The Hindu Editorial Analysis- 1st November 2023 | Current Affairs & Hindu Analysis: Daily, Weekly & Monthly - UPSC PDF Download

Stocktaking climate finance — a case of circles in red ink

Why in News?

Climate finance has a crucial role in retaining the trust of the developing countries in future climate change negotiations. The issues relating to climate finance are likely to be prominent in the Conference of the Parties (COP 28) meeting (November 30–December 12), in Dubai, in the context of Climate Change 2023: Synthesis Report providing the main scientific input to the global stocktake at COP.

What is Climate Financing?

• Climate finance, as defined by the United Nations, refers to the financial support derived from various sources (public, private, and alternative) at local, national, or transnational levels.
• It aims to back actions geared toward both mitigation (reducing greenhouse gas emissions) and adaptation to combat the effects of climate change.
• Mitigation projects often involve the establishment of renewable energy systems.
• Adaptation efforts focus on helping communities cope with climate change impacts by providing practical solutions, such as the use of resilient seeds to ensure food production, even in the face of droughts.

Climate Financing Mechanism:

• UNFCCC established a financial mechanism to provide climate finance to developing country Parties and support the Kyoto Protocol and the Paris Agreement.
• The Global Environment Facility has been an operating entity of the financial mechanism since 1994.
• The Green Climate Fund (GCF) was established in 2010 at COP 16 and designated as an operating entity in 2011, accountable to the COP for policies and funding criteria.
• The Special Climate Change Fund (SCCF), created in 2001, finances projects related to adaptation, technology transfer, capacity building, and various sectors like energy, transport, industry, agriculture, forestry, and waste management, and economic diversification.
• The Least Developed Countries Fund (LDCF) was established to support the preparation and implementation of national adaptation programmes of action (NAPAs) for Least Developed Country Parties.
• The Adaptation Fund, established in 2001, provides funding for practical adaptation initiatives in developing nations that are parties to the Kyoto Protocol and highly vulnerable to the impacts of climate change.

Climate financing mechanisms of India:

• NAFCC: The National Adaptation Fund for Climate Change (NAFCC) is a scheme established in the fiscal year 2015-16. Its primary objective is to provide support for tangible initiatives that alleviate the detrimental impacts of climate change.
• NCEF: The National Clean Energy Fund (NCEF) was established with the purpose of investing in entrepreneurial projects and research related to clean energy technologies.
• Compensatory Afforestation Fund: The CAMPA funds are employed to compensate for the loss of forest land and the associated ecosystem services. This is achieved through activities such as compensatory afforestation, enhancing forest quality via natural regeneration, promoting biodiversity, improving wildlife habitats, preventing forest fires, and implementing soil and water conservation measures.

Concerns/ Challenges associated with Climate Financing:

• Rich countries failed to meet the $100 billion annual commitment made at the 2009 Copenhagen Summit to assist developing nations in addressing climate change impacts.
• A significant portion of climate finance is provided as non-concessional loans, contributing to debt burdens in various regions and income groups.
• Disproportionate allocation of funds is evident, with a concentration in North America, Western EU, and East Asia (particularly China) according to a report by the Centre for Science and Environment.
• Despite the establishment of various funds, such as the Special Climate Change Fund, Adaptation Fund, and Green Climate Fund, there remains a growing gap between funding expectations and actual commitments over the past 30 years.
• The Oxfam Climate Finance Shadow Report 2023 reveals a substantial overstatement of financing, with donors claiming $83.3 billion in 2020, while actual spending was estimated to be at most $24.5 billion. This overestimation includes projects with inflated climate objectives or loans at face value.
• Climate-related development financing is predominantly gender-blind, with only one-third of 2019-2020 projects integrating gender considerations to address the unique needs, experiences, and concerns of women and men.
• Developing countries face the dual challenge of simultaneously investing in development and climate actions, while also dealing with the costs associated with loss and damage.
• Despite their extreme vulnerability to climate impacts, the world's poorest countries, especially the least developed countries (LDCs) and small island developing states (SIDS), are lacking adequate support and are instead being pushed further into debt.
• Oxfam expresses significant concern regarding funding for "loss and damage" related to climate change impacts that surpass human adaptability or when communities lack the resources to utilize available options. This includes threats such as rising sea levels jeopardizing coastal heritage sites and extreme floods resulting in loss of life and property.

Way Forward:

• Fulfilling the promise: The goal under GCF to raise US$100 billion annually by 2020 to fund climate action in low- and middle-income countries is long overdue. It is imperative to act on the long standing promise.
• Utilization of G20 platform: With Brazil and South Africa to assume the G20 presidency after India, the global south is rising at the world stage, and G20 will be a critical platform to mobilise finances, technical expertise and human resource for the loss and damage fund.
• Framework for assessing loss and damage: India must prioritise creating a framework for assessing loss and damage as a part of its national and sub-national action plans on climate change and disaster risk reduction. 
  • Social protection schemes like MGNREGA that are creating climate-resilient infrastructure at the grassroots, and weather index-based crop insurance to protect farmers demonstrate how minimizing loss and damage can become a part of public welfare programmes.
• Scaling up grant based financing: There is equally an urgent need for more grant-based financing for climate action, and less momentum toward loaning the money they have all promised to give.
• Climate Responsive development Banks: It is time to make climate change a key parameter of multilateral development banks and enhance their investment in low carbon projects.
• Startup funding: Governments may consider catalytic or start-up funding and capacity building. Catalytic funding should be utilized for ‘repurposing’ key economic activities into green activities.
• Urgent debt relief: A longer-term goal should be to establish a multilateral debt workout process that can help countries break the vicious cycle of worsening debt and climate crises.
• Innovative ways to deploy the IMF’s Special Drawing Rights (SDRs): This could include rechanneling SDRs to multilateral development banks (MDBs), addressing allocation issues to ensure SDRs go to where they are needed most, or considering more ambitious approaches such as new SDR asset classes with specific purposes such as climate resilience.
• Mobilizing private finance towards climate goals:  Private capital financing has a vital role in plugging the gaps for global sustainable financing, particularly so in emerging markets and developing economies, where governments are inhibited by capacity constraints. 
• Climate proofing investments: Climate proofing investments for coastal areas through mangrove restoration, lowlands affected by floods and for rain-fed regions is another priority for developing nations. 
• Coordinated Action: Coordinated strategy between governments, the RBI and 

Indian efforts towards Climate financing:

• First sovereign green bond: India issued the first tranche of its first sovereign green bond worth INR 80 billion.  India leads Asian emerging markets (excluding China) in green bond issuance.
• Advocacy of separate climate financing: India raised concerns that financing plans through multilateral institutions could negatively impact its primary objective of lending for development. Therefore, India advocated for climate finance to be treated separately from development finance.
• CDRI: On the global stage, the India-led Coalition for Disaster Resilient Infrastructure, or CDRI, is implementing intergovernmental programmes to develop climate resilient infrastructure. CDRI is well positioned to support the structuring of the loss and damage fund, including developing an operative mechanism, and helping deploy funds to vulnerable countries.
• CBDR-RC: India is raising the issue of climate finance on behalf of the Global South and has been advocating principles of equity and Common But Differentiated Responsibilities and Respective Capabilities.