Climate Finance

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    In News

    • Recently, the UNFCCC Standing Committee on Finance (SCF) released a report regarding mobilisation of climate finance.

    More about the news

    • Issue of climate finance:
      • Over the last few years, developed countries have insisted upon two points on the issue of climate finance. 
        • First, they maintain that their commitment is to reach the target of $100 billion in climate finance a year for developing countries. 
          • It was first promised in 2009 and is close to being met. 
        • Second, they view the mobilisation of private finance as the critical component of climate finance henceforth.
    • UNFCCC Standing Committee on Finance (SCF) Report:
      • About:
        • The UNFCCC Standing Committee on Finance (SCF) released a report on the progress made by developed countries towards achieving the goal of mobilising $100 billion per year. 
        • According to the report, it is widely accepted that 
          • The $100 billion goal has not been achieved in 2020, and 
          • An earlier effort to mobilise private finance by the developed countries has met with comprehensive failure
      • Extended target:
        • Following the dismal failure to meet the $100 billion goal, developed countries pushed the target year for achieving it to 2025 from 2020.
      • Data from other reports:
        • The SCF report relied mainly on the Organisation for Economic Co-operation and Development (OECD) and Oxfam reports for aggregate climate finance trends.
    • Private climate finance: 
      • The OECD 2020 data shows that the mobilisation of private climate finance has underperformed against the expectations of developed countries.
      • The SCF report notes that it is unclear 
        • to what extent this was due to a lower-than-expected potential to mobilise private finance or 
        • to a relatively lower proportion of projects with mobilisation potential in the overall climate finance portfolio.

    About Climate finance 

    • What is climate finance?
      • Climate finance refers to local, national or transnational financing—drawn from public, private and alternative sources of financing—that seeks to support mitigation and adaptation actions that will address climate change.
      • The Convention, the Kyoto Protocol and the Paris Agreement call for financial assistance from Parties with more financial resources to those that are less endowed and more vulnerable. 
    • Significance:
      • It is critical to addressing climate change because large-scale investments are required to significantly reduce emissions, notably in sectors that emit large quantities of greenhouse gases
      • It is equally important for adaptation, for which significant financial resources will be similarly required to allow societies and economies to adapt to the adverse effects and reduce the impacts of climate change.
    • India’s position on climate finance:
      • Global problem:
        • India firmly believes that climate change is a global collective action problem that can be solved only through international cooperation and multilateralism.
      • Clarity on definition:
        • India also seeks clarity on the definition of climate finance—the absence of which allows developed countries to greenwash their finances and pass off loans as climate-related aid.
      • Capacity building & technology transfer:
        • India expects action from rich countries in terms of climate finance, technology transfer and strengthening the capacity of poor and developing countries to combat climate change.

    Challenges 

    • Regarding private climate finance:
      • Demands of developing countries:
        • Developing countries have for a long time insisted that a significant portion of climate finance should come from public funds as private finance will not address their needs and priorities especially related to adaptation
          • Climate finance already remains skewed towards mitigation and flows towards bankable projects with clear revenue streams. 
      • Issues with adaptation priorities:
        • Adaptation is unlikely to offer commercially profitable opportunities for private financiers. 
        • Vulnerable, debt-ridden and low-income countries with poor credit ratings needing adaptation finance the most, find it challenging to access private finance.
      • Contradictory claims:
        • Many developed countries and multilateral development banks have emphasised the importance of private finance mobilised in their climate finance strategies, including by de-risking and creating enabling environments.
        • According to the reports, these efforts have not yielded results at the scale required to tap into the significant potential for investments by the private sector and deliver on developed countries’ climate ambition.
    • Overall Challenges:
      • Lesser than required supply:
        • Currently available adaptation finance is significantly lower than the needs expressed in the Nationally Determined Contributions submitted by developing countries.
        • This leaves the public sector and countries with weaker resources and  access to capital is a challenge, and social safeguards are relatively weak.
      • Delivering finances:
        • Delivering on climate finance is among the stickiest points of contention between developed and developing countries because of developed countries.

    Way Ahead

    • The composition of public climate finance portfolios will progressively change towards a larger share of activities with low to no private finance mobilisation potential. 
      • This includes finance for adaptation, and capacity building, as grants, for least developed and small island developing countries
    • Thus, grant-based and concessional international public climate finance will continue to play the key role in addressing the needs and the priorities of developing countries, especially in the face of growing challenges due to extreme weather, food and energy crises.

    UNFCCC

    • The United Nations Framework Convention on Climate Change (UNFCCC), was signed in 1992 at the United Nations Conference on Environment and Development 
    • It established an international environmental treaty to combat “dangerous human interference with the climate system”, in part by stabilizing greenhouse gas concentrations in the atmosphere. 
      • It is also known as the Earth Summit, the Rio Summit.  It has been ratified by 197 countries.
      • It was entered into force in 1994. 

    Source: TOI