Climate change has major implications in terms of finance. All actions to address climate change ultimately involve costs. Funding is vital for countries like India to design and implement adaptation and mitigation plans and projects. On the other hand, it is widely acknowledged that the costs of climate change actions are relatively high for developing countries The problem is more severe for developing countries like India, would be among the hardest hit by climate change. Moreover, beyond being vulnerable to climate change impacts, developing countries have fewer resources to adapt: socially, technologically and financially and also have claims of competing demand on the scarce resources available.

In view of 'common but differentiated responsibilities', and varying contributions to climate change by different countries, the articles of the UNFCCC Convention clearly make provisions regarding , who the providers of the resources would be and where the resources are needed. Article 4.3, establishes that the developed country Parties and other developed Parties included in Annex II shall provide new and additional financial resources to meet the agreed full costs incurred by developing country Parties in complying with their obligations under the convention. It also states developed country Parties shall also provide such financial resources, including for the transfer of technology, needed by the developing country Parties to meet the agreed full incremental costs of implementing climate change measures. On the same lines, Article 4.4 deals with adaptation cost, and Article 4.5 with technology transfer. The Convention also acknowledges that climate change actions taken by developing countries are contingent on the resources made available to them, and hence, it is stated in article 4.7 that, 'The extent to which developing country Parties will effectively implement their commitments under the Convention will depend on the effective implementation by developed country Parties of their commitments under the Convention related to financial resources and transfer of technology' . To facilitate the above principles article 11 of the convention makes a calls for a mechanism for the provision of financial resources on a grant or concessional basis, including for the transfer of technology, which shall function under the guidance of, and be accountable to the Conference of the Parties, which shall decide on its policies, programme priorities and eligibility criteria related to this Convention.