Developed countries hold key to India’s climate finance targets

Originally published in SPS’ India Review and Analysis here

Written by Sourajit Aiyer

Tackling climate change is as much about saving our social and natural ecosystems as about ensuring the longevity of businesses (at least for livelihoods and tax resources). Climate finance, or the financing of projects that tackle the issues arising out of climate change, holds key. With a per capita GDP of around $1,800, India remains relatively poorer than its peer emerging economies. This places a disproportionate pressure to reduce the impact of climate change on its most vulnerable. Moreover, it is a country relatively dependent on natural resources for the livelihoods of most of its populace, whose terrain makes it equally impacted by melting snow-caps and rising sea-levels and makes a one-solution-fits-all difficult as it houses several agroclimatic zones.

The requirements for climate finance are mammoth, with India estimating it needs $2.5 trillion till 2030. To give a perspective, this amount is equivalent to the current GDP of India. This scale is unprecedented and would need concerted efforts from both public and private capital, with the end-objectives to reduce greenhouse gas emissions, degradation of natural ecosystems and ensure communities adapt and remain resilient.

So where is India raising this climate finance from?

The developed countries, who caused disproportionate damage with their industrialisation-led emissions but largely failed in raising the pledged climate funds, are one source. The Paris Agreement saw them agreeing to raise $100 billion annually till 2020 to meet climate needs in developing countries, but mobilisations remained short. The largest climate finance fund, the GCF, has a corpus of only $100 billion with a mere $10 million limit to India. Most monies raised in the developed countries are anyway invested domestically. Nevertheless, India’s Environment ministry is encouraging its institutions to design solutions and get accreditation of the GCF for funding, like SIDBI and IDFC did. Research shows the required capital is available in the developed world, it just needs channelizing mechanisms. But one demand of India has been all climate finance from the developed to developing countries be categorised as public finance (non-profit even if it is private capital). This means even if developed countries leverage private capital, its government would still need to guarantee assured and predictable climate finance. This may be in line with the mandate of polluter-pays-more, but it delays developed nations from setting quantifiable targets.

In this backdrop, India should leverage its bilateral relationships based on the depth of the economic ties, rather than depend anymore on multilateral forums, for raising funds from developed countries.

The Indian government is another source. Its National Action Plan on Climate Change involves missions on sustainable agriculture, Himalayas, water, wind and solar energy, energy efficiency, waste, health, coastal, etc., across both mitigation and adaptation programmes led by ministries. The National Clean Energy Fund, funded via levies, funds R&D in clean energy technologies. Tax-free infrastructure bonds to fund renewable projects is under consideration while the coal cess is under implementation. India’s target of producing 40% of its power from renewable energy by 2030 would be funded partly by the GCF. The Green India afforestation mission to plant trees as an additional carbon sink is funded from internal sources. India has institutionalised programmes for disasters, droughts, epidemics and floods under its ministries, to be funded via relief funds. The National Adaptation Fund bridges the gap between funds needed and available for state-level projects. The National Mission for Enhanced Energy Efficiency offers partial risk guarantee on loans for energy efficiency while the Venture Capital Fund for Energy Efficiency offers equity to leverage private capital for energy efficiency projects. Internal funds were instrumental for energy-related schemes to migrate households towards using LPG or LEDs. The Renewable Energy Certificate requires electricity regulators to buy at least 5% of renewable power, thus incentivizing private investments. Lastly, the Finance ministry has set up the Climate Change Finance Unit to further advise the Environment ministry on climate finance. But while all these efforts are noteworthy, more is needed for India to meet the national targets on climate.

The Indian private sector has also been active in the climate finance market. Green bond issues doubled year-on-year to $3 billion in 2017. While this amount is dwarfed by the actual requirements, the momentum created by the private sector is a positive. But these issues have been led mainly by the renewable energy and transport sectors, and there is a need to diversify to others like waste, health, agriculture, livelihoods, etc. This means developing innovative blended finance models that incentivise further private investments.

Finally, the flows from the developed countries still hold the key for India to achieve its climate finance targets, given the quantum required and the capital available in the global North. Developing countries should avoid greenwashing and provide audited monitoring reports to provide the confidence to global investors that their monies are being utilized for measurable impact. Developed countries must also avoid creative accounting tactics so that they deliver proper and predictable climate funding, else the tipping-point is not far when bilateral relationships are made contingent to the delivery of climate finance.

Follow Us on Facebook, Twitter, Linkedin or Web to receive regular updates


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s