Climate finance for developing countries is a critical component of the solution to global climate change. The burden of climate change falls disproportionately on these countries, which experience the most floods, droughts, and extreme weather events, while their contribution to global greenhouse gas emissions is relatively low. The COP29 conference, which will be held in Baku, Azerbaijan in November 2024, will focus on climate finance to address this inequality.
Climate finance
- Climate finance refers to financial flows that support efforts to prevent (mitigation) and cope with (adaptation) climate change. These funds can come from public, private, and other alternative sources.
- It aims to reduce greenhouse gas emissions and help regions and communities affected by climate change adapt.
- Mitigation: efforts to reduce greenhouse gas emissions.
- Adaptation: preparations to protect vulnerable regions and communities from the impacts of climate change.
Developing countries require these funds to balance their economic needs and climate action, while developed countries are expected to make a major contribution to climate finance as part of their historical responsibilities.
Developing countries need climate finance
Developing countries are highly vulnerable to climate change. Some of the major reasons for this are:
- Geographical factors: Many regions of developing countries are vulnerable to extreme weather events.
- Dependence on agriculture: The economy of these countries depends mainly on agriculture, which is most affected due to climate change.
- Limited resources: These countries lack adequate financial and technical resources to tackle climate change. For example, in 2021, 675 million people did not have access to electricity.
Copenhagen Agreement
- The Copenhagen Agreement was reached in 2009 at the 15th session of the UNFCCC, in which developed countries pledged to provide $100 billion in climate finance annually by 2020. But this goal has not been fully achieved yet. Some of the major issues related to this commitment are:
- Over-reporting: Many developed countries report commitments rather than actual money disbursement.
- Reclassification of aid: Existing development aid is rebranded as climate finance.
- Loans vs. grants: A large portion of reported climate finance is in the form of loans, increasing the debt burden on developing countries. For example, in 2022, 69.4% of climate finance was in the form of loans, while only 28% was given as grants.
India’s Climate Finance Requirements
- India is moving ahead with highly ambitious climate goals to tackle climate change and meet the Sustainable Development Goals. However, massive financial resources are required to achieve these goals.
India’s key climate goals include
- 500 gigawatts of non-fossil fuel capacity by 2030.
- 5 million metric tons of green hydrogen (GH2) production capacity per year.
- Large-scale penetration of electric vehicles (EVs) by 2030.
- To meet these ambitious targets, India needs a huge amount of financial investment.
Some of the key financial requirements are as follows
- Renewable energy projects: India will require Rs 16.8 lakh crore by 2030.
- Green Hydrogen Mission: An additional investment of Rs 8 lakh crore is expected for this.
- Electric vehicles: Consumers will have to spend Rs 16 lakh crore on EVs.
- Net-zero emissions target: From 2020 to 2070, India needs an investment of Rs 850 lakh crore to meet this target.
New Collective Quantified Goal (NCQG):
- The current climate finance target of $100 billion expires in 2025, and there is growing pressure for a new target, called the New Collective Quantified Goal (NCQG).
The NCQG should include
- Actual disbursements, not just commitments.
- New and additional funding on top of existing aid.
- Public capital in the form of direct grants.
- Private capital mobilized by public finance.
- The High-Level Expert Group at COP26 and COP27 determined that by 2030, developing countries (excluding China) will need about $1 trillion of external climate finance annually.