Stocktaking Climate Finance

Stocktaking Climate Finance

Context: The following editorial discusses issues relating to climate finance that are likely to be prominent in the Conference of the Parties (COP 28) meeting (November 30–December 12), in Dubai.

What is Climate Finance?
• It refers to local, national, or transnational financing—drawn from public, private and alternative sources of financing—that seeks to support mitigation and adaptation actions that will address climate change.
• The UNFCCC, Kyoto Protocol, and the Paris Agreement call for financial assistance from Parties with more financial resources (Developed Countries) to those that are less endowed and more vulnerable (Developing Countries).

What is the purpose of Climate Finance?
• To fund projects that reduce GHG emissions and mitigate the impacts of climate change.
• To support measures that help communities and nations adapt to the adverse effects of climate change.
• To facilitate the transfer of environmentally friendly and sustainable technologies from developed to developing countries.
• To Build the capacity of nations to address climate change issues.

Climate Finance (Commitments made and Finance needed)
• The developed countries are required in mandatory terms to provide financial resources to developing country parties.
• At the Copenhagen Change Conference in 2009: The developed countries made the commitment to mobilize $100 billion per year by 2020.
• The developed countries are required, in accordance with the decision accompanying the Paris Agreement. To collectively mobilize $100 billion through 2025.
• The Glasgow Financial Alliance for Net Zero estimates a requirement of at least USD 125 trillion in investments by 2050, approximately USD 5 trillion per year, to achieve net-zero emissions.

Challenges of Climate Financing
• Funding Shortages - The primary challenge in climate financing is the inadequate availability of funds for climate projects, especially in low-income countries. For example, developed countries fell short of the USD 100 billion annual target, having mobilized only USD 79.6 billion at the 26th UN Climate Change conference in Glasgow in 2021.
• Accountability issues - There is currently no established mechanism to hold governments and institutions accountable for fulfilling their climate financing commitments.
• Dearth of Institutional capacity – Question marks raised over role of Multilateral development bank’s capacity to meet world’s climate finance needs, lack of financial infrastructure to allocate foreign investments into climate projects.
• Even the $100 billion Climate finance is inadequate in terms of the challenges faced by the developing countries in switching over to a low carbon development path.

India’s initiatives for Financing Climate Action
• National Clean Energy and Environment Fund (NCEEF) – It was established to promote clean energy and environmental projects in India.
• Emission Trading System - India has explored the possibility of setting up an ETS to promote carbon trading and incentivize emissions reductions.
• National Adaptation Fund - The fund was established in 2014 with a corpus of Rs. 100 crores with the aim of bridging the gap between the need and the available funds. The fund is operated under the Ministry of Environment, Forests, and Climate Change (MoEF&CC).
• Green Climate Fund (GCF) and Adaptation Fund (AF) - India is eligible to access financial resources from international climate funds like the GCF and AF.

Way Forward
• The G-20 governments quickly responded to the global financial crisis. However, when it comes to the necessary climate finance transfers from developed to developing countries swift response is missing.
• Grant-based and concessional international public climate finance will continue to play the key role in addressing the needs and the priorities of developing countries.