Climate Finance, a term often heard in environmental discussions, involves local, national, or transnational funding coming from a mix of public, private, and alternative sources. This type of financing aims to support mitigation and adaptation strategies to tackle climate change.
Prominent international charters like the UNFCCC, the Kyoto Protocol, and the Paris Agreement demand monetary aid from economically wealthy nations for those less endowed and more susceptible. This is grounded in the “common but differentiated responsibility and respective capabilities” principle.
Climate finance plays a crucial role in handling climate change related problems and in pursuing the objective of keeping the rise in earth’s average temperature below 2-degrees Celsius over pre-industrial levels, as predicted by the 2018 IPCC report.
Commitments of Developed Economies
The Cancun Agreements of 2010 saw developed countries pledging towards a joint goal of mobilizing USD 100 billion annually by 2020 to cater to the needs of developing countries. The Green Climate Fund (GCF) saw its inception via the Cancun Agreement and earned its badge as an operating entity of the financial mechanism in 2011.
The 2015 Paris Agreement witnessed developed countries re-asserting this goal, with new collective quantified goals set to start from at least USD 100 billion annually prior to 2025. The Paris Agreement reemphasized the obligations of developed nations and also encouraged voluntary contributions from other parties.
Existing Challenges in Climate Finance
Ironically, 75% of the funds raised by developed countries for climate finance are employed domestically despite developing countries bearing a substantial part of the industrial emissions and loss of natural ecosystems burden. As of July 2019, the total pledges to GCF amounted to only USD 10.3 billion, which is critically insufficient given that the approximate cost for developing countries to implement their Nationally Determined Contributions (NDCs) stands at USD 4 trillion.
Furthermore, most climate funds are channeled into mitigation instead of adaptation. Climate finance is primarily focused on renewable energy, green buildings, and urban transport due to the ease in estimating their cash-flow cycles. Other equally significant sectors such as agriculture, degradation of land, water, etc., have received limited interest.
Status of Climate Financing in India
In India, public funding serves as the primary source of climate financing, funneling through budgetary allocation and various funds and schemes related to climate change established by the Government of India, like the National Clean Energy Fund (NCEF) and National Adaptation Fund (NAF).
The Government of India also funds eight missions under the National Action Plan for Climate Change and has set up a Climate Change Finance Unit (CCFU) within the Ministry of Finance, thereby designating it as the nodal agency for all climate change financing matters.
However, public funding in India faces issues like inadequacy and misuse. An instance is the redirection of NCEF funds to plug budgetary shortfalls in the Ministry of New and Renewable Energy (MoNRE). A lack of assessment in publicly funded projects’ climate relevance makes it challenging to evaluate financial allocation towards climate action.
The Way Ahead for Climate Finance
Industry and policy-driven actions must synergize to propel climate finance in India. Fostering a mindset within the business community that prioritizes sustainability in business models can stimulate the demand for alternate solutions to climate problems, thereby bolstering climate finance initiatives. Climate financing reporting should better echo the real value it holds for developing nations and convey the genuine effort put forth by developed countries.
