The Hindu Editorial Analysis- 14th November 2022 | Current Affairs & Hindu Analysis: Daily, Weekly & Monthly - UPSC PDF Download

Behind the Smokescreen around Private Climate Finance

Context

At the 27th Conference of Parties (COP27) to the United Nations Framework Convention on Climate Change (UNFCCC) in Sharm El-Sheikh, Egypt, countries have agreed to discuss providing financial support to address loss and damage caused by climate change.

 Background:

• Climate change driven by humans has already warmed the earth by 1.1 degrees Celsius, and millions of people are now feeling the effects of rising temperatures and extreme weather events.
• This means that certain climate change losses and damages are unavoidable.
• The decision to discuss loss and damage at COP27 follows recent climate disasters in Europe (worst drought in 500 years), Pakistan (worst ever flooding) and heat waves in many regions of the world.

About Loss and damage:

• It is used in UN climate negotiations to express the effects of climate change that outweigh people’s ability to adapt.
• It is disproportionately affecting vulnerable communities, making addressing the issue a matter of climate justice.
• While the UNFCCC has not defined loss and damage precisely, it is caused by extreme weather events (cyclones, droughts, heatwaves) and slow-onset changes (sea level rise, desertification, ocean acidification).
• Climate change damages can be classified as economic losses or non-economic losses (such as loss of life).

  Evolution of the concept:

• The appropriate response to loss and damage has been debated since the early 1990s when the UNFCCC was founded.
• Establishing accountability and compensation for loss and destruction has long been an aim for the most vulnerable Least Developed Countries Group.
• However, historically blamed for the climate catastrophe, rich countries have overlooked the concerns of vulnerable countries.
• Following extensive pressure from developing countries, the Warsaw International Mechanism (WIM) on Loss and Damages was founded in 2013 with no funding mechanism.
• However, during the 2021 COP26 climate summit in Glasgow, a 3-year task force was established to consider a funding arrangement for loss and damage.
• So far, Canada, Denmark, Germany, New Zealand, Scotland and the Belgian province of Wallonia have all expressed interest in loss and damage funding.

 Significance of including loss and damage in the main agenda of COP27:

• This will have the effect of mainstreaming the issue, requiring more frequent talks and progress.
• This has reignited the fight for justice on behalf of communities that have lost their livelihood.

 Challenges:

• Inclusion on the formal agenda is just the beginning and the actual provision for climate disaster compensation is still a long way away.
• Getting the rich and developed nations to contribute money has been a challenging battle.
• Also, calculating loss due to climate change is difficult.

Climate Financing

• The scope of climate financing is very big. The following are the main requirements why climate financing is required.
• Climate change is already causing unpredictability. An increase in the number of cyclones, rainfall and their destructive powers, an increase in extreme weather events, and glacier melting. As a result, large financial resources are required to adapt to the detrimental effects and mitigate the effects of climate change.
• To keep global warming below the goal level, rapid, large-scale emissions reductions are required, as well as a matching transition away from high-carbon production and consumption across all sectors. This requires a considerable upfront cost.
• Countries’ contributions to climate change and their ability to prevent and manage its repercussions differ greatly. So to help the least developed countries climate financing is required.
• Only rapid mitigation efforts will be able to keep global warming below 1.5 degrees Celsius. It requires significant expenditures on green technology.
• A small number of high-income countries are to blame for climate change, its effects are disproportionately severe in low-income countries. Many of these were once developed-world colonies. Financing from the developed to developing worlds is critical for resolving this historical injustice.

Global Climate Finance mechanisms

Let us move on to various mechanisms under global climate financing.

• Mechanisms under the Kyoto Protocol
  • These mechanisms allow Parties to accomplish emission reductions or carbon removal from the atmosphere in other countries at a low cost.
• CDM (Clean Development Mechanism)
  • It is a United Nations-run carbon offset scheme that allows governments to fund projects that reduce greenhouse gas emissions in other countries while claiming the avoided emissions as part of their own efforts to fulfil international emissions objectives.
• Collaboration in Implementation
  • As an alternative to decreasing emissions domestically, any Annex I country can invest in emission reduction projects in any other Annex I country under the Joint Implementation.
• The Global Environment Facility (GEF) is a multilateral financial instrument formed during the 1992 Rio Earth Summit to provide loans to developing nations for initiatives that benefit the global environment and promote sustainable livelihoods in local communities.
• Green Climate Fund (GCF)
  • The GCF is the world’s largest environmental fund, and it aims to assist developing countries in reducing their greenhouse gas emissions while also requiring them to adapt to climate change.
• The Special Climate Change Fund (SCCF)
  • It is a specialised trust fund run by the Global Environment Facility that aims to catalyse and leverage additional financing from bilateral and multilateral sources.
• The Least Developed Countries Fund (LDCF)
  • It was established in 2001 to support the work programme of the LDCs under the UN Framework Convention on Climate Change (UNFCCC), including the development and implementation of national adaptation plans (NAPAs). The Global Environment Facility manages it (GEF).
• Adaptation Fund
  • The UNFCCC’s Kyoto Protocol established the Adaptation Fund. It provides funding for projects and programmes that assist vulnerable communities in developing nations in adapting to climate change. Initiatives are based on the needs, perspectives, and priorities of the country. The fund is primarily supported by government and corporate donors, as well as a 2% share of the proceeds from projects funded by the Kyoto Protocol’s Clean Development Mechanism.
• Standing Committee on Finance
  • At COP 16 in 2010, Parties to the UNFCCC agreed to establish the Standing Committee on Finance (SCF) to assist the COP in carrying out its functions in regard to the Convention’s financial framework.
• Cancun Agreements
  • The Cancun Agreements, signed in 2010, committed developed country parties to mobilising a total of USD 100 billion per year by 2020 to address the needs of developing countries. Parties confirmed this goal when they signed the Paris Agreement.
• Data hub for climate finance
  • The UNFCCC website contains a climate finance data portal with useful explanations, visuals, and numbers for a better understanding of the climate finance process and a portal to information on climate action actions sponsored in developing countries.
• CIFs (Climate Investment Funds)
  • It was founded in 2008 and is managed by the World Bank.
• China’s Kunming Climate Fund
  • China announced the establishment of the USD 230 million Kunming Biodiversity fund to help developing nations safeguard biodiversity.

