Climate finance has gained prominence in the global political arena, especially during significant events such as COP 26. It addresses climate change by facilitating monetary resources from developed countries to those less equipped and more susceptible to the impacts of environmental changes. This article discusses the concept of climate finance, its significance, the USD 100 billion target, Green Financing and India’s initiatives in this domain.
Understanding Climate Finance
Climate finance refers to local, national or transnational financing derived from various public, private and alternative sources aimed at supporting mitigation and adaptation actions that counter climate change. The United Nations Framework Convention on Climate Change (UNFCCC), Kyoto Protocol, and the Paris Agreement call for financial assistance from financially robust Parties (Developed Countries) to those that are less equipped and more vulnerable (Developing Countries).
This is built upon the principle of “Common but Differentiated Responsibility and Respective Capabilities” (CBDR). At COP26, new financial pledges were made to assist developing countries in handling the effects of climate change. New rules for international carbon trading mechanisms were also agreed upon, supporting adaptation funding.
The Significance of Climate Finance
Large-scale investments are required to significantly reduce emissions, making climate finance essential for mitigation. Equally, to adapt to the adverse effects and curb the impacts of a changing climate, substantial financial resources are necessary. Recognizing the variances in country-specific contributions to climate change and their capacity to prevent and deal with its consequences, climate finance obliges developed nations to mobilize financial resources through actions like developing country-driven strategies and prioritizing the needs of developing countries.
The USD 100 Billion Target
The USD 100 billion target was set in 2009 during the UNFCCC COP15 in Copenhagen, where developed countries pledged to collectively raise this sum by 2020 to help developing nations. This goal was then officially recognized by the UNFCCC Conference of the Parties at COP16 in Cancun and latterly extended till 2025 at COP21 in Paris. After COP26, it was agreed to double the collective provision of adaptation finance from 2019 levels by 2025 to achieve a balance between adaptation and mitigation.
Green Financing and Other Funds
The UNFCCC established a financial mechanism called Green Financing to help deliver climate finance resources to developing countries. In addition to guiding the Green Climate Fund (GCF) and the Global Environment Facility (GEF), parties have established two special funds: Special Climate Change Fund (SCCF) and Least Developed Countries Fund (LDCF), both managed by the GEF, and the Adaptation Fund (AF), initiated under the Kyoto Protocol in 2001.
India’s Initiatives Towards Climate Finance
India has taken numerous steps towards climate finance. The National Adaptation Fund for Climate Change (NAFCC) was created in 2015 to cover the adaptation costs to climate change for State and Union Territories that are particularly vulnerable to the adverse effects. The National Clean Energy Fund was set up to encourage clean energy through an initial carbon tax on coal usage by industries. The National Adaptation Fund was established in 2014 to bridge the gap between the need and the available funds.
The Way Forward
Developed countries must assist developing countries in making transitions to cleaner energy sources and securing financing for climate-resilient infrastructure. There is a dire need to sustain political commitment to raising new finance, ensuring that funds are targeted at reducing emissions and vulnerability. Lessons should be learned and improvements made from recent experiences, especially as the Green Climate Fund becomes more operational.
