Hanging in The Balance

According to the United Nations Environment Programme’s Emissions Gap Report 2024,1 the full implementation of unconditional or conditional Nationally Determined Contribution (NDC) scenarios is projected to lower global warming to 2.8°C and 2.6°C respectively over the course of the century, demonstrating that we remain clearly off-track in meeting the goals of the Paris Agreement to limit temperature rise to 1.5°C above pre-industrial levels. As of June 2024,2 101 parties covering approximately 82 per cent of global greenhouse gas emissions have adopted net-zero pledges either in law, in a policy document or via a high-level government announcement.

Yet as we enter 2026, climate and energy policies are being shaped not only by decarbonization imperatives. Geopolitical upheaval, technological com-petition, economic transformation, supply chain resilience, and national security concerns are exerting influence over the future of energy and climate policies worldwide. For the Global South, these present both unprecedented opportunities and enduring vulnerabilities—calling for a delicate balance between access, affordability, and industrial competitiveness.

Geopolitical upheaval, technological competition, economic transformation, supply chain resilience, and national security concerns are exerting influence over the future of energy and climate policies worldwide

1. Deepening Divergences in Energy and Climate Policy

The fierce pursuit of energy security; intensified since the Covid-19 pandemic and the conflicts in Eu-rope and the Middle East, has evolved into political narratives centered on energy sovereignty and dominance. Early in 2025, for instance, the United States (US) established a National Energy Dominance Council^[1] to restore American energy dominance and expand American energy production. While renew-able energy additions have expanded at record levels, fossil fuels continue to contribute over 80 percent of the energy mix,^[2] given renewable energy conversions remain inefficient in many applications. Oil demand and production are projected to continue growing through 2026. In this context, the recently concluded COP30 Summit in Belem was notable for the stark absence of any reference to fossil fuels in the official communication^[3] – a departure from the landmark “United Arab Emirates consensus” agreement at COP28 in Dubai, which included the breakthrough commitment from countries to “transition away from fossil fuels.”^[4]

At the same time, we are witnessing a rise in in-ward-looking domestic clean-energy industrial policies. First accelerated by the U.S. Inflation Reduction Act^[7] and EU Green Deal Industrial Plan,^[8] a similar trend is emerging globally as Latin American and Asian economies replicate frameworks and policies to localize production of renewables, storage, and hydrogen components, increasingly extending to energy-efficient AI chips. This reflects the return of industrial policies manifesting through growing state intervention using policy tools such as subsidies, public investment, and green manufacturing. The aim is to incentivize and secure domestic clean-energy supply chains, prompted strongly from a desire to significantly reduce exposure and reliance on deeply entrenched Chinese green energy supply chains. Climate governance, therefore, is increasingly being framed through a security lens, linking emissions reduction to national resilience, industrial competitiveness, and export dominance. This stark dichotomy and divergence in fossil-fuel-driven energy security and domestically anchored clean-energy industrial strategy is likely to be the defining divergence to monitor with caution in 2026.

2. Heightened Securitization of Supply Chains and Diversification of Trade Corridors

Strategic choke points such as the Straits of Hormuz, Bab-al-Mandab, Malacca, and Sunda have become flashpoints, prompting heightened securitization of energy and the critical infrastructure associated with it. Relatedly, as maritime risk premiums rise and shipping companies face mounting pressures,^[9] governments are expected to intervene, either by underwriting some of that risk or by incentivizing, if not mandating, companies to absorb it on the grounds that energy shipments are essential inputs contributing to national security. Simultaneously, China’s proven ability and intent to weaponize its monopoly over 70 percent of the global rare-earth resources and 90 percent of processing^[10] has introduced substantial supply-chain risks, effectively holding global manufacturing hostage to its export leverage. China’s control over renewable-energy value chains is increasingly regarded as a national security threat.

Supply chains are increasingly being re-engineered through political measures such as stockpiles, export controls, and friend-shoring corridors. This tendency to weaponize energy dependencies is likely to drive countries towards more aggressive renewable- and clean-energy targets domestically.^[11] China’s proven ability and intent to weaponize its monopoly over 70 percent of the global rare-earth resources and 90 percent of processing has introduced substantial supply-chain risks, effectively holding global manufacturing hostage to its export leverage.

