Stocktaking Climate Finance

Climate finance is crucial for maintaining trust between developed

and developing countries in climate change negotiations. Climate
finance is expected to be a prominent issue in the
upcoming Conference of the Parties (COP 28) meeting of
the United Nations Framework Convention on Climate Change
(UNFCCC) in Dubai.

What is Climate Finance ?

▪ According to the United Nations Framework Convention
on Climate Change (UNFCCC), climate finance is local,
national or transnational funding from public, private and
alternative sources that seek to support climate change
mitigation and adaptation actions.
▪ Essential Components :
o Funding Sources: Climate finance can come
from various sources, including public sources
such as government funding and international
aid and private sources such as investments
from the financial and corporate sectors.
o Financial Instruments: Many financial
instruments can be used to channel climate
finance, including grants, loans, equity
investments, and financial instruments such as
carbon credits.
 o Recipients: Climate finance can be provided to
various recipients, including governments,
businesses, and civil society organizations.
o Projects and Activities: Climate finance can
support various projects and activities
contributing to climate change mitigation and
adaptation. These may include renewable
energy projects, energy efficiency measures,
and projects that help build resilience to climate
change's impacts.
o Governance and Oversight: Several initiatives
and mechanisms have been established to
facilitate the flow of climate finance and ensure
effective governance and oversight, such as
the Green Climate Fund and the Clean
Development Mechanism.
What are the Primary Purposes of Climate Finance?
▪ Mitigation: To fund projects and initiatives that reduce
greenhouse gas emissions and mitigate the impacts of
climate change. This includes investments in renewable
energy, energy efficiency, sustainable agriculture, and
other activities that help combat climate change.
▪ Adaptation: To support measures that help communities
and nations adapt to the adverse effects of climate
change. This may include investments in infrastructure,
disaster resilience, water resource management, and
other strategies to reduce vulnerability to climate-related
risks.
▪ Technology Transfer: To facilitate the transfer of
environmentally friendly and sustainable technologies

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 from developed to developing countries, enabling the
latter to transition to low-carbon, climate-resilient
development pathways.
▪ Capacity Building: To build the capacity of nations and
communities to better understand and address climate
change, develop and implement climate policies and
strategies, and access and manage climate finance
effectively.

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How much Climate Finance is Needed ?
▪ Adaptation Financing Gap: The global adaptation
financing gap is substantial and growing. Adaptation
costs in developing countries are projected to increase
to around USD 340 billion per year by 2030 and up to
USD 565 billion by 2050.

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 ▪ Mitigation Financing Gap: The gap for mitigation efforts
is even larger, estimated at USD 850 billion per year by
2030.
▪ The Trillion-Dollar Climate Finance Challenge: The
Glasgow Financial Alliance for Net Zero estimates a
requirement of at least USD 125 trillion in investments by
2050, approximately USD 5 trillion per year, to achieve
net-zero emissions.
▪ Climate Finance for Developing Countries: The financial
needs projected by developing countries in their NDCs,
especially in the Global South, are substantial, potentially
reaching close to USD 6 trillion until 2030.
▪ USD 100 Billion Annual Target: In 2009, at the UNFCCC
COP15, developed countries jointly set a target to
provide at least USD 100 billion annually to support
mitigation and adaptation efforts to address the climate
crisis effectively.

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What are the Main Sources for Climate Finance ?
Types of Instruments:
▪ Green bonds : Green Bonds are a kind of debt issued by
a public or private institution to use the funds for
environmental purposes.
▪ Debt swaps :These entail the sale of foreign currency
debt by the creditor country to an investor which can
then swap the debt with the debtor country for the
development of mitigation and adaptation projects.
▪ Guarantees : These are commitments whereby a
guarantor promises to fulfill the obligations undertaken
by a borrower to a lender in the context of climate
change activities.
▪ Concessional loans : These are loans for climate change
mitigation and adaptation activities that differ from
traditional loans in that they have longer repayment
periods and lower interest rates, among other
preferential conditions.
▪ Grants and donations : These are amounts granted to
projects related to the fight against the climate
emergency, which do not need to be repaid.
Major Climate Finance Funds :
▪ Green Climate Fund (GCF): GCF was set up by the
UNFCCC in 2010. It is the world's largest fund devoted to
helping developing countries reduce their GHG
emissions and adapt to the impact of climate change,

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 paying particular attention to the needs of the most
vulnerable countries. The GCF plays an essential role in
compliance with the Paris Agreement, channeling
climate finance to developing countries.
▪ Special Climate Change Fund (SCCF): Administered by
the Global Environment Facility (GEF), it offers four
different finance services: adaptation to climate change;
technology transfer; energy, transport, industry,
agriculture, forestry and waste management; and
economic diversification for countries dependent on
fossil fuels.
▪ Least Developed Countries Fund (LDCF) :Administered
by the Global Environment Facility (GEF), its purpose is to
support the almost 50 countries classified as least
developed by the United Nations to tackle their high
vulnerability to climate change and implement their
national adaptation plans.
▪ UN-REDD Programme : Created in 2008, also as part of
the UN, its objective is to reduce the emissions caused
by deforestation and forest degradation in developing
countries, helping governments to prepare and
implement national REDD+ strategies.
▪ Bilateral climate finance funds: It includes institutions
such as the United States Agency for International
Development (USAID), the European Union's Global
Climate Change Alliance+ (GCCA+), and the Japan
International Cooperation Agency (JICA), etc.
What are the Main Challenges to Climate
Financing?
▪ Funding Shortages:

