The Green Fault Line: The Global North, China, and the Politics of Climate Finance in South Asia

This story by Qian Sun and Sonia Awale originally appeared on Global Voices on November 26, 2025.

Across South Asia, governments facing extreme climate impacts, chronic energy shortages, and mounting public debt are turning to green technology and climate finance to rebuild energy systems and secure more stable and affordable power. The urgency is clear. Pakistan’s 2022 floods displaced more than 30 million people and caused damage equivalent to nearly one tenth of its GDP, according to government figures.

In Nepal, Himalayan glaciers are melting at their fastest recorded rate, threatening water supplies for millions, increasing the risk of sudden glacial lake floods, altering downstream river flows essential for farming, and contributing to more frequent landslides in already fragile mountain regions. GLOFs and flash floods in the region have destroyed multiple medium to large-sized hydropower plants that produce significant green energy for South Asia.

At the same time, Pakistan’s annual greenhouse gas emissions are projected to more than triple by 2030 without new mitigation measures. Yet even as these countries seek financing to respond to climate impacts, the rules that determine how “green money” moves are largely written in wealthier capitals, not in Islamabad or Kathmandu.

Climate finance has become a global arena of influence. China, now the world’s leading supplier of solar panels, batteries, and hydropower engineering, is increasingly central to this story. In South Asia, the question is not only whether climate finance will arrive, but who defines the terms.

A market built in the North, applied in the South

The Global North owes a climate debt to the Global South, rooted in centuries of industrial expansion and disproportionate emissions, where the US and Europe, and later China, contributed the vast majority of emissions. The United Nations climate framework recognizes this imbalance and requires wealthier states to provide financial support to low-income countries. But the mechanisms through which climate finance flows have produced uneven outcomes.

Public mechanisms such as the Global Environment Facility and the Adaptation Fund were designed to support climate adaptation and resilience. Market-based tools, like the Clean Development Mechanism under the Kyoto Protocol, Article 6 carbon trading under the Paris Agreement, and the Voluntary Carbon Market (VCM), were introduced to attract private-sector funding to climate mitigation projects in developing countries. Newer instruments such as green bonds, blended finance, and Just Energy Transition Partnerships now layer additional complexity onto the system.

Despite this architecture, much of the financial value circulates back to institutions and firms in wealthy countries. Funds frequently return to the Global North in the form of interest, consultancy fees, technology imports, or debt repayment. Meanwhile, the Global South bears the climate impacts and the implementation risks.

Laurie Parsons, author of “Carbon Colonialism: How Rich Countries Export Climate Breakdown,” describes this dynamic as a structural injustice built into global climate governance. Rather than reducing their own emissions or transforming high-carbon systems, wealthy states increasingly outsource the production of carbon and the disposal of environmental risk to poorer countries. In an interview, Parsons explained that societies facing growing climate hazards effectively have two paths: they can address the root causes of environmental damage by cutting emissions, or they can continue with the same systems while accumulating the resources necessary to shield themselves from the consequences. “It is clear,” he argues, “that the world’s richest countries are choosing the second path.”

The Voluntary Carbon Market clearly illustrates this imbalance. Most offset projects, including mangrove restoration, forest conservation, and waste-to-energy facilities, are often located in the Global South. Yet the major registries that certify and sell carbon credits are headquartered in the United States and Switzerland. They write the methodologies, approve projects, and collect fees for each verified ton of carbon. They regulate and profit from the same system.

Furthermore, even within these developing countries, Indigenous communities that inhabit some of the world’s most important carbon sinks are not at the center of the project design, and that in turn can have a detrimental impact, writes Rastraraj Bhandari and Johan Nylander, who work to operationalize carbon market instruments. They argue that the conversation needs to be more inclusive, with input from women, youth, and marginalized and vulnerable groups, despite their perceived lack of technical knowledge on the matter. 