China’s proven ability and intent to weaponize its monopoly over 70 percent of the global rare-earth resources and 90 percent of processing has introduced substantial supply-chain risks, effectively holding global manufacturing hostage to its export leverage.

As a counterbalance, we are likely to witness a proliferation and strengthening of critical alternative energy corridors in order to diversify supply chains and connectivity routes – such as the IMEC (India-Middle East-Europe Corridor) ; I2U2 (India, Israel, UAE, USA); the Lobito Corridor connecting Angola to the Democratic Republic of Congo in Africa; the Northern Sea Route connecting Northern Europe with the Asia-Pacific via the Artic shipping lane, a shorter alternative to the conventional Suez Canal route; and the Trans Caspian international transport route connecting China to Europe via Central Asia while bypassing Russia. These routes are expected to reorient mineral and energy trade through politically aligned geographies. We are also likely to see the signing of more off-take agreements with countries in Central Asia and Africa in order to establish resilient supply-chains. While the search for alternative sup-ply sources and routes in the case of hydrocarbons is expected to continue throughout 2026, efforts to reduce dependence on China for critical minerals^[12] are unlikely to prove successful overall, and the efforts underway globally to develop alternative supply chains^[13] are unlikely to yield results within the next five to seven years, even under optimistic scenarios. This despite significant undertakings such as defense establishments now becoming direct players in the game, as seen in the U.S. Department of Defense’s investment in MP Materials in partnership with Saudi Arabia’s Maaden, to secure rare-earth supplies.^[14]

3. Rising Impact of Artificial Intelligence (AI) On Energy and Climate Politics

Digitalization has introduced a new variable in the energy equation. The IEA ‘Energy and AI’^[15] Report highlighted the exponential rise in data centre electricity demand, driven by AI, blockchain, and cloud computing. AI accounts for almost 5-15% of data centre power use, projected to increase to 35-50%^[16] by 2030. In fact, AI and climate^[17] as a combined top-ic has been included into the COP30 Action Agenda for the first time.

The aim is to incentivize and secure domestic clean-energy supply chains, prompted strongly from a desire to significantly reduce exposure and reliance on deeply entrenched Chinese green energy supply chains.

This surge is driving a renaissance in nuclear power – a firm dispatchable power source. A growing number of countries have enacted national legislations establishing regulatory frameworks for the introduction or re-introduction of nuclear power.^[18] Many have reversed their no-nuclear policy. Nuclear safety protocols and regulatory frameworks are supported by growing investments in the sector – most notably from the private sector, for instance Microsoft joining the World Nuclear Association^[19]; and from inter-national financial institutions, with the World Bank’s revocation of the moratorium^[20] it had placed on underwriting nuclear-energy projects, a watershed that will trigger substantial financial flows into the sector. To sustain this shift, grid modernization and flexibility are becoming urgent priorities. Governments from ASEAN^[21] to the GCC are investing in smart grids and expansion to accommodate both industrial decarbonization and surging data centre demand.

The challenge ahead will be balancing energy allocation between civilian and digital infrastructure— a tension that will increasingly define national energy strategies.

The challenge ahead will be balancing energy allocation between civilian and digital infrastructure — a tension that will increasingly define national energy strategies. Cybersecurity and data privacy concerns will also intensify in this new era of grid digitization. Data centers are also water-intensive and will inevitably place unprecedented pressures on water ecosystems, pushing them to the point of extreme stress. Water scarcity and water-driven conflict will increasingly add a security dimension to this challenge.

4. Entrenching Energy-Climate-Trade Nexus

Trade has become a frontline of climate policy, with carbon-related measures now shaping how goods move, how value chains are structured, and who bears the cost of decarbonization. For India and the wider Global South, the immediate con-test is to ensure these emerging trade rules do not lock in asymmetric obligations^[22] or de-facto barriers just as their industrial transitions gather pace.

