Raising money for green transitions

Source– The post is based on the article “Raising money for green transitions” published in The Indian Express on 12th November 2022.

Syllabus: GS3- Environmental degradation

Relevance: Climate change related issues

News- The article explains the issue of finance for green transition.

What are the challenges associated with green transition?

Besides technical and economic challenges, it has a human dimension also.

Workers that are currently engaged in the non-renewable energy sector may face livelihood related issues.

There can be political opposition to the shutting down of industry. The opposition could also come from trade unions and other local bodies. This can be counter-productive because the transition can appear insensitive at worst.

What are issues related to climate finance?

Shifting to renewables requires planning and resources. Emerging countries face challenges related to access to capital.

Not only the source and scale of finance, but the channel of this finance is also important to consider. Take the case of South Africa where the mechanics of finance have some interesting lessons. At COP26 in Glasgow, five developed countries agreed to channel $8.5 billion to South Africa. But very little of this materialised. With more time, it has become clear that almost all of this finance is loans.

Several multilateral development banks are also supporting projects for just transitions. But the limitations of these MDBs remain. They continue to have inflexible governance structures in terms of voice and vote, leadership selection. This undermines the legitimacy of these institutions in the eyes of the emerging market countries.

The GCF was established to address some of the prevalent challenges of climate finance. But it has its own challenges. It is slow and hard to access. It appears less able to engage directly with countries; in fact some of us are arguing that the GCF should have more strategic clarity rather than try to do it all.

What is the way forward for green transition? There is a need for “just transitions”. The negative impacts on workers and communities should be reduced, and the benefits should be fairly distributed.

There is a need to strengthen GCF. It is the only institution which combines a very large scale with legitimacy and ownership. It could reduce dependence on the policies and concessionality imposed by MDBs, and avoid fragmentation of finance.