Climate Financing in India

A meeting was held between the finance ministers of India and the US recently as part of the eighth ministerial meeting of the U.S.-India Economic and Financial partnership. One of the major highlights was climate finance under Climate Action and Finance Mobilization Dialogue (CAFMD).

Climate Action and Finance Mobilization Dialogue (CAFMD)

It is one of the two ideas of the India-US Climate and Clean Energy Agenda 2030 partnership launched at the Leaders’ Summit on Climate in April 2021. It allows both countries to update collaborations on climate change, address the financial aspects, and deliver climate finances as grants and concessional finance envisioned under the Paris Agreement. It will also help to show that the world can align swift climate action with sustainable economic development. CAFMD will look at ways in which emissions can be reduced in the coming decades. This will be an excellent opportunity to shift to renewable energy sources like solar energy.

Climate Finance

Climate finance refers to local, national or international financing obtained from public, private and alternative sources of financing. Climate finance is essential to address the issues caused by climate change and limit the rise in the average temperature of the earth to below 2 degrees Celsius over pre-industrial levels. Climate finance supports the mitigation and adaptation actions that address climate change. The countries with financial resources were asked to help those in need during the Convention, the Kyoto Protocol and the Paris Agreement. One of the significant reasons for climate finance in mitigating climate change is that large-scale investments are essential to reduce emissions. It is crucial for adaptation because large scale financial resources are required to adapt to the harmful effects and reduce the impacts of climate change.

The United Nations Framework Convention on Climate Change (UNFCCC) has started various financial mechanisms to provide financial resources to developing countries. The Adaptation Fund under the Kyoto Protocol aims to aid projects and programmes that help vulnerable communities in the developing countries which are part of the Kyoto Protocol to adjust to climate changes. Green Climate Fund is the financial mechanism of the UNFCCC, which was established in 2010 and acted as an operating entity. Global Environment Fund (GEF) has assisted as an operating entity of the financial mechanism since the Convention in 1994. This private equity fund focuses on finding long-term financial returns through investments in clean energy under climate change. GEF also manages two additional funds: the Special Climate Change Fund (SCCF) and the Least Developed Countries Fund (LDCF).

Climate Financing in India

Public funding is the largest source of climate financing in India. This is directed through budget allocations and several funds and schemes related to climate change established by the Indian government, such as the National Clean Energy Fund (NCEF) and National Adaptation Fund (NAF).

The Indian government also provides funding through eight projects formed under the National Action Plan for Climate Change. It has started a Climate Change Finance Unit (CCFU) under the Finance Ministry, the nodal agency for all climate change financing affairs. However, most of the public funding in India is deficient and exploited. For example, NCEF funds are used to meet shortfalls of budgets in the Ministry of New and Renewable Energy (MoNRE). The lack of assessment of public-funded projects for climate makes it challenging to evaluate financial allocation towards climate action.

National Adaptation Fund for Climate Change (NAFCC)

The National Adaptation Fund for Climate Change (NAFCC) was formed to meet the costs of adaptation to climate change for places in the country vulnerable to climate change’s adverse effects in August 2015. NABARD is designated as the National Implementing Entity (NIE) for implementing adaptation projects under NAFCC by the Indian government. NABARD would help identify project ideas and concepts from the State Action Plan for Climate Change (SAPCC). It will also help in project formulation, appraisal, sanction, distribution of funds, monitoring & evaluation and capacity building of stakeholders, including State Governments.

National Clean Energy Fund

The National Clean Energy Fund was created to promote clean energy. This is funded using the initial carbon tax on the use of coal by industries. An Inter-Ministerial Group governs it with the Finance Secretary as the Chairman. It helps give financial aid for the research and development of clean energy technology in the fossil and non-fossil fuel based sectors.