Financing the Green Transition

Financing the Green Transition

News: “Financing the Green Transition” is the cornerstone of the global shift towards sustainability. At the Paris Finance Summit, world leaders addressed the financial disparities impeding this transition, particularly for developing nations.

Background:
• The editorial is covered in context of recently concluded ‘Global Financial Pact on Climate Change’ in Paris.

What is Green Transition?
• The green transition is a general concept of moving from a carbon-based economy to a more sustainable economy. Many organizations, countries and businesses are pursuing a green transition in order to align with the global decarbonization goals of 2030 and 2050.
• The key elements of the green transition include – shift to renewable energy, energy efficiency, sustainable transportation, sustainable agriculture and forestry, circular economy, and green infrastructure.

What is the need for Green Transition?
• It is key to tackling Climate change and creating sustainable economies.
• Renewable energy is now the cheapest form of energy, and capacity is set to rise significantly over the next few decades.
• The energy transition offers a great window of opportunity for economic well-being, employment and social development.
• The finite nature of fossil fuels and their impending depletion necessitate the shift towards renewable energy sources.
• Air pollution, primarily caused by burning fossil fuels, is causing a public health crisis, with millions of premature deaths each year.
• The alarming rate of biodiversity loss, as highlighted in the “Global Assessment Report on Biodiversity and Ecosystem Services”, demands an immediate shift towards more sustainable practices.

What steps have been taken by India in its quest for Green Transition?
• In 2019, India announced that it would take up its installed capacity of renewable energy to 450 GW by 2030.
• India, as a developing nation with growing energy demands, has set a goal of achieving net-zero emissions by 2070.
• In the Budget 2023-24, the government identified “Green Growth” as one of its Saptrishi priority.
• National Bank for Financing Infrastructure and Development (NaBFID) – which looks after financing infrastructure needs emphasizes on Sustainable and climate-resilient development.
• The Reserve Bank of India has introduced guidelines for banks and Non-Bank Financial Companies (NBFCs) to accept “green deposits”. These funds are allocated towards environmentally sustainable projects, such as energy efficiency, clean transportation, sustainable water and waste management etc.
• The Indian government has authorized 100% annual Foreign Direct Investment (FDI) for renewable power generation and distribution projects.

What are initiatives taken at Global level?
•  Role of Multilateral Development Banks – Announced for additional lending capacity of $200 billion for emerging economies at the summit.
• World Bank – It supported pausing loan repayments for countries struggling with climate disasters.
• The IMF announced Special Drawing Rights (SDR) of $ 100 billion to Global South.
• There was significant support for the imposition of taxes on polluting industries such as shipping.
• The European Union unveiled a call to action on ‘Paris Aligned Carbon Markets’ with a goal of covering at least 60% of global emissions with carbon pricing mechanisms and allocating a proportion of revenues to climate finance.

Way Forward
• As far as India is concerned, we must frame regulations that are friendly for private investors who are willing to invest in renewable energy projects.
• Tap the potential options through Green Climate Fund and Global environment facility.
• Upgrading India’s technological capabilities is key to making the green transition cost-effective.