See Also: Nepal’s Cement Independence Comes at Environmental and Social Cost

Delta Blue Carbon: Success story or a green mirage?

Launched in 2015, the Delta Blue Carbon Project in Pakistan’s Indus Delta has been widely promoted as the world’s largest mangrove restoration initiative. It is a partnership between the Sindh Forest Department and Indus Delta Capital, a private developer, and aims to restore approximately 350,000 hectares of mangroves over sixty years. The project generates carbon credits through the voluntary carbon market under the Verified Carbon Standard and has been marketed as a model for “nature-based solutions.”

Pakistani officials present the project as a national success, pointing to increased forest cover and job creation. Yet civil society groups and researchers have raised concerns about transparency and equity. Local communities say they have little information about how revenues are shared, and independent journalists report difficulty accessing project contracts and financial records. Ecologists have also questioned whether planting monoculture mangroves primarily to maximize carbon storage may weaken long-term ecological resilience.

These concerns mirror broader patterns. A 2024 report by the NGO Corporate Accountability found that more than 47 million carbon credits linked to projects with identified environmental or social issues were retired in the voluntary market that year. Multiple independent investigations of major offset projects have concluded that many do not achieve the emissions reductions they claim.

The Voluntary Carbon Market has long faced criticism for commodifying ecosystems and applying market logic to climate responsibility. Yet its supporters argue that, despite its flaws, it remains one of the few mechanisms that channels private capital from the Global North to the Global South. That channel, however, appears increasingly unstable.

As Chen Zhibin of the International Carbon Action Partnership notes, the political will in wealthier countries to finance climate action abroad is weakening. “There was once a broad consensus that the Global North should support the Global South in addressing climate change,” he told Global Voices. “But as right-leaning governments gain power, the willingness to spend on climate mitigation or on assistance to developing countries is declining.”

See Also: Middle Eastern Countries are Among the Most Exposed to Climate Change so Why is Media Coverage so Low There?

Pakistan: Green finance and its double bind

In 2021, Pakistan’s Water and Power Development Authority issued a USD 500 million Green Eurobond to finance the Diamer-Bhasha Dam and the Mohmand Dam. A UK-based agency certified the bond as “Medium Green,” meaning the projects contribute to renewable energy but involve environmental and social risks. The green label helped attract investors, but the underlying instrument remains a foreign currency loan that Pakistan must repay with interest.

Construction is being carried out through joint ventures between Pakistani agencies and large Chinese state-owned engineering companies. China Power is leading work on Diamer-Bhasha alongside the Frontier Works Organization, while China Gezhouba Group is constructing the Mohmand Dam in partnership with Descon Engineering. These companies will receive the majority of the construction and equipment revenue. Pakistan’s public budget absorbs the debt.

For communities living in the dam valleys, the benefits have been limited. Both projects require extensive land acquisition and relocation. Residents report losing orchards, grazing lands, and seasonal access to rivers that supported farming and fishing. Compensation processes have been uneven, and resettled households describe moving to areas with less fertile soil or reduced water access. Village networks have been fragmented as communities are divided across multiple relocation sites.

Ecological changes compound these disruptions. Altered river flows and sedimentation patterns may affect downstream agriculture and fish habitats. These impacts are long-term and are not included in the financial models used to justify the bond.

The distribution of outcomes is clear: international investors receive interest, Chinese contractors earn construction revenue, and Pakistan assumes the debt, while communities closest to the dams face the social and environmental costs.

A new border of climate regulation

Pakistan now faces another challenge: The European Union’s Carbon Border Adjustment Mechanism, which will require emissions reporting for exports such as steel and cement. For producers, compliance means access to markets; non-compliance means exclusion. As Chen noted, “It is less about changing others and more about keeping the European market stable. ” The message to companies is simple: follow the rules, and you can keep selling.

The question now facing Pakistan and the region is whether climate finance can serve adaptation and energy security without deepening dependency or reproducing older hierarchies.

[DS]

Suggested Reading: