GS Paper 3: Environment, Climat Change
What’s in Today’s Article?
- Introduction: Overview of climate finance, its importance, and why it is critical for developing nations.
- India’s Climate Finance Needs: Challenges, targets, and the role of the New Collective Quantified Goal (NCQG).
- Conclusion: The urgency of climate finance in global discussions, particularly for developing nations.
Introduction:
The topic of climate finance has become a focal point in the global discourse on addressing climate change. As environmental challenges intensify, their impacts disproportionately affect developing countries. These nations, which contribute the least to global emissions, are often the most vulnerable to climate-induced disasters such as floods, droughts, and severe weather events.
At the 29th Conference of the Parties (COP29), scheduled for November 11-22, 2024, in Baku, Azerbaijan, the issue of climate finance will take center stage. This meeting presents a crucial opportunity to address the financial inequalities that have left developing nations struggling to cope with the consequences of climate change.
What is Climate Finance?
According to the United Nations Framework Convention on Climate Change (UNFCCC), climate finance encompasses financial flows at local, national, and transnational levels to support efforts aimed at mitigating and adapting to climate change. These funds can be sourced from public, private, and alternative streams, serving key purposes:
- Mitigation: Efforts to reduce or prevent greenhouse gas emissions.
- Adaptation: Assistance to vulnerable communities in adapting to the effects of climate change.
Developed countries, bearing the historical responsibility for higher emissions, are expected to provide a significant share of climate finance. Meanwhile, developing nations require these funds to balance their development needs with climate action.
Why Do Developing Nations Need Climate Finance?
Developing countries face unique challenges that make them particularly vulnerable to climate change:
- Geographical factors: Many of these nations are situated in areas more prone to extreme weather conditions.
- Economic dependency on agriculture: Agriculture, a sector highly sensitive to climate variations, often forms the backbone of their economies.
- Limited resources: Financial and technological constraints make it difficult for these nations to adapt to climate change or recover from disasters.
For instance, in 2021, the International Energy Agency (IEA) reported that around 675 million people in developing nations lacked access to electricity. As these countries grapple with both developmental issues and the need for environmentally friendly energy solutions, the costs of transitioning to climate-friendly technologies are often prohibitively high.
The Copenhagen Accord and the Climate Finance Commitment
The Copenhagen Accord, reached at the 2009 UNFCCC session, represented a significant pledge by developed nations to provide $100 billion annually in climate finance by 2020 to assist developing countries in combating climate change. However, this goal has not been fully met. Key obstacles include:
- Over-reporting: Developed countries often report financial commitments rather than actual disbursed funds.
- Reclassification of aid: Existing development assistance is sometimes repurposed as climate finance, limiting the introduction of new funds.
- Loans vs. Grants: A significant portion of climate finance is provided as loans, not grants, increasing the debt burden of developing countries.
For example, in 2022, 69.4% of international public climate finance was in the form of loans, with only 28% allocated as grants. Developing countries argue that climate finance should consist primarily of grants or concessional loans to avoid deepening their financial hardships.
India’s Climate Finance Needs:
India stands as a clear example of a developing country with ambitious climate goals and significant financial requirements. Key climate targets include:
- 500 GW of non-fossil fuel capacity by 2030.
- 5 million metric tonnes of green hydrogen (GH2) production annually.
- Widespread Electric Vehicle (EV) adoption by 2030.
The costs of achieving these targets are substantial:
- ₹16.8 lakh crore needed for renewable energy projects by 2030.
- An additional ₹8 lakh crore for the Green Hydrogen Mission.
- Consumers must spend ₹16 lakh crore on EVs to meet national goals.
India’s long-term financial needs are even more staggering, with ₹850 lakh crore in investments required between 2020 and 2070 to meet its net-zero emissions target.
The New Collective Quantified Goal (NCQG):
With the current $100 billion climate finance commitment set to expire in 2025, there is a growing demand for a more ambitious target under the New Collective Quantified Goal (NCQG). This new framework must prioritize:
- Actual disbursements rather than just pledges.
- New, additional funding beyond existing aid.
- Public capital in the form of direct grants.
- Mobilizing private capital through public initiatives.
At COP26 and COP27, a high-level expert group concluded that developing countries (excluding China) would need $1 trillion annually in external climate finance by 2030 to meet climate objectives.
Challenges in Securing Climate Finance:
The road to obtaining sufficient climate finance is fraught with challenges:
- High capital costs: Developing countries often face twice the capital costs for adopting green technologies, such as solar photovoltaics, compared to developed nations.
- Competing developmental needs: Balancing economic growth with climate action often necessitates external financial support.
Conclusion:
As the world approaches COP29, the issue of climate finance remains a critical concern in global negotiations. Developing nations, including India, require substantial financial assistance to meet their climate targets and adapt to the worsening impacts of climate change. The ongoing debate over the $100 billion commitment and the push for a more ambitious NCQG underscores the urgency for developed countries to fulfill their responsibilities and ensure that vulnerable nations receive the resources they need to address this global crisis.
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