Climate Finance

Why in News?

The recent report by the World Meteorological Organisation that global temperatures reached 1.5 degrees Celsius at the beginning of June is a warning that the climate emergency has arrived and there is urgent need for strong Climate Financing Mechanism

Changing Climate:

The recent report by the World Meteorological Organisation that global temperatures reached 1.5 degrees Celsius at the beginning of June is a warning that the climate emergency has arrived. T

he IPCC's Synthesis Report on Climate Change for 2023 reiterates that our governments are not doing enough to combat the crisis. Between 1970 and 2019, it is estimated that two million people perished as a result of extreme weather, and the corresponding economic loss is approximately $6.5 trillion. If climate action is postponed until 2030, global temperatures are likely to exceed 1.5 degrees Celsius.

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).
  
• This is in accordance with the principle of “Common but Differentiated Responsibility and Respective Capabilities” (CBDR).
  
• In COP26, new financial pledges to support developing countries in achieving the global goal for adapting to the effects of climate change were made.
  
• New rules for the international carbon trading mechanisms agreed at COP26 will support adaptation funding.
  

Need for Climate Finance: 

Climate finance is critical to tackle the issues posed by climate change and achieve the goal of limiting the rise in the earth’s average temperature to below 2 degrees Celsius over pre-industrial levels, something the 2018 IPCC report has predicted.

What has been done so far? 

The quantum of climate finance has grown only slightly over the past decade, reaching about $ 579 billion in 2017-18. This is about 10 times less than the estimated $ 6.3 trillion needed every year by 2030 to stay aligned with the Paris Agreement.

USD 100 Billion Target :

• In 2009, at the UNFCCC COP15 held in Copenhagen, The developed country parties, to achieve meaningful mitigation actions and transparency on implementation, jointly set a target of USD 100 billion a year by 2020 to address the needs of developing countries. 

• The climate finance goal was then formally recognized by the UNFCCC Conference of the Parties at COP16 in Cancun. 

• At COP21 in Paris, Parties extended the $100 billion goals through 2025. 

• After COP26 there was a consensus that developed nations will double their collective provision of adaptation finance from 2019 levels by 2025, in order to achieve this balance between adaptation and mitigation.

Why we look towards Developed Nations for Climate Finance? 

In 2022, renewables accounted for 90 percent of the world's power sector growth, and capacity increased by 45 percent annually. By investing in de-centralised solar, wind, geothermal and tidal power, Developed Countries could make themselves the primary energy provider for the developing world. 

Utility-scale solar is now officially the cheapest source of power in the major economies and a new solar plant is three times cheaper than its equivalent in coal. In 2022, 90 per cent of the world’s power sector growth came from renewables, and there was a staggering 45 per cent rise in capacity year-on-year. Twenty-four nations have reported a drop in emissions by expanding their renewables portfolio.

Challenges in Climate Financing: 

Lack of Funds from the West: 

The developed countries that are historically responsible for the majority of greenhouse gas emissions have failed to provide adequate financial support to developing countries for climate action. This has led to a significant funding gap.

Lack of Access to Finance: 

Many developing countries and small island states have limited access to financing due to various factors such as weak financial systems, inadequate regulatory frameworks, and limited access to international markets.

High Cost of Financing: Climate-related projects often require significant upfront costs and long-term financing, which can be difficult to obtain at affordable rates. 

Uncertainty and Risk: Climate-related investments can be risky due to uncertainty around regulatory and policy frameworks, changing technology, and natural disasters. This can make it difficult for investors to accurately assess the potential returns on their investments. 

Lack of Capacity and Technical Expertise: Many developing countries lack the technical expertise and capacity to design and implement effective climate projects, which can lead to delays and inefficiencies in project implementation. 

Political and Policy Barriers: Political and policy barriers such as political instability, corruption, and lack of political can hinder climate financing efforts. 

Inadequate Private Sector Engagement: Private sector investment is crucial for scaling up climate financing, however, there is still inadequate private sector engagement due to various factors such as limited market incentives, lack of regulatory frameworks, and limited awareness of climate risks

India and Climate Finance: 

National Adaptation Fund for Climate Change (NAFCC): It was established in 2015 to meet the cost of adaptation to climate change for the State and Union Territories of India that are particularly vulnerable to the adverse effects of climate change. 

National Clean Energy Fund: The Fund was created to promote clean energy, and funded through an initial carbon tax on the use of coal by industries. It is governed by an Inter-Ministerial Group with the Finance Secretary as the Chairman. Its mandate is to fund research and development of innovative clean energy technology in the fossil and non-fossil fuel-based sectors. 

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).

Way Forward 

• Developed countries must assist and work with developing nations to help them make clean energy transitions and get financing for climate resilient infrastructure, thus, ensuring that the former delivered on the $100-billion goal. 

• Further, there is a need to sustain a political commitment to raising new finance, besides, 

• Ensuring that finance is better targeted at reducing emissions and vulnerability. 

• Learning and improving from recent experiences, particularly as the Green Climate Fund gets to work.

Conclusion: Our governments must view the challenge as a once-in-a-lifetime opportunity to shake off our reliance on fossil fuels and build self-sufficient energy systems that are more cost-effective. The race to 2050 must not be about net-zero or carbon neutrality alone but towards zero life cycle emissions, because it is a matter of survival.

Mains Question: India’s quest towards “Sahit Vikas and Satat Vikas” and target of netzero emissions by 2070 is powered by people’s movement and lowcost climate finance- Analyse.

{ Sruthi Madam}