Context: 

• This article highlights that the present commitments made by the developed world in terms of climate finance are absolutely insufficient and suggests measures in this regard.

Issues surrounding climate finance

• Inadequate finance: 

• • • At COP15 in 2009 (Copenhagen, Denmark), developed countries committed to a collective goal of mobilizing USD 100 billion per year by 2020 to support climate action in developing countries.
    • The figure of $100 billion for projects in developing nations, which was arrived at about 13-14 years ago, had no basis and was too small compared to the need. 
    • The amount that is being actually spent is about one-seventh of the need for climate finance today(around $4.35 trillion) in order to meet the Paris Agreement targets. 

• Financing more to mitigation projects

• 93 per cent of the money that is flowing into climate finance is actually for mitigation and the rest for adaptation.

• Reason:  Mitigation projects (Eg: setting up renewable generation projects)usually have a revenue stream while adaptation projects (Eg:setting up renewable generation projects)have high upfront costs, have a long gestation period and no defined income stream. Financial institutions have no problem in extending loans on pure market terms and conditions for mitigation projects while they are considered risky by banks and other financial institutions. 

• Contradicting statistics

• While the developed world’s statistics prove that actually close to $80 billion was provided to the developing world for climate finance in 2020, the skeptics say that the actual transfer of resources would be in the range of $19-22 billion only. 

• The developed world is including the normal commercial debt for climate-related activities in its calculations however $100 billion is supposed to be in the form of concessional finance or grants only.

• Delay in progress

• • • Though the resolve to provide $100 billion per year is repeated in every meeting of the Conference of Parties (CoP), there is little movement on the ground. 
    • In the last meeting of the CoP (CoP27 at Sharm El-Sheikh, Egypt) it was agreed that a loss and damage fund would be set up which would look into what must be done immediately to take care of rising sea levels, desertification etc. doesn’t seem to bring fruitful results based on past experiences of concessional finance.

• Minimal private sector participation

• Private sector participation in adaptation projects is less than 2 per cent and the major part of adaptation finance comes from multilateral development banks in the form of loans. 

• Reason: Private sector views investments in adaptation projects as risky and there aren’t enough incentives available for the private sector to get involved with adaptation projects.

Way forward for India and others

• Mobilize resources from within: India has to look within and mobilize resources for climate finance by making different institutions come together and complement each other.
• Ensure proper funding of technologies: The financial institutions will have to fund technologies that are commercially mature, like wind and solar. 
• Direct financial support from government: The government will have to step in for technologies that are not yet ripe for commercial ventures like green hydrogen where direct financial support needs to be given for the installation of electrolysers. 
• Inclusion of private sector: As far as adaptation measures are concerned, the private sector has to be involved which will require government intervention. Eg: Government co-funds adaptation projects with the private sector
• Create additional resources: Additional resources can possibly be raised through the imposition of carbon taxes, issue of green bonds and catastrophe (CAT) bonds etc.