Monday, April 15, 2024

Navigating climate financing

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It has become increasingly clear that this year is set to become the warmest year on record. Copernicus Climate Change Service (C3S) implemented by the European Center recently confirmed that summer 2023 was the hottest on record, and by a “large margin. Further, the Emissions Gap Report by the UNEP states that 86 days so far have been recorded with temperatures exceeding 1.5°C above pre-industrial levels  – these temperature records were accompanied by devastating extreme events across the globe.
In this context, it is imperative to recognize that there is a need for change at a global scale, or else risk repeating the same narrative in the coming years – a recurring refrain, like a broken record. A recent report by the UNEP did, however, point out that the world is capable of change – which may be understood in terms of the progress observed.
Yet, change needs to take place faster – it must be accelerated by adequate financing measures to address the escalating demand for climate action. Channelling funds towards swiftly transitioning to renewable energy, enhancing energy efficiency across key sectors, building climate-resilient infrastructure, promoting climate-resilient agricultural practices, and exploring carbon capture technologies, while also supporting developing countries in their climate endeavours becomes paramount here.
Understanding the nature of responsibility in the context of climate financing
Climate finance needs are substantial. In a scenario like this, we must also assess how India, being one of the fastest-growing major economies projected to reach USD 5 trillion by 2027, has been advancing in mobilizing funding for climate adaptation and mitigation purposes.

Locating India and climate financing
India, at the 26th session of the UNFCCC (COP 26) in November 2021, announced its target to achieve net zero by 2070.While we have done well to continually state our targets, at the same time, it is crucial to develop a roadmap with agreed-upon milestones, particularly in the especially challenging domain of climate financing.
India is estimated to need around USD 1 trillion annually for climate investments by 2025, with this figure rising to around USD 2.4 trillion each year from 2026 to 2030. However, climate finance needs to increase by 590 percent to meet internationally agreed climate objectives by 2030.
Nevertheless, it is a fact that securing public funding of this magnitude could be challenging – particularly due to the need to direct limited public resources towards immediate social priorities and contingencies – this is where the private sector steps in.

Way forward
As per estimates by the World Bank, over the past decade, blended finance investments globally have experienced significant growth, representing an aggregated financing of over USD 160 billion in 2021, with annual capital flows averaging approximately USD 9 billion since 2015 .
In India too, the blended finance market is experiencing growth – it has emerged as a pivotal tool to incentivize private capital inflows and expedite development impact. Blended finance is, thus, expected to be an important instrument to catalyze the substantial investment needed by 2030  to fill the gap for climate financing in the country.
However, at the same time, it is crucial to mention that public finance is central to scaling up climate finance – its role in stimulating private investments at a reasonable cost, and in a timely and adequate manner remains of utmost importance.

(The author Shivi Singh is a Senior Research Associate at Ardent Co.)

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