With the EU’s Carbon Border Adjustment Mecha-nism (CBAM)^[23] shifting from its current transition-al reporting phase into the definitive, price-bearing phase on 1 January 2026,^[24] importers of steel, cement, and other covered products will need verified emissions data and must purchase CBAM certificates tied to the EU carbon price. This development moves carbon governance from soft disclosure to hard conditionality. In parallel, the G7-anchored Climate Club,^[25] launched through the 2023–24 G7 process^[26] and expanded at COP28, is building a cooperative framework on industrial decarbonization^[27], car-bon-leakage disciplines, and common methodologies for hard-to-abate sectors such as steel and cement.

Trade has become a frontline of climate policy, with carbon-related measures now shaping how goods move, how value chains are structured, and who bears the cost of decarbonization.

India has repeatedly characterized CBAM as un-fair^[28] and inconsistent with common-but-differentiated responsibilities, with senior ministers flagging it as “unacceptable” and “discriminatory” for developing-country exporters in public remarks and in parliamentary and G20 discussions.^[29] Along with the other emerging economies, New Delhi has used G20, WTO, and UNFCCC platforms to warn that unilateral carbon border measures could undermine development, and has called instead for cooperative arrangements on standards, finance, and technology that recognize diverse starting points and per capita emissions. The CBAM flashpoints at recent COPs, including the failure to bridge differences over EU trade measures at COP30, underline that the energy–climate–trade nexus is now central to the legitimacy of the global trading system, not just a peripheral technical issue.

5. Retrenching Finance for Climate Action

Investments in clean energy in emerging and developing economies (EDMEs) must triple from USD770 billion in 2022 to USD 2.2–2.8 trillion annually by the early 2030s.^[30] The COP30^[31] in Belem established commitments to mobilize USD 1.3 trillion annually by 2035^[32] for climate action as well as double adaptation finance by 2025 and triple it by 2035. In the backdrop of a USD 110 trillion^[33] global economy and financial markets, this represents a significant yet manageable capital allocation. Yet, the investment for energy transition and climate action remains far from sufficient to meet the global net-zero targets. Instead, despite renewables becoming increasingly competitive and economically feasible, we are witnessing a retrenchment in climate-focused investments. This can be attributed to growing trade dependencies, lack of “bankable” projects, high cost of capital in EMDEs, and shifting investor priorities given the mixed policy signaling – most strongly from the current dispensation in the US.

Investments in clean energy in emerging and devel-oping economies (EDMEs) must triple from USD770 billion in 2022 to USD 2.2–2.8 trillion annually by the early 2030s.30 The COP3031 in Belem established commitments to mobilize USD 1.3 trillion annually by 203532 for climate action as well as double adap-tation finance by 2025 and triple it by 2035. In the backdrop of a USD 110 trillion33 global economy and financial markets, this represents a significant yet manageable capital allocation. Yet, the investment for energy transition and climate action remains far from sufficient to meet the global net-zero targets. Instead, despite renewables becoming increasingly competi-tive and economically feasible, we are witnessing a re-trenchment in climate-focused investments. This can be attributed to growing trade dependencies, lack of “bankable” projects, high cost of capital in EMDEs, and shifting investor priorities given the mixed policy signaling – most strongly from the current dispensa-tion in the US.

A striking example is the dissolution of the Net-Zero Banking Alliance (NZBA)^[34], the banking arms of the Glasgow Financial Alliance for Net Zero (GFANZ), in October 2025, following several months of withdrawals from major US banks such as Goldman Sachs, JP Morgan Chase, Citigroup, Wells Fargo, Morgan Stanley; followed by European banks such as HSBC, Barclays, and UBS and finally Blackrock – driven largely by political and fiduciary pressures. Reflecting this shift, the GFANZ has revised its mandate from^[35] a ‘whole economy transition’ in 2021 to ‘transition finance opportunities and solutions’ in 2025. Even the Sovereign Wealth Funds (SWFs), which are being deployed to underwrite climate investments with long-gestation periods, are beginning to shift priorities from purpose-driven or climate-centered investments back to profit-oriented strategies. While western capital appears to be retrenching, global sovereign investors allocated more funds to green assets than black assets in 2023; amounting to USD 26.1 billion^[36], primarily driven by the Gulf Cooperation Council (GCC) SWFs.

For the Global South, the coming years will depend on balancing industrial competitiveness, affordability, and equity within this contested climate architecture.

