Directions: Read the passage carefully and answer the questions that follow.
Finance Minister Nirmala Sitharaman announced that the government would develop a ‘climate finance taxonomy’ to enhance the availability of capital for climate adaptation and mitigation. This will help India achieve its climate commitments and green transition.
What is a climate finance taxonomy?
A climate finance taxonomy is a system that classifies which parts of the economy may be marketed as sustainable investments. It helps guide investors and banks in directing trillions toward impactful investments to tackle climate change.
“Taxonomies are frequently used to set standards for classifying climate-related financial instruments (e.g., green bonds), but, increasingly, they serve other use cases where the benchmarking feature is viewed as beneficial, including in the areas of climate risk management, net-zero transition planning, and climate disclosure,” according to a report by the government of Canada.
Why is a taxonomy significant?
With global temperatures soaring, and the adverse effects of climate change exacerbating, countries need to transition to a net-zero economy — the balance between the amount of greenhouse gas (GHG) that is produced, and the amount that is removed from the atmosphere.
Taxonomies can play a pivotal role in doing this as they can help ascertain if economic activities are aligned with credible, science-based transition pathways. They can also give impetus to deployment of climate capital, and reduce the risks of greenwashing.
For India, a taxonomy could bring in more climate funds from international sources. Currently, green finance flows in India are falling far short of the country’s current needs — they only account for around 3% of total FDI inflows to India, according to the Landscape of Green Finance in India 2022 report, published by Climate Policy Initiative.
One reason for abysmally low green finance flows has been a lack of clarity in what constitutes sustainable activity. A taxonomy would change that.
What is the potential for green investments in India?
India has a climate-smart investment potential of $ 3.1 trillion from 2018 to 2030, according to a report by the International Finance Corporation (IFC). The largest space for investment is in the electric-vehicle segment, at $ 667 billion as India aims to electrify all of its new vehicles by 2030. India’s renewable energy sector also continues to be a good investment avenue at $ 403.7 billion, the report added.
Do other countries have taxonomies?
Yes. Many countries have either started to work on their taxonomy or finalised one. South Africa, Colombia, South Korea, Thailand, Singapore, Canada, and Mexico are some of the countries which have developed taxonomies. The European Union has done this as well.
What are India’s climate commitments?
India aims to achieve net-zero economy by 2070. It has also pledged to reduce the emissions intensity of its GDP by 45% by 2030, from the 2005 level. India has committed to achieve about 50% cumulative electric power installed capacity from non-fossil fuel-based energy resources by 2030 as well.
[Excerpt from The Indian Express “What is a Climate Finance Taxonomy?” Dated 24/07/24]
Q1: What was the key focus of the Union Budget presented by Nirmala Sitharaman on July 23, 2024?
(a) Healthcare Reform
(b) Tax Cuts
(c) Climate Finance Taxonomy
(d) Education Funding
Ans: (c) Climate Finance Taxonomy
Sol: The key focus of the Union Budget was the initiative to build a “climate finance taxonomy” to increase funding for climate adaptation and mitigation.
Q2: What is the estimated climate-smart investment opportunity in India between 2018 and 2030?
(a) $1 trillion
(b) $2 trillion
(c) $3.1 trillion
(d) $5 trillion
Ans: (c) $3.1 trillion
Sol: The estimated climate-smart investment opportunity in India between 2018 and 2030 is around $3.1 trillion.
Q3: By what year does India aim to achieve a net-zero economy?
(a) 2040
(b) 2050
(c) 2060
(d) 2070
Ans: (d) 2070
Sol: India aims to achieve a net-zero economy by the year 2070.
Q4: What percentage of India's electric power capacity is targeted to come from non-fossil sources by 2030?
(a) 30%
(b) 40%
(c) 50%
(d) 60%
Ans: (c) 50%
Sol: India aims to have 50% of its electric power capacity come from non-fossil sources by the year 2030.
Q5: What does the term "greenwashing" refer to?
(a) Promoting the use of green energy
(b) Investing in environmentally sustainable projects
(c) Making false claims about sustainability
(d) Diversifying investments away from fossil fuels
Ans: (c) Making false claims about sustainability
Sol: "Greenwashing" refers to making false claims about sustainability, misleading stakeholders about the environmental benefits of a product or practice.
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