilise and redirect NDC-aligned investments from the private sector
A large proportion of the financing required for NDC implementation will have to come from the private sector. Some countries, including Brazil and France, have already taken steps to strengthen private sector participation in NDC financing (Box 1.7). Yet barriers such as high capital costs, lack of investment-ready projects and policy uncertainty continue to hold back private capital flows. Available evidence suggests that finance flows remain only partially aligned with climate goals, with significant gaps in key asset classes such as private equity and loans, and continued high levels of financing for fossil fuel supply (OECD, 2024[87]). It is important to remember that the private sector is not a homogeneous entity, but rather made of a range of actors, including global financial institutions, local capital markets and real economy businesses. Understanding who to target is an important precondition to being able to successfully mobilise its resources.
To align private investment with NDCs, governments can focus on four key action areas:
Use public finance instruments to catalyse private sector investment and attract capital into NDC-aligned projects. Public finance plays a critical role in addressing risk-return imbalances that deter the private sector investment in NDC-aligned projects, e.g. through instruments such as guarantees. In developing countries, this often takes the form of blended finance, where public resources are strategically deployed to de-risk investments and mobilise commercial capital through instruments such as guarantees which allow public or concessional finance providers to take on specific risks that deter private investors, thereby helping to unlock commercial capital for NDC-aligned investments (Garbacz, Vilalta and Moller, 2021[88]). In advanced economies, public finance still plays a catalytic role through mechanisms such as public-private partnerships (PPPs), targeted loan guarantees and innovation challenge funds.
Strengthen policy tools to incentivise NDC-aligned investments in the real economy. Governments may use a range of policy instruments and interventions to stimulate NDC-aligned actions by companies and households, which can influence the alignment of real-economy investments with NDC goals (OECD, 2024[87]). Economic policies, such as subsidies, taxes and fees, can encourage investments in low-carbon solutions and discourage NDC-misaligned investments. Regulatory policies can directly mandate or restrict specific NDC-aligned or misaligned activities and hence related investments. Information policies and voluntary approaches can provide many other avenues for developing an enabling environment for NDC‑aligned investments by the private sector.
Green domestic financial policies. Climate-related transparency and information policies linked to enhanced NDCs can help to integrate NDC considerations in financing decisions in the private sector and to develop green finance markets. For example, by providing requirements for standardised data, climate-related disclosure policies can prompt investors to engage with companies and to integrate NDC considerations into investment and portfolio allocation decisions. Similarly, sustainable finance taxonomies and green bond frameworks provide an opportunity to integrate NDC ambitions into financial decision making by improving market transparency and helping investors to more easily identify NDC-aligned projects.
Strengthen the capacity and structures of domestic financial institutions. Governments have a central role in ensuring that domestic financial institutions (e.g. banks, credit unions, development banks) integrate climate considerations into their decision-making processes. For example they can establish regulatory guidelines and incentives that encourage financial institutions to develop and offer climate-aligned financial products, such as green loans, which can support NDCs. As many financial institutions lack the technical expertise to integrate climate risks into financial decision making effectively, governments can help bridge this gap by facilitating access to targeted capacity-building initiatives. Governments should also encourage the adoption of international frameworks for climate risk assessment and disclosure, such as the Task Force on Climate-related Financial Disclosures (TCFD) and the Equator Principles 4 (EP4), which can help financial institutions evaluate transitional risks and align their lending and investment decisions with Paris Agreement goals. In addition, governments also establish institutional structures to mobilise financing for NDCs, such as Green Banks, National Climate Funds (NCFs), and Strategic Investment Funds (SIFs). These can play a critical role in unlocking capital, particularly in countries where private financial markets are underdeveloped or risk‑averse.
Experience from Brazil shows that mobilising private sector finance for climate action is not just possible, but is already happening at scale. The National Bank for Economic and Social Development (BNDES) is leading the charge, with innovative financial instruments that are attracting significant private capital. A prime example is BNDES's 2020 green bond issuance of USD 200 million, which was launched entirely on the Brazilian domestic market, catering to private sector investors. This bond, with a two-year maturity and an interest rate of 0.45% points above the prevailing interbank lending rate, was offered as a private placement to BNDES's main business partners, particularly Brazilian financial institutions and institutional investors. Investor interest was strong, with demand exceeding the initial offering.
While the role of financial sector policies in integrating climate considerations needs to be better understood, France’s experience with climate stress testing (a simulation to assess financial institutions' resilience to climate-related risks) shows that it can influence bank lending behaviour. French banks participating in a climate pilot exercise by the French supervisory agency subsequently collected new information about climate risks and boosted lending for green purposes.