India’s initiatives in Climate financing

The following are India’s Intended Nationally Determined Contributions (INDCs) under the UNFCCC:

• Reduce the carbon intensity of its GDP by 33 to 35 per cent from 2005 levels by 2030.
• By 2030, non-fossil fuel-based energy resources will account for around 40% of installed electric power capacity.
• To do this, India has been steadily expanding its climate finance channels.
• The Climate Change Finance Unit
  • It was established by the Finance Ministry in 2011 and gave shape to the climate finance framework. The nodal institution represents the MoF on all national and international climate finance platforms.
• The NITI Aayog
  • Niti Ayog is largely in charge of estimating the country’s financial needs.
• From multilateral agencies
  • International climate money flows to India through a variety of sources, including multilateral institutions. The principal channel is the UNFCCC’s multilateral climate funds, such as the Global Environment Facility, Adaptation Fund, Global Climate Fund, and so on.
• Bilateral agencies
  • The United States Agency for International Development (USAID), the Canadian International Development Agency (CIDA), and others are the primary providers of bilateral aid in the form of grants. These are mostly in the form of grants.
• The National Adaptation Fund
  • Established in 2014 with a budget of Rs. 100 crore, the fund aims to bridge the gap between need and available money. The Ministry of Environment, Forests and Climate Change manages the fund.
• The National Clean Energy Fund
  • The Fund was established to encourage clean energy and was initially supported by a carbon tax on companies’ use of coal. Its mission is to fund research and development of new clean energy technology in both the fossil and non-fossil fuel industries.
• Compensatory Afforestation Fund
  • The Compensatory Afforestation Fund Act creates a National Compensatory Afforestation Fund under the Public Account of India, as well as a State Compensatory Afforestation Fund under the Public Account of each state. When forest land is diverted for non-forest purposes such as mining or industry, the user agency pays for planting forests over an equal amount of non-forest land, or, if such land is not available, twice the extent of degraded forest land.
• National Disaster Response Fund and State Crisis Response Fund (SDRF)
  • Its purpose is to fund the costs of emergency response, relief, and rehabilitation in the event of a disaster or threatening disaster situation.
• The National Mission for Enhanced Energy Efficiency
  • It is  a part of the National Action Plan on Climate Change (NAPCC), which provides practical financing mechanisms through programmes such as
  • PAT- Perform, Achieve, and Trade.
  • Market Transformation for Energy Efficiency (MTEE)
  • EEFP stands for Energy Efficiency Financing Platform.
  • FEEED is an acronym that stands for Framework for Energy Efficient Economic Development.
• Private Climate Finance
  • Private companies contribute to climate finance by issuing green bonds, making concessional and non-concessional loans, and participating in national carbon markets, among other things.

Challenges

• Different organisations define climate finance in different ways, making it difficult to synergize operations. There is no conventional accounting structure.
• Climate finance has long been chastised for inflating estimates by incorporating subsidies for development programmes such as health and education that only nominally target climate mitigation.
• Despite repeated demands for maintaining a balance between adaptation and mitigation, climate finance has remained tilted toward mitigation.
• Currently, available adaptation money is much lower than the demands outlined in developing nations’ Nationally Determined Contributions.
• The disproportionate delivery of climate funding through loans risks exacerbating many low-income nations’ financial crises.
• The focus of developed-country climate finance is on attracting private-sector investment. Public finance is only helping to “de-risk” investment. Climate funding raised by the private sector, on the other hand, will be channelled to projects deemed “bankable,” rather than those chosen based on developing nations’ priorities and needs.
• Climate change projects have a longer gestation period, which discourages financial institutions from investing in them.

Way ahead:

• The COP27 must agree to create a Loss and Damage Finance Facility to help people and nations recover from the effects of climate change.
• India-backed Mission LiFE – a global mass effort to re-establish the delicate balance between man and nature – must be the primary strategy for combating climate change.
• Creating a national-level climate finance regulatory authority will better enable us to comprehend, manage, and finance climate change goals, given the precision and technical competence required. It can supervise all of the climate change mechanisms that are supported by the government.
• Risk reduction for investors is a critical condition for increasing private climate investment. Government assistance for the viability gap could aid in risk reduction. The global financial sector must build markets for instruments to invest in climate resilience initiatives.