On the challenges of mobilising Climate Finance – On Stocktaking climate finance

Source: This post on the challenges of mobilising climate finance has been created based on the article “Stocktaking climate finance — a case of circles in red ink” published in The Hindu on 1^st November 2023.

UPSC Syllabus Topic: GS Paper 3 Environment – Conservation, environmental pollution and degradation.

News: This article discusses the challenges associated with mobilising climate finance. It also highlights in brief the purpose and amount of climate finance required.

A detailed article on Climate Finance can be read here.

What is Clie finance?

According to the UNFCCC, Climate finance refers to “local, national or transnational financing, drawn from public, private and alternative sources of financing, that seeks to support mitigation and adaptation actions that will address climate change“.

In simpler words, climate finance relates to the money which needs to be spent on the activities (like renewable energy generation) which will contribute to slowing down climate change and help the world to reach the target of limiting global warming to an increase of 1.5°C above pre-industrial levels.

Under the Paris Agreement, developed countries have to meet the goal of a mobilisation of $100 billion climate finance per year to fund the climate change adaptation and mitigation efforts of the developing world.

However, at the 26th United Nations Climate Change conference in 2021, the developed countries could mobilise only a total of ~$80 billion.

What are the issues related to mobilising climate finance?

1) Inadequate amount: The sum of $100bn per year is inadequate in terms of switching over to a low carbon development path and climate resilient development.

2) Lack of strong political will and sense of urgency in the Global North.

3) Lack of a clear criteria: Without any mandatory formula for collecting money, it is difficult to predict how climate finance will be mobilised. Neither the UNFCCC nor the Paris Agreement mention the criterion for mobilisation.

4) Lack of agreement on division of financial burden: There is no agreed approach among developed countries to share the burden of this goal.

What is the legal backing of climate finance?

Providing finance to developing countries is the operationalisation of the principle of Common but Differentiated Responsibilities.

The developed countries are required, in accordance with the decision accompanying the Paris Agreement, to collectively mobilise $100 billion through 2025.

After this, a New Collective Quantified Goal (NCQG) is to be set at the end of 2024. Read more about NCQG here.

What are the institutional mechanisms for climate financing?

1) Global Environment Facility (GEF): UNFCCC-designated funding agency providing grant and concessional loan to developing countries.

2) Green Climate Fund (GCF): It is also within the ambit of UNFCCC. It administers a portion of the $100 billion for developing country parties to switch over to low-emissions and climate resilient development path.

What is the quantum of climate finance needed?

1) Global South: Going by the needs of countries in the Global South expressed in their NDCs, the amount required touches close to $6 trillion until 2030.

2) India: Its financial needs derived from its NDCs for adaptation and mitigation purposes for 2015-30 are $206 billion and $834 billion, respectively.

Why is climate financing required?

1) Most of the financial needs are required in transitioning towards low-carbon, cleaner energy systems from traditional systems.

2) Alternate livelihood for people involved in the fossil fuel economy through direct or indirect jobs related to the coal mining and power sector.

Question for practice:

“Climate finance can be a potent tool to mitigate and adapt to effects of climate change and ensure climate justice”. Discuss. Also highlight the challenges associated with mobilising climate finance.