1.5.3. Increase developing countries’ access to international finance
Greater international support is needed to fill the significant financing gaps many developing countries continue to face in implementing their NDCs. Limited access to capital markets, rising sovereign debt burdens and constrained fiscal space increase the cost of finance and limit private investment flows in many economies (OECD, 2023[92]). Addressing broader systemic challenges – such as reforming MDBs, reducing barriers that limit developing countries’ access to low-cost capital, continuing to reform the international financial architecture and tackling debt sustainability – will be critical for mobilising finance at scale. Moreover, with recently announced cuts to official development assistance (ODA) spending, it is more important than ever to scale up innovative financing instruments, such as Special Drawing Rights (SDRs) and solidarity levies, to bridge financing gaps. While these are critical and well-recognised challenges, this report does not aim to duplicate existing analyses. Instead, it focuses on more operational areas where international providers, including bilateral donors, MDBs and international climate funds, can play an immediate and tangible role in supporting NDC implementation.
Challenges in providing adequate international support go beyond funding availability. Developing countries face long response times from partners, fragmented donor co-ordination, and complex access and application processes which slow down resource mobilisation. Additionally, technical assistance has often focused on supporting NDC submissions, rather than their implementation, leaving governments without the tools to translate commitments into action. According to the NDC Partnership, 20 countries still require in total over USD 10 million in support for activities such as developing sectoral plans, investment plans, implementation frameworks and project pipelines (NDCP, 2025[93]). To be effective, the NDC process must be treated as a continuous cycle – encompassing planning and design, but also implementation, investment mobilisation and evaluation.
There are four avenues that can enhance access and impact to ensure available climate finance is delivered more effectively and equitably:
Simplifying access to climate finance: Accessing multilateral finance remains a significant challenge for developing countries, particularly for financing NDC implementation. International providers, MDBs and multilateral climate funds should strive to align application requirements across different climate finance providers, reduce bureaucracy and fragmentation, and scale up direct access modalities, similar to ongoing efforts by the Global Environment Fund and the Global Climate Fund (GCF and GEF, 2021[94]; IHLEG, 2024[95]).
Increasing capacity building and technical assistance for project preparation: The lack of readily available project proposals and investable project pipelines is often identified as one of the major bottlenecks to mobilising finance for NDCs. Despite efforts, access to project preparation support remains limited, and greater co-ordination, long-term technical assistance and scaled-up resources in key areas will be essential to unlock climate finance for NDC implementation. For example, more early-stage collaboration between governments, development partners and private sector investors can better align project design with financial requirements and the right financiers, as project preparation is often disconnected from investor engagement so even technically sound projects struggle to attract financing.
Strengthening bilateral and regional partnerships to mobilise financing for NDCs: Such partnerships can take different forms, including country platforms and technical assistance hubs that can play a critical role in supporting developing countries to design, structure and implement bankable climate projects.
Leveraging one-stop-shop initiatives offered by MDBs: A range of initiatives, such as the African Development Bank’s NDC Hub, the Asian Development Bank’s NDC Advance support and the World Bank’s Climate Support Facility, provide a mix of technical assistance, capacity building, policy support and financial resources to support developing countries to prepare and implement their NDCs. While such one-stop-shop initiatives have provided valuable integrated support for NDCs, several challenges remain and there is a need for more continuous, long‑term funding through such initiatives to provide support to countries across the entire NDC cycle to enhance effectiveness and maintain momentum.
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← 2. i.e. have reduced their GHG emissions in absolute terms and have increased their GDP at the same time.
← 3. Climate change is showing its claws: The world is getting hotter, resulting in severe hurricanes, thunderstorms and floods | Munich Re
← 4. The modelling framework assumes that countries use a mix of policies, not just carbon pricing, to achieve emissions reductions, which limits the amount of available carbon revenue recycling.
← 5. International Futures (IFs) is a large-scale, long-term, integrated global modelling system (Hughes and Hillebrand, 2015[96]) encompassing a wide range of interconnected sub-models covering population, economy, education, health, energy, agriculture, technology, infrastructure, environment, sociopolitical, and international relations, among others
← 6. Under the Paris Agreement, periodic global stocktakes (GSTs) are to inform subsequent national efforts, including NDCs. The first GST (GST1) concluded at COP28 in 2023 and encourages all countries to put forward ambitious, economy-wide emission reduction targets in their next NDCs that cover all GHGs, sectors and categories aligned with limiting global warming to 1.5°C and to align their next NDCs with their long-term low GHG emission development strategies (LT-LEDS) (UNFCCC, 2023[97]).