The latest climate summit, known as the COP26, witnessed an important announcement from the Indian Prime Minister – a commitment to achieving net zero emissions by the year 2070. India, along with other countries with similar pledges, will require an estimated USD 1 trillion in additional financing over the next decade to achieve this target.
The Concept of Green Financing and its Significance
Green financing aims to increase financial flows towards sustainable development priorities from public, private, and non-profit sectors. This includes sectors like banking, micro-credit, insurance, and investment. The idea is to manage environmental and social risks prudently while pursuing opportunities that offer a decent rate of return and environmental benefit.
Understanding the Need for Climate Finance
Two key principles underline the demand for climate finance. The “polluter pays” principle states that the parties responsible for pollution should bear the costs of managing it to prevent health hazards and environmental damage. The Common but Differentiated Responsibility and Respective Capability (CBDR–RC) principle recognizes the differences in individual countries’ capabilities and responsibilities in combating climate change.
Examining the Status of Climate Financing
Developed countries are expected to transfer USD 1 trillion annually to developing nations to help them meet their climate targets. However, current contributions fall short. In the Glasgow Climate Pact (COP26), it was noted that the goal has not been met yet, prompting the Standing Committee on Finance to the UNFCCC to prepare a report on the progress towards achieving the goal of USD 100 billion per year.
Exploring the Global Framework for Climate Financing
In order to facilitate climate finance, multiple mechanisms have been established under the UNFCCC, such as the Adaptation Fund under the Kyoto Protocol and the Green Climate Fund. India has been pushing for the fulfillment of the Paris Accord’s climate finance commitment of USD 100 billion per year by rich countries.
Analysing Climate Financing in India
Climate action in India has primarily been financed through domestic resources. India secured funds totalling USD 165.25 million from the Global Environment Facility and Green Climate Fund from 2014 to 2019, while domestic mobilisation amount was USD 1.374 billion.
Discussing the Sources of Green Financing in India
Green financing in India comes mainly from the National Clean Energy Fund (NCEF) and the National Adaptation Fund (NAF). The Indian government also finances climate change initiatives through eight missions established under the National Action Plan for Climate Change.
Highlighting Recent Indian Government Initiatives
The Indian government has launched several initiatives to support green financing, such as the Perform Achieve and Trade (PAT) scheme, fostering foreign direct investment (FDI) in the renewable energy sector, and waiving off inter-state Transmission System (ISTS) charges on solar and wind power.
Understanding India’s Nationally Determined Contribution
India has submitted its Nationally Determined Contribution (NDC) under the Paris Agreement, with targets to reduce emissions intensity of its Gross Domestic Product (GDP) by 33-35% from its levels in 2005 by 2030, achieve around 40% cumulative electric power installed capacity from non-fossil fuel-based resources by 2030, and create an additional carbon sink of 2.5-3 billion tonnes of CO2 through enhanced forest and tree cover by 2030.
Way Forward
There’s a need to expand multi-stakeholder partnerships and promote green financing through regulatory changes, harmonizing public financial incentives, and investing in green technologies. Finance for sustainable natural resource-based green economies and a climate-smart blue economy along with an increase in the use of green bonds need to be prioritized.