Financing the Climate Crisis

 OVERVIEW

The earth that we claim to ‘worship’ is suffering, and we need to wake up. For years, we have turned a blind eye to the climate crisis. As individuals, we make unsustainable choices that harm the environment. We fail to understand that these individual choices collectively destroy the earth. 

No country is resistant to the devastating results of climate change. With nations emerging, economies boosting, and demands rising, carbon emissions and greenhouse emissions are at an all-time high. India is the third-largest carbon dioxide emitter while China and the U.S take first and second place. Historically, the U.S has been responsible for the largest share of carbon emissions. 

The Climate crisis has threatened all segments of society. It pushes more than 26 million people into poverty every year. Natural disasters like earthquakes, droughts, floods etc. are becoming common day by day. Around 90 per cent of such disasters are under the weather-related category. Mobilising funds toward climate will solve major problems of society. A shift to low-carbon and resilient economies could create over 65 million net new jobs globally by 2030. Food insecurity, droughts, floods and famines are a result of the climate crisis and opting for sustainable solutions can help reduce such calamities, thereby reducing damage.

Transitioning to a clean and green economy requires a huge amount of funds. We cannot use up all fossil fuel reserves. We cannot achieve our goal of maintaining an ideal global average temperature of 1.5 degrees Celsius above pre-industrial times if we continue to burn our fossil fuels at this rate. We need alternative sources of energy for survival and for that we need funds.

While all barriers to climate control need to be addressed with the utmost effort, it is imperative to prioritise climate financing. Climate financing is crucial for sustainable development. Funds play an essential role in supporting mitigation and adaptation actions that will help combat climate change.

CLIMATE CONVENTIONS THAT GAVE IMPORTANCE TO FINANCE

The climate crisis is a consequence of our actions. Every country has somehow contributed to this and the aftermath has adversely affected all. It would be unfair for all countries to pay an equal price for the unsustainable actions of other nations. Today’s well-established economies have profited at the cost of our environment. For example, the United States has been a major polluter roughly since the 1850s. Such countries need to bear more liability as their stake in the climate crisis is larger. Countries like China and India, who now come as the top contributors to climate change cannot be blamed for the actions taken by USA and Russia as they have recently developed. 

Climate Crisis has become an alarming issue to be discussed by International and national bodies across the globe. From Kyoto Protocol to COP26, countries have tried to address the climate crisis and take actionable steps. Let us discuss some of these steps and analyse their success in controlling climate change. 

KYOTO PROTOCOL COP 3

The Kyoto Protocol of 1997 emphasised curbing greenhouse gas emissions mainly in developed countries. It established a rigorous monitoring system as well as a compliance mechanism to keep countries participating in check. An Adaptation fund was also set up to finance adaptation projects and programmes in developing countries that are parties to the Kyoto Protocol. Kyoto Protocol also brought in the Clean Development Mechanism to encourage developed countries to help developing nations. Under this mechanism, developed nations may fund greenhouse gas reduction projects in developing countries and claim the saved emissions as a part of their efforts to meet emission targets. 

Although the 36 developed countries had reduced their emissions, global emissions increased by 32 % from 1990 to 2010. Many countries were slow to ratify the agreement. The financial crisis of 2007-08 was a major barrier to reducing greenhouse gas emissions. Lastly, recent emerging economies like China and India were not covered under the Kyoto Protocol. 

CANCUN AGREEMENT 2010 COP 16

The Cancun Agreement of 2010 offered the most comprehensive plan for combating climate change and helping developing countries protect themselves from the everlasting impacts of the climate crisis. It contained finance, technology and capacity-building aid to help such countries meet urgent needs and adopt sustainable approaches to lower GHG and Carbon emissions. The agreement led to the establishment of the Green Climate Fund to assist developing countries in mitigating climate change and adapting to its impacts. Moreover, the Cancun Adaptation Framework was formed for better adaptation through international cooperation. Other objectives include ensuring transparency, reviewing progress from time to time and using cleaner technologies. The Cancun Agreement failed to address the voluntary nature of commitments toward GHG and carbon emissions. Although problems like GHG emissions due to deforestation were somewhat managed in COP 16, many other issues were deferred to COP 17 and beyond, particularly related to financing. 

PARIS AGREEMENT 2015 COP 21

The Paris Agreement of 2015 focused mainly on reducing the average global temperature to between 1.5 to 2 degrees Celsius. What differentiates the Paris Agreement from the Kyoto protocol is that the developing countries were legally bound by the Paris Agreement, whereas, in the Kyoto Protocol, they were not legally bound. The Paris Agreement required all participating nations to put forward their best efforts through “nationally determined contributions ‘ (NDCs) and strengthen these efforts in the years ahead. 

An imperative provision of the Paris Agreement was that the participating developed nations were to give 100 billion USD annually by 2020 to their developing counterparts. However, the agreement consisted of aims or promises and not firm commitments. There were no concrete plans regarding the growing climate urgency. Nations can voluntarily set their emission reduction targets. Moreover, no fines and penalties are imposed on them if they fall short of their targets. 

GLASGOW CONVENTION 2021  COP 26

The COP26 was held in Glasgow in 2021. It aimed at coming to a consensus regarding the Paris Agreement. It urged the countries to strengthen their 2030 targets and focus on the reduction of the global average temperature to an optimum level of 1.5 degrees Celsius above pre-industrial times. It focused on mobilising climate finance, reducing coal consumption and bringing emissions to net-zero by 2070. The convention also emphasised using cleaner technologies and renewable energy sources. However, the lack of specified actions and details regarding steps in achieving the net-zero target created a lot of uncertainty for the nations. Secondly, the targets set were voluntary and no mechanism was established for the non-compliance of these targets. The COP26 also failed at securing adequate funding for climate finance. 

