Climate Finance


    In News 

    Recently ,At COP27 ,India insisted on a higher global climate finance target by 2024.

    About 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. 


    • 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.

    Steps taken globally 

    • The Inflation Reduction Act of the Biden administration would pump $370 billion into climate and clean energy investments in the US.
    •  Several countries in Europe have set ambitious targets for emissions reductions. 
    • Even China has claimed that by 2025, a third of its energy needs will come from renewables.
    •  The World Bank Group delivered a record $31.7 billion in fiscal year 2022 (FY22) to help countries address climate change.
    • Several multilateral development banks (MDBs) have made clear that they will support projects for transitions. 
    •  Green Climate Fund (GCF)was established to address some of the prevalent challenges of climate finance. 
      • The Board of the GCF has an equal number of developing country members, with equal voice for all.
    • Finance for climate action and finance for just transitions is a key topic at the ongoing COP27 in Egypt. 



    • 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 on climate finance is among the stickiest points of contention between developed and developing countries because developed countries.
      • At COP15 in Copenhagen in 2009, developed countries had committed to jointly mobilise $100 billion per year by 2020 to help developing countries tackle the effects of climate change.
        • Rich countries, however, have repeatedly failed in delivering this finance.
    • International finance institutions such as the MDBs continue to have inflexible governance structures (voice and vote, leadership selection, etc) and this undermines the legitimacy of these institutions in the eyes of the emerging market countries. 
      • Such dimensions of legitimacy, culture, and tradition are even more important in the case of just transitions.
    • Concern linked to transition : In mines,infrastructure and millions of workers currently working in non-renewable energy and they can be impacted badly .
      • At the corporate level ,There can be political opposition to the shutting down of the mine. Large corporate interests aside, the opposition could also come from trade unions and other local bodies.

    India’s position on climate finance

    • India firmly believes that climate change is a global collective action problem that can be solved only through international cooperation and multilateralism.
    • 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.
    • 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.

    Way Ahead 

    • With climate finance still scarce, climate adaptation in the form of early warning dissemination is key to safeguarding lives and livelihoods from cascading natural hazards causing substantial losses around the world.
    • A large part of the public climate finance is still channelled through MDBs and bilateral agencies. 
      • Emphasising a channel like the GCF could reduce dependence on the policies and concessionality imposed by MDBs, and avoid fragmentation of finance.
        • The GCF is the only institution which combines a very large scale with legitimacy and ownership and  GCF is the right channel for climate finance.
    •  The private sector may play a complementary role, the commitment is on the developed countries to lead in mobilisation from various sources. 
    • The negative impacts on workers and communities should be reduced, and the benefits should be fairly distributed.


    Mains Practice Question 

    [Q] What is Climate Finance? Explain how it can be useful in addressing climate change?