Funding the energy transition: India’s G20 presidency must follow lessons from COP27

Source– The post is based on the article “Funding the energy transition: India’s G20 presidency must follow lessons from COP27” published in The Indian Express on 17th December 2022.

Syllabus: GS3- Environment

Relevance– Issues related to climate change

News– The article explains the issue for funding needed to tackle climate change. It also explains the scope of private capital for climate financing

What is the difference of approach among countries on climate actions?

There remains a rift between developing and developed countries. It is on account of asymmetries between the contribution and the financial responsibility assumed for climate change.

It is estimated that 92% of excess historical emissions are attributable to developed countries. Yet the economic impact of climate change is disproportionately borne by vulnerable developing countries. The 58 vulnerable countries account for 5% of global emissions while the costs incurred are significant.

What are the issues related to climate financing?

UNEP estimates that efforts on climate adaptation would require $160-340 billion by 2030. But, current financial flows are inadequate. Developing countries are  receiving only a third of what is required.

COP27 underscored the need to accelerate finance. In its draft decision, the UN highlighted that it will require a transformation of the financial systems, structures and processes. The recognition is not novel and is self-evident from estimated gaps in finance. The 2009 commitment of $100 billion in transfers remains unmet.

There exist funding mechanisms like Green Climate Fund meant to support adaptation and mitigation. But, there is wide discontent with the pace and extent of access to such facilities. The institutional architecture of multilateral funds has been demonstrably slow to deliver. There is the visible reluctance to contribute among the big economies.

What is the scope of private capital to finance climate actions? As the public finances are not adequate to fight climate change, private capital will be needed. But for private capital flows, a proper regulatory response is needed by the countries.

Even as private capital shifts to the green sectors on account of regulatory action, its accessibility for countries will depend on financial expectations.

We are watching climate actions connected with tax policy. This is evident from the revival of the Financial Transaction Tax in the EU. A general overhaul of tax architecture is inevitable.

What should be the course of action on climate change for India as it assumes the G20 presidency?

Then there have been repeated questions as to why India chooses to use the term “phase down” and its slow response. The question of phasing down coal will be asked repeatedly. The learnings from COP27 must inform the G-20 presidency.

It is also important to remain conscious that dramatic shifts in policy are pursued domestically and not all change is pursued by consensus.

There needs to be better guidance on the pathway to net zero.

The principle of common but differentiated responsibility should not be traded for the promise of finance.