In a recent development, the Finance Minister of India and her U.S. counterpart met for the eighth ministerial meeting under the U.S.-India Economic and Financial partnership. The primary focus of this meeting was the discussion on climate finance, marking its first consideration under the umbrella of the Climate Action and Finance Mobilization Dialogue (CAFMD).
Understanding Climate Finance
Climate finance pertains to local, national, or international financing from varying sources – public, private, or alternatives – aimed at backing mitigation and adaptation initiatives in response to climate change. It holds importance for both mitigation, which necessitates substantial investments for substantial emission reduction, and adaptation, requiring significant financial resources for adaptation to adverse effects of climate change.
Climate Finance and United Nations Framework Convention on Climate Change
To enable climate finance, the United Nations Framework Convention on Climate Change (UNFCCC) established a financial mechanism to provide resources to developing countries. This includes the Adaptation Fund under the Kyoto Protocol, aimed at financing projects supporting vulnerable developing countries’ adaptation to climate change.
Another key element is the Green Climate Fund, formed in 2010 as the UNFCCC’s financial mechanism. India has been advocating for affluent countries to fulfill their Paris Accord climate finance commitment of USD 100 billion annually.
The Global Environment Fund
Since the enaction of the Convention in 1994, the Global Environment Fund (GEF) has functioned as an operational entity of the financial mechanism. GEF, a private equity fund, seeks long-term financial returns through investments in clean energy in relation to climate change. It also maintains two additional funds, namely the Special Climate Change Fund (SCCF) and the Least Developed Countries Fund (LDCF).
National Instruments for Climate Financing in India
In India, measures have been undertaken, such as the creation of the National Adaptation Fund for Climate Change (NAFCC) in 2015, aimed at covering the adaptation costs for States and Union Territories particularly affected by climate change.
Additionally, the National Clean Energy Fund promotes clean energy through the initial carbon tax on industries using coal. Guided by an Inter-Ministerial Group, its primary objective is to fund research and innovative clean energy technology development in both fossil and non-fossil fuel-based sectors.
Another significant initiative is the National Adaptation Fund, established in 2014 with a capital of Rs. 100 crore, aiming to bridge the gap between requirement and availability of funds. The fund operates under the Ministry of Environment, Forests and Climate Change (MoEF&CC).
The Principles of Climate Finance
Several principles guide the operation of climate finance. The ‘polluter pays’ principle asserts that pollution producers should bear the cost of managing it to prevent harm to human health and the environment. This principle is the cornerstone of pollution regulation, including greenhouse gas emissions contributing to climate change.
The UNFCCC principle of Common But Differentiated Responsibility and Respective Capability (CBDR-RC) acknowledges the varying capabilities and responsibilities of countries in addressing climate change.
Additionality is another crucial principle, stating that climate finance should be above existing commitments to prevent funding diversion from development needs to climate change actions. This includes the use of public climate finance and private sector investments.
The principles of adequacy and precaution dictate that sufficient funding should be available to prevent or minimize climate change causes as stated by the UNFCCC. Finally, the principle of predictability necessitates the sustained flow of climate finance through medium-term funding cycles, allowing for adequate investment programs to escalate national adaptation and mitigation priorities.