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Topic : Climate Finance

GS-3 Mains  : Environment Conversation

Revision Notes

Climate finance is the lifeblood of tackling climate change, especially for developing countries facing the brunt of its consequences. Developed nations, acknowledging their historical responsibility for greenhouse gas emissions, have pledged to support developing countries through financial assistance.

Money Matters: The 2022 Climate Finance Landscape

• Reaching a Milestone: In 2022, developed countries finally delivered on their promise, mobilizing over $115.9 billion in climate finance for developing nations. This marks a significant increase from $38 billion in 2013.
• Breakdown of Funds: Public climate finance, consisting of both bilateral (direct country-to-country aid) and multilateral (through organizations like the World Bank) sources, forms the backbone of this support, accounting for nearly 80% of the total. Grants play a crucial role, with a larger share (64%) going towards lower-income countries to help them adapt and mitigate climate change.
• Focus on Mitigation: The majority of climate finance currently targets mitigation efforts, aiming to reduce greenhouse gas emissions and lessen the severity of climate change.

Why is Climate Finance Critical for Developing Countries?

• Financing the Fight: Developing countries often lack the financial resources needed to implement ambitious climate action plans outlined in their Nationally Determined Contributions (NDCs). These plans detail their commitments to reduce emissions and build resilience to climate impacts.
• The Dual Burden: Many low- and middle-income countries are already grappling with debt and various crises. Climate finance helps them invest in clean energy infrastructure, sustainable practices, and adaptation measures without jeopardizing their development goals.
• Adaptation Imperative: Developing countries are often more vulnerable to climate change impacts like extreme weather events, rising sea levels, and changing weather patterns. Climate finance helps them build seawalls, improve early warning systems, and develop climate-resilient crops.

Examples of Climate Finance Instruments:

• Grants: Provided by multilateral funds like the Green Climate Fund (GCF) to support developing country projects.
• Concessional Loans: Offered by financial institutions at lower interest rates to encourage climate-friendly investments.
• Sovereign Green Bonds: Issued by national governments to raise funds specifically for green projects.
• Carbon Trading and Carbon Taxes:Revenue generated through these mechanisms can be directed towards climate finance initiatives.

International Agreements:

• Kyoto Protocol & Paris Agreement: Developed nations to support developing nations financially.
• UNFCCC (1994): Requires high-income countries to provide climate finance.

The $100 Billion Goal:

• Developed nations pledged $100 billion annually by 2020 to developing countries (2009).
• Green Climate Fund (GCF) established in 2010 as a key delivery mechanism.
• Paris Agreement (2015) extended the target to 2025.

Need for a New Goal (NCQG):

• $100 billion deemed inadequate (developing country needs: $1-2.4 trillion annually by 2030).
• Goal not negotiated, but political.

India’s Stand:

• $1 trillion annually from developed countries for the next 10 years.
• Separate annual mobilization targets for each five-year period.

Challenges:

• Developed nations: Who contributes & aligning all financial flows.
• Stark differences in needs and priorities between developed & developing countries.
• Scrutinizing process for equity and justice.

The Road Ahead:

• Understand developing countries’ financial needs and resource mobilization methods.
• Balance between adaptation and mitigation efforts in resource provision.