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 o The primary challenge in climate financing is the
inadequate availability of funds for climate
projects, especially in low-income countries.
o Developed countries fell short of the USD 100
billion annual target, having mobilized only USD
79.6 billion at the 26th UN Climate Change
conference in Glasgow in 2021.
▪ Lack in Institutional Capacity:
o Many impoverished countries lack the financial
infrastructure necessary to effectively manage
and allocate substantial foreign investments
into climate projects, potentially causing
concerns among investors and destabilizing
fragile economies.
o Some experts raise concerns about the capacity
of Multilateral Development Banks (MDBs) to
meet the world's climate finance needs,
particularly their limited expertise in climate-
related matters.
o MDBs are criticized for primarily concentrating
their financing on climate mitigation, with less
focus on assisting businesses and communities
in adapting to climate risks.
▪ Accountability Mechanisms:
o There is currently no established mechanism to hold
governments and institutions accountable for
fulfilling their climate financing commitments.
o Wealthier nations have been known to either
overstate their investment estimates or fail to meet
their financial responsibilities.

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 o "Green funds," which allow private investors to
participate in Environmental, Social, and Governance
(ESG) investing, do not mandate the disclosure of
their investments' carbon footprints or emissions,
leading to the problem of greenwashing.
▪ Greenwashing is when an organization spends
more time and money on marketing itself as
environmentally friendly than on actually
minimizing its environmental impact.
▪ Measuring Climate Finance:
o Data on climate finance flows are compiled using
various methodologies and have varying
interpretations.
o Double counting of climate finance can occur when
the same funds are reported by multiple parties,
leading to an overestimation of the actual financial
flows.
▪ Missing Urgency:
o Unlike the rapid response to the global financial
crisis in 2009-10, climate finance transfers currently
lack the strong political will, perceived urgency, and
global cooperation seen in the financial crisis
response.
What are Indian Initiatives for Financing Climate
Action ?
▪ National Adaptation Fund:
o The fund was established in 2014 with a corpus
of Rs. 100 crores with the aim of bridging the
gap between the need and the available funds.

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 o The fund is operated under the Ministry of
Environment, Forests, and Climate Change
(MoEF&CC).
▪ National Clean Energy and Environment Fund (NCEEF):
o The NCEEF was established to promote clean
energy and environmental projects in India.
o It funds initiatives that help reduce greenhouse
gas emissions and improve environmental
quality.
o The fund is supported by a cess on coal
production and usage.
▪ Green Climate Fund (GCF) and Adaptation Fund (AF):
o India is eligible to access financial resources
from international climate funds like the GCF
and AF.
o These funds support climate mitigation and
adaptation projects in the country.
▪ Renewable Energy Financing:
o India has actively promoted renewable energy
projects, including solar and wind energy.
o The government offers financial incentives and
subsidies to encourage investment in these
sectors.
▪ National Clean Energy Fund (NCEF):
o NCEF was created to support clean energy
initiatives and research.
o It provides resources for innovative projects that
contribute to low-carbon development.

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 ▪ Emission Trading System (ETS):
o India has explored the possibility of setting up
an ETS to promote carbon trading and
incentivize emissions reductions.
▪ Carbon Tax:
o There have been discussions about the
introduction of a carbon tax in India, which
could provide additional revenue for climate
initiatives.
▪ Bilateral and Multilateral Agreements:
o India engages in bilateral agreements with
countries for climate finance, and it participates
in multilateral negotiations to secure funding for
climate projects.

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What are the Next Steps for Climate Finance ?
▪ Commit to Climate Finance Targets :
o All bilateral donors must live up to their climate
finance commitments and set more ambitious
targets.
o The need for integrating climate finance into
national development plans and policies is even
greater than before
▪ Enhancing International Cooperation:
o Strengthening collaboration among nations and
international organizations is crucial.
o All countries will need to unlock opportunities
for low carbon climate resilient infrastructure
and other climate-related investments to
support recovery and transformation.
▪ Accountability in MDBs :
o Multilateral Development Banks must better
leverage their balance sheets, improve their
private sector multipliers and work better as a
system.
o Multilateral Development Banks need to
accelerate the alignment of their financial
support and activities with the Paris Agreement,
building on the common framework set out at
COP25.
▪ Supporting Vulnerable Communities:

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 o Tackling debt distress and excessive debt
overhang, especially in poor and climate
vulnerable countries, is crucial.
o Targeted efforts should be made to channel
finance to the most vulnerable communities and
countries, especially those at risk from the
adverse impacts of climate change.
▪ Innovative Financing Mechanisms:
o Exploring innovative financing mechanisms,
such as green bonds, carbon pricing, and public-
private partnerships, can attract additional
funding for climate projects.
o Private capital is not flowing fast enough to
finance the low-carbon and climate-resilient
transition and is often not aligned to Paris
Agreement targets. Moreover, most of the
current stock of private sector climate
investment is in advanced economies.
▪ Transparency and Accountability:
o Establishing transparent reporting mechanisms
and holding nations accountable for their
financial commitments is vital to ensuring the
effective use of climate finance.
▪ Promoting Sustainable Practices:
o Encouraging sustainable practices and the
transition to green economies is part of the
long-term strategy in climate finance.
▪ Global Stocktakes:

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 o Continuously assessing and enhancing climate
finance efforts through global stocktakes, as
outlined in the Paris Agreement, is essential to
ensure alignment with climate goals.
Conclusion :-
Fostering increased cooperation in global climate finance is not
just a necessity, it is an imperative for addressing the urgent
challenges posed by climate change. The complexity of climate
issues, coupled with the substantial financial requirements, calls
for a united and collaborative effort among nations, organizations,
and private sectors.

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