At COP29, deep disagreements on climate finance dominated. The US$300 billion by 2035 pledged by developed countries falls far short of expectations. To meet the true costs of climate action, we need additional ways to mobilise the much-needed finance across mitigation, adaptation, loss and damage, and nature. Subnational governments are now key drivers of carbon pricing measures. Today, 44% of all compliance carbon pricing instruments globally are implemented by subnationals.1 From carbon pricing to green bonds and sub-sovereign climate funds, we’re pioneering financing solutions tailored to local needs.
This leadership is delivering tangible results. From Washington State’s Cap-and-Invest Program to Querétaro’s carbon tax on industrial emissions, subnationals are generating domestic revenue and reinvesting it in domestic climate action. Catalonia introduced Spain’s first carbon tax on fossil-fuel-powered vehicles, generating €52 million in 2024. This revenue is reinvested via the Natural Heritage and Regional Climate Fund, which is expected to invest €491 million by 2030.
California’s hybrid approach – combining cap-and-trade with a rising floor price and sector-specific charges – has delivered sustained emission cuts and strong investment signals. Subnational cooperation is also scaling impact: the California–Québec carbon market is in its 11th year, and the Northeastern US 11-state Regional Greenhouse Gas Initiative, now 15 years old, saved consumers over $1.2 billion in its first five years.2
These examples demonstrate the effectiveness of scalable finance models. Similarly, partnerships with development banks and philanthropies help states like São Paulo and British Columbia expand green finance initiatives. Yet many subnational governments – especially in developing economies – lack the legal authority, enabling conditions, or resources to introduce pricing tools or scalable financing initiatives. These actors must not be left behind.
Carbon pricing – whether through levies, taxes, cap-and-trade or other mechanisms – delivers real results when set at the right level and applied in the right conditions. It is important to distinguish between carbon pricing for local reinvestment, many of the examples above, and the use of solidarity levies to support developing countries. We advocate for scaling the latter as a new, additional source of climate finance. While the principle of pricing pollution is well-established, its application through solidarity-based instruments is a critical new frontier of climate finance.
We acknowledge the work of the Global Solidarity Levies Taskforce and its call for momentum behind levies on aviation, fossil fuels and financial transactions by COP30. The IMO’s draft levy on high-emitting vessels reinforces the polluter-pays principle on the global stage. But equitable revenue distribution to implementing levels of government from cross-border levies is essential.
Subnational governments are already utilising carbon pricing instruments and just revenue distribution to start filling the international financing gap:
Subnational governments are uniquely positioned to design climate finance systems that align with local priorities, especially when national frameworks fall short. They are well-placed to ensure that revenue generated is channelled into local solutions. To support this, we call for dedicated international finance mechanisms, including via Multilateral Development Banks, to provide direct, grant-based funding to subnational governments. To ensure climate action supports equity and development, without adding to debt or deepening existing inequalities.
We also urge global leaders to embed subnational actors in the design of climate finance frameworks, recognising their capacity to accelerate solutions.
The FfD4 outcome should:
We call on global leaders to act now to deliver internationally coordinated carbon pricing mechanisms for high-emitting sectors, with subnational governments as integral partners. Subnationals are not just delivery agents – we are catalysts for local climate ambition and development. The path to 1.5°C runs through local action, and a finance system that empowers subnational leadership is essential for immediate and effective climate solutions.