Conclusion

The 2026 megatrends are not necessarily novel but are a pronounced manifestation of patterns shaped by years of policy inaction and neglect across the global energy and climate landscape. Energy sovereignty, securitized supply chains, and digital-era power demand will be the buzzwords dominating the discourse. For the Global South, the coming years will depend on balancing industrial competitiveness, affordability, and equity within this contested climate architecture.

The energy transition and climate agenda is inevitable, but how countries navigate this delicate balance between decarbonization and development will shape its pace and progress.

Endnotes

^[1] United Nations Environment Programme, Emissions Gap Report 2024, October 2024, Nairobi, UNEP, 2024.

^[2] “Emissions Gap Report 2024, October 2024”

^[3] Establishing the National Energy Dominance Council, The White House, February 14, 2025.

^[4] Martina Igini, “Fossil Fuels Accounted for 82% of Global Energy Mix in 2023 Amid Record Consumption: Report,” Earth.org, June 26, 2024, https://earth.org/fossil-fuel-accounted-for-82-of-global-energy-mix-in-2023-amid-record-consumption-report/

^[5] UN Framework Convention on Climate Change, Global Mutirão: Uniting Humanity in a Global Mobilization Against Climate Change, November 2025, Belém, UNFCCC,2025, https://unfccc.int/sites/default/files/resource/cma2025_L24_adv.pdf

^[6] Tim McDonnell, “COP30 Falls Short of Ambitious Deal,” SEMAFO, November 22, 2025.

^[7] “Inflation Reduction Act of 2022,” U.S.Department of Energy, September 22, 2023, https://www.energy.gov/lpo/inflation-reduction-act-2022

^[8] European Commission, “The Green Deal Industrial Plan Putting Europe’s Net-Zero Industry in the Lead,” European Commission, https://commission.europa.eu/topics/competitiveness/green-deal-industrial-plan_en

^[9] Wil Crisp, “Gulf Shipping Insurance Costs to Remain Elevated,” Middle East Business Intelligence, August 13, 2019, https://www.meed.com/gulf-shipping-insurance-premiums-to-remain-high-due-to-tensions-between-the-us-and-iran

^[10] Earl Carr, “China’s New Export Controls: Critical Implications For U.S. Businesses,”Forbes, October 17, 2025, https://www.forbes.com/sites/earlcarr/2025/10/17/chinas-new-export-controls-critical-implications-for-us-businesses/

^[11] European Commission, “REPowerEU Affordable, Secure and Sustainable Energy for Europe,” European Commission, https://commission.europa.eu/topics/energy/repowereu_en

^[12] “United States-Japan Framework For Securing the Supply of Critical Minerals and Rare Earths through Mining and Processing,” The White House, October 27, 2025, https://www.whitehouse.gov/briefings-statements/2025/10/united-states-japan-framework-for-securing-the-supply-of-critical-minerals-and-rare-earths-through-mining-and-processing/

^[13] “United States-Japan Framework For Securing the Supply of Critical Minerals and Rare Earths through Mining and Processing”

^[14] “Maaden and MP Materials Collaborate to Establish Full Value Chain for Rare Earth Magnetics,” MP Materials, May 14, 2025, https://mpmaterials.com/news/maaden-and-mp-materials-collaborate-to-establish-full-value-chain-for-rare-earth-magnetics/

^[15] Thomas Spencer and Siddharth Singh, Energy and AI, International Energy Agency, 2025, https://iea.blob.core.win-dows.net/assets/601eaec9-ba91-4623-819b-4ded331ec9e8/EnergyandAI.pdf

^[16] Establishing the National Energy Dominance Council, The White House

^[17] High-Level Champions for Climate Action, Outcomes Report of the Global Climate Action Agenda at COP 30, November 2025, United Nations Climate Change, 2025, https://unfccc.int/sites/default/files/resource/COP30%20Action%20Agenda_Final%20Report.docx.pdf

^[18] World Nuclear Association, “Emerging Nuclear Energy Countries,” World Nuclear Association, https://world-nuclear.org/information-library/country-profiles/others/emerging-nuclear-energy-countries 1.

