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Climate Finance

  • 23 Mar 2021
  • 5 min read

Why in News

The Finance Minister of India urged the advanced economies to scale up their commitments to climate finance and transfer of technologies - which are important for achieving climate-related commitments and goals.

  • The Minister was addressing the International Conference on Disaster Resilient Infrastructure (ICDRI).

Key Points

  • Climate Finance (Meaning):
    • Climate finance refers to local, national or transnational financing—drawn from public, private and alternative sources of financing.
    • It seeks to support mitigation and adaptation actions that will address climate change.
    • The UNFCCC, the Kyoto Protocol and the Paris Agreement call for financial assistance from countries with more financial resources to those that are less endowed and more vulnerable.
    • It is in accordance with the principle of “common but differentiated responsibility and respective capabilities”.
    • Climate finance is critical to tackle the issues posed by climate change and achieve the goal of limiting the rise in earth’s average temperature to below 2 degree Celsius over pre-industrial levels, something the 2018 IPCC report has predicted.
  • Commitment of Advanced Economies:
    • Through the Cancun Agreements in 2010 developed countries committed to a goal of mobilizing jointly USD 100 billion per year by 2020 to address the needs of developing countries.
      • The Green Climate Fund (GCF) was established in the Cancun Agreement and in 2011, it was designated as an operating entity of the financial mechanism.
    • Under the Paris Agreement in 2015, developed countries confirmed this goal and agreed that prior to 2025, a new collective quantified goal from a floor of USD 100 billion per year shall be set.
      • The Paris Agreement reaffirms the obligations of developed countries, while for the first time also encourages voluntary contributions by other Parties.
  • Challenges:
    • Almost 75% of the funds raised by the developed countries for climate finance are used domestically, despite developing countries bearing a significant burden of the emissions and loss of natural ecosystems as a result of the industrialisation-drive in the developed world.
    • The total pledges to GCF was only USD 10.3 billion till July 2019, which is highly inadequate considering the estimated cost for developing countries to implement their Nationally Determined Contributions (NDCs) is USD 4 trillion.
    • Most climate funds have flown into mitigation, rather than adaptation (mitigation refers to devising new solutions and way of doing things, while adaptation refers to managing the current issues).
    • Climate finance has mostly concentrated on renewable energy, green buildings and urban transport, because it is easier to estimate their cash-flow cycles. Other sectors which hold implications of equal magnitude to our natural and social ecosystems, like agriculture, degradation of land, water, etc. have seen a muted interest.
  • Climate Financing in India:
    • The largest source of climate financing in India is public funding, which is routed through budgetary allocation and several funds and schemes related to climate change established by the Government of India such as National Clean Energy Fund (NCEF) and National Adaptation Fund (NAF).
    • The Government of India also provides funding through eight missions established under the National Action Plan for Climate Change.
    • It has established a Climate Change Finance Unit (CCFU) in the Ministry of Finance, which is the nodal agency for all climate change financing matters.
      • However, public funding in India is inadequate and misused. For example, NCEF funds have been used to meet budgetary shortfalls in the Ministry of New and Renewable Energy (MoNRE).
      • Additionally, there is no assessment of climate relevance of publicly funded projects in India, making it difficult to evaluate financial allocation towards climate action.

Way Forward

  • Policy and industry action must converge to take climate finance ahead in India. There is a need to mainstream the mind-set of the business community ongoing sustainability in their business models. That would push the demand for alternate solutions on climate issues, thus giving further momentum to climate finance efforts.
  • Climate financing needs to be reported in a way that better reflects its real value to developing countries and the real effort made by developed countries.

Source: TH

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