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Under the United Nations Framework Convention on Climate Change (UNFCCC), first world countries based on their historic responsibility of maximum contribution to global warming, have agreed to contribute financially in order to enable vulnerable developing and least developed countries to combat the effects of climate change. Although the term climate finance has gained currency post theCopenhagen climate talks in 2009, and was further brought to the forefront when the Paris Agreement was signed, the concept was present in the UNFCCC system from its very inception. The Global Environment Facility (GEF) was established by the UNFCCC member countries in 1992 as a financial mechanism for undertaking projects and activities in developing countries. Several others mechanisms and Funds were subsequently created. These include the Clean Development Mechanism and Joint Implementation mechanism under the Kyoto Protocol and funds such as the Special Climate Change Fund and Adaptation Fund. A specialised Green Climate Fund (GCF) was also set up in 2010.

The significance of climate finance is also reflected from Article 9 of the Paris Agreement which specifically highlights existing climate finance obligations along with mobilization, scaling up, and improved reporting of climate finance.

Climate finance is also central to India’s efforts to combat climate change. The economic survey of India estimates that more than USD 38 billion are needed to fund the implementation of the National Action Plan on Climate Change (NAPCC), a plan created by the government in 2008.  Under the Plan, eight core missions have been identified, which includenational missions on solar energy, enhanced energy efficiency, and sustainable agriculture and habitats. Different ministries are entrusted with different missions. In its INDCs under the Paris Agreement, India has submitted that it requires an estimated USD 2.5 trillion by 2030 from international sources to meet its targets

While there are significant finance flows for combating climate change, it is pertinent to note that the financial landscape in India is highly fragmented. Climate finance involves multiple actors ranging from Ministries, banks, international organisations and fund implementing agencies to NGOs and grass-roots level workers. Finance goes towards measures as simple as supplying clean cooking fuel to complex projects such as watershed management.

Broadly speaking, there are two sources of climate finance – domestic and international. These may be public or private in nature. Domestically, one of the largest contributions to climate finance comes from traditional sources of public finance such as taxes and subsidies. Though there is no clearly demarcated finance for combating climate change, budgetary allocation is made to different ministries such as agriculture, water, renewable energy, and environment.

Additionally, climate finance is also derived from the following dedicated sources:

Coal Cess

The National Clean Energy Fund (NCEF), renamed recently as the National Clean Energy and Environment Fund (NCEEF), was created in 2010. It initially imposed a cess of Rs.50 per tonne of coal and gradually raised it to Rs.400 per tonne. Over the years, it has collected an amount of more than Rs.50,000 crore. However reports indicate that the fund was never fully utilised for its original purpose of ‘funding research and innovative projects in clean energy technologies’. Till date only 16% of the cess collected has gone towards green projects. In July 2017, after imposition of the new Goods and Services Tax, a significant portion of the NCEEF went towards GST Compensation Fund to help state governments overcome revenue losses suffered during implementation of GST.

Government Backed Market based mechanisms

Under the Electricity Act, 2003, each state in India is under obligation to purchase certain percentage of power generated from renewable energy resources. In case of a failure to do so, a Renewable Energy Certificate (REC) mechanism is in place to enable electricity distribution companies to comply with the renewable purchase obligation. However, this scheme too has not been very successful because states are often unable to afford these RECs due to poor financial conditions.

Similar to the REC is the Perform, Achieve, and Trade Scheme (PAT) that has been created under the National Mission for Enhanced Energy Efficiency. It is meant to serve as an energy saving scheme in energy-intensive sectors such as aluminium, cement, fertilizer, iron, steel, and thermal power plants. Legally mandated emissions reduction targets are imposed on the facilities covered under the scheme. Those facilities which exceed their emissions reduction obligation receive Energy Saving Certificates(ESCerts) which are tradeable with facilities which fail to meet their targets.

Private finance mechanisms include the finance flows from the Clean Development Mechanism (CDM) under the Kyoto protocol of the UNFCCC. Under the CDM, which came into force in 2005, countries which have committed to emissions reduction – developed countries mainly responsible for global warming – must implement an emission-reduction project in developing countries. Each such project earns saleable certified emission reduction (CER) credits, one CER being equal to one tonne of CO2. Pertinently, after China, India is the second largest recipient of CDM projects.

Commercial loans are available from private and public banks and Non-Banking Financial Companies for renewable energy and low carbon infrastructure. The Government has also introduced mechanisms such as the Partial Risk Guarantee Facility, that provides commercial banks with partial coverage of risk exposure against loans issued for energy efficiency projects, andVenture Capital Fund for Energy Efficiencywhich offers equity capital for energy efficiency projects that mitigate emissions.

Funds are granted by several entities under the United Nations, especially those associated with the UNFCCC and UNEP. Other organisations such as the World Bank and ADB also give regular grants. Aid is also given by developmental organisations from the developed world.

In spite of all these sources, there is no clear picture of the exact amount received and spent on climate finance. This is largely due the fact that there is no climate responsive budgeting and proper coordination between bodies working on climate across sectors. In order to maximise the utilisation of available climate finance and prepare to receive more of the same, it is imperative to have a single window system which will enable efficient coordination between stakeholders. There is also the need for clear reporting of exact amount of climate finance received and distinguished from other forms of development aid.

Existing climate finance solutions are clearly insufficient for India to meet its obligations on emissions reductions and implement adaptation plans. The global track record on climate finance is neither in line with the requirements of meeting the Paris Agreement goal of keeping temperature rise within 2 degrees above pre industrial levels nor is it consistent. The pledge by the global north at the 2009 Copenhagen talks to mobilise USD 100 billion worth of climate finance annually has failed to fully materialise. Furthermore, in recent years close to 75% of funds by developed countries has been invested domestically. The US pulling out of the Paris Agreement will also have a negative effect on the GCF. Additionally, since much of the global north is faced with precarious economic conditions, there is a volatile and unpredictable international funding scenario. For successful implementation of the Paris Agreement, however, the world must ensure an uninterrupted flow of finance to help the developing world mitigate and adapt to climate change.

Zeenat Masoodi is a lawyer living in Srinagar. Email: zeenatmasoodi@gmail.com

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