^[19]19 “World Nuclear Association Welcomes Microsoft Corporation as Newest Member,” World Nuclear Association, September 3, 2025, https://world-nuclear.org/news-and-media/press-statements/world-nuclear-association-welcomes-microsoft-corporation-as-newest-member

^[20] “World Bank ends ban on funding nuclear energy,” World Nuclear News, June 12, 2025, https://www.world-nuclear-news.org/articles/world-bank-agrees-to-end-ban-on-funding-nuclear-energy

^[21] Nathania Azalia, comment on “The Rise of Data Centres, Artificial Intelligence, and ASEAN’s Decarbonisation Goal,” ASEAN Climate Change and Energy Project: Phase 2 (ACCEPT II), comment posted June 24, 2025, https://accept.aseanenergy.org/the-rise-of-data-centres-artificial-intelligence-and-aseans-decarbonisation-goal

^[22] Enrico D’Ambrogio,” EU-India relations:Time for a new boost?”, European Parliamentary Research Service, February 19, 2025, https://www.europarl.europa.eu/RegData/etudes/BRIE/2025/769496/EPRS_BRI(2025)769496_EN.pdf

^[23] European Union, “Carbon Border Adjustment Mechanism (CBAM) Questions and Answers”, EU, https://taxation-customs.ec.europa.eu/system/files/2023-11/CBAM%20Frequently%20Asked%20Questions_November%202023.pdf

^[24] European Commission, “Carbon Border Adjustment Mechanism”, European Commission, https://taxation-customs.ec.europa.eu/carbon-border-adjustment-mechanism_en

^[25] Climate Club, “Terms of Reference for the Climate Club”, Climate Club, https://climate-club.org/wp-content/uploads/2023/11/TOR-CC-logo.pdf

^[26] Climate Club, “Terms of Reference for the Climate Club”

^[27]27 Stephan Raes et al., Industry on the road to 2050, Climate Club, 2020, https://climate-club.org/wp-content/uploads/2025/11/Industry-on-the-road-to-2050.pdf

^[28] Archis Mohan, “Jaishankar criticises EU carbon tax, calls CBAM unacceptable for India,” Business Standard, June 11, 2025, https://www.business-standard.com/economy/news/jaishankar-eu-carbon-tax-unacceptable-cbam-india-trade-125061101220_1.html.

^[29] Dr. S. Jaishankar, G20 Foreign Ministers’ Meeting (speech, Rio de Janeiro, September 25, 2024), Government of India Ministry of External Affairs, https://www.mea.gov.in/Speeches-Statements.htm?dtl%2F38342%2FRemarks_by_EAM_Dr_S_Jaishankar_at_G20_Foreign_Ministers_Meeting

^[30] Mannat Jaspal, “The UAE Climate Finance and ODA Nexus: An Evolving Strategy for the Global South Green Transition,” ORF Middle East, October 30, 2025, https://orfme.org/expert-speak/the-uaes-evolving-climate-finance-strategy-in-the-global-souths-green-transition/

^[31] Simon Flowers, Ed Crooks, Prakash Sharma, Stephen Vogado, Gavin Thompson, Chenglin Wu, “Five key takeaways from COP30,” Wood Mackenzie, November 25, 2025, https://www.woodmac.com/blogs/the-edge/five-key-takeaways-from-cop30/

^[32]32 Felipe de Carvalho, “Belém COP30 delivers climate finance boost and a pledge to plan fossil fuel transition,” UN, November 22,2025, https://news.un.org/en/story/2025/11/1166433#:~:text=In%20a%20pivotal%20outcome%20at,move%20away%20from%20fossil%20fuels

^[33] “Emissions Gap Report 2024, October 2024”

^[34] Marguerite Laville and Edouard Vilpoux, What the NZBA Leaves Behind Stocktake on Banks’ Net Zero Interim Targets, October 2025, Paris, Sustainable Finance Observatory, 2025, https://sustainablefinanceobservatory.org/wp-content/uploads/2025/10/2025-09-Note-on-NZA-develoments-EN.pdf

^[35] Glasgow Financial Alliance for Net Zero, “Bringing Together the Financial Sector to Accelerate the Transition to a Net-Zero Economy,” GFANZ, https://web.archive.org/web/20211013110623/https:/www.gfanzero.com/

^[36] Mannat Jaspal, “The UAE Climate Finance and ODA Nexus: An Evolving Strategy for the Global South Green Transition”