Money to fight climate change: Are taxes the answer?

Source: The post is based on the article “Money to fight climate change: Are taxes the answer?” published in The Indian Express on 30^th November 2022.

Syllabus: GS 3 – Environment

Relevance: problems with climate finance

News: The money that is currently being invested in climate projects is only one to ten percent of the estimated requirements.  Therefore, there is a need to mobilize the required financial resources to tackle climate change.

What is the estimated amount of money required to tackle climate change and what is the current scenario?

It is estimated that the global transition to a low-carbon economy would likely require about $ 4-6 trillion every year till 2050. TO achieve net zero targets, $ 4 trillion investment is required in renewable energy till 2030.

Further, the total requirements of the developing countries for implementing climate actions were about $ 6 trillion between 2022 and 2030.

Investing such a huge amount means at least five percent of the global GDP would need to be directed into climate action every year. This amount was just 1 and 1.5 percent of global GDP a few years back.

Developed countries agreed to mobilise $100 billion every year from 2023 but as of now they are able to moblise $ 50-80 billion every year. Therefore, the current requirements are higher than the money being made available.

What are the problems with climate finance?

Availability: The availability of finance can be increased if businesses and corporations start investing money into green projects. Their investments are only 30 percent of current climate finance.

Businesses and corporations do not invest unless they are sure of good returns. Therefore, there is a need for international financial institutions to engage with stakeholders to create the right environment for investments in green projects.

Accessibility: The current rules and regulations of the global financial system make it extremely difficult for many countries to access international finance. Therefore, there is a need to make finance accessible to these countries.

Transparency: Climate finance flows through a network of channels – bilateral, regional, multilateral in different forms such as grants, concessionary loans, debt, etc. This creates confusion over the actual amount of money being spent on climate. This needs to be addressed by bringing transparency.

What are the ways to bring more money for green projects in India?

One of the ways to bring money other than from the developed countries is to impose various types of carbon taxes on the citizens. The use of petrol and diesel, and other fossil fuels needs to be taxed.

Government has already imposed taxes on the production of coals which brings money for investments in the clean technologies but there is a need to share the burden on citizens, businesses and come up with different sources of money.