Through multiple Conventions, Conferences and Summits on Climate Crisis, the nations have realised the importance of climate and are now working toward mitigating and adapting to greener and cleaner methods in all domains. Countries have also stepped up with their net-zero commitments, more than 130  countries including India have committed to net-zero targets. However, A few common barriers were faced while drafting and executing the decisions made under all such agreements. Some of them include technological problems, delays in operationalisation, voluntary nature of targets and uncertainty in the course of action and climate finance.  

CLIMATE FINANCING – A CHALLENGE

Climate financing is crucial for sustainable development. Funds play an essential role in supporting mitigation and adaptation actions that will help combat climate change.

Year after year of UNFCCC Agreements, both developed as well as developing countries have understood the significance of climate finance. The Cancun Agreement of 2010 as well as the Paris Agreement of 2015, gave importance to climate finance. The agreements encouraged developed countries to mobilise USD 100 billion annually by 2020. Steps like establishing the Green Climate Fund and Clean Development Mechanism have helped boost the process of achieving sustainable goals. 

However, even after knowing that funds can help mitigate the everlasting damage due to the climate crisis, we are still unable to achieve our climate goals. Some of the challenges are : 

•  The total pledge to Green Climate Fund was only USD 10.3 billion till 2019. This is very inadequate considering the estimated cost for developing countries to implement their Nationally Determined Contributions (NDCs) is USD 4 trillion. 

•  Almost 75 per cent of the funds raised by developed countries for climate finance are used domestically, despite developing countries enduring a significant burden of the emissions.  

• Most climate funds are used up in mitigation, rather than adaptation. This may be because results from investing in mitigation are evident in the short run. 

•  Initial structures and workings of organisations were not designed to prioritise climate change. Thus, longstanding departments like the education and healthcare sectors may be resistant to incorporating climate priorities. 

•  As per the two UNFCCC’s Biennial Assessment of Finance (2018), the actual flow of funds from the developed to developing countries is only 38 billion dollars, that too after the relaxed criteria adopted by the UNFCCC. The actual flow of funds meant for climate finance is much less and thus, funds flowing through the World Bank and similar institutions have to be repackaged as climate finance.

India has played an active role in mitigating the climate crisis. In the COP26, India aims to reduce carbon emissions by 50 per cent by 2030. It also aims to achieve net-zero targets by 2070. For India, public spending is the largest source of climate financing. It gets funding through budgetary allocation as well as schemes by the Government of India. 

The budgetary allocation for the Ministry of Forest and Environment for the year 2022-23 was Rs. 3,030 Crore, which is 160 crores more than that of 2021-22. This year’s budget saw some cuts in the budget. For example, the allocation for Commission for Air quality Management was reduced from 20 to 17 crore this year. The budget for environmental education, awareness and training was also reduced from 77.13 crores in 2021-22 to 58 crores in 2022-23. On the other hand, the allocation for the National Mission for Green India increased from 290 crores to 361.69 crores. For some Wildlife projects like project tiger and project elephant, the budget was increased.

Under the National Action Plan on Climate Change(2008), 8 missions launched which are funded by the government of India are :

1. National Solar Mission

2. National Mission for Enhanced Energy Efficiency 

3. National Mission on Sustainable Habitat

4. National Water Mission

5. National Mission for Sustaining the Himalayan Ecosystem

6. National Mission for Green India

7. National Mission for Sustainable Agriculture

8. National Mission on Strategic Knowledge for Climate Change

These missions were formed to implement and regulate integrated strategies for climate protection and create awareness about the same.

The National Adaptation Fund for Climate Change (NAFCC) was established in August 2015. It was formed to meet the cost of adaptation to climate change for the State and Union Territories of India. Even after the emphasis on climate finance, the grants released under NAFCC have been declining over the years. It fell from 115.36 crores in 2017 to 42.94 crores by 2021. 

The National Clean Energy Fund was created in 2010 by presenting a ‘clean energy cess’ on every ton of coal sold. The purpose of the fund was to finance projects on clean and renewable energy and promote innovation and research for clean energy. However, NCEF funds have been used to meet budgetary shortages in the Ministry of New and Renewable Energy.

The Union Budget 2022-23 also declared the issuance of green bonds to mobilise resources for green infrastructure. This decision was taken considering the net-zero target. It aims at reducing the carbon emissions in the economy. Green Bonds are issued by corporations, countries and multilateral bodies to fund projects that provide sustainable solutions. The projects may include renewable energy, clean transportation and green buildings. India issued USD 6.11 billion of green bonds in 11 months of 2021. India will need USD 10.103 trillion by 2070 to attain carbon neutrality. Green bonds may be a way to kickstart capital inflow.  

RECOMMENDATIONS 

Finance plays a critical role when it comes to climate control. While the efforts of international and national institutions have been commendable, we are still far from reaching sustainability. 

• A proper framework should be established to differentiate green activities from non-green ones. This will further help in identifying which industries need more attention regarding climate control. 

• The Green bonds have a low tenure, a high borrowing cost and a high coupon rate. This is discouraging for investors as green projects take heavy investment and a long time to give returns. Thus the tenure should be extended. 

• There should be homogeneity among the national policies and international policies regarding green bonds to boost the green financial instrument market. 

• Incentives should be provided to Private sector players for larger investments. Financial institutions and governments must evolve the available tools for risk management. They must tie large investment projects to climate adaptation.

• Lastly, separate financial institutions must be established, designed specifically for assessing climate risk. 

CONCLUSION 

Climate Finance is the means to achieving our desired, sustainable earth. We need to hold ourselves accountable for the damage we have caused and work towards minimising future deterioration. With sustainable actions, proper funding and modern technologies, we can combat the battle of climate change and make this earth safe and secure for us and generations to come.