Raising money for green transitions

Published
12th Nov, 2022

Context

In the ongoing discussions at COP 27 summit in Egypt, there aroused an issue regarding the financing of transition to renewables as Multilateral development banks have a weak governance structure to fund the Climate change-related needs of lower income Countries.

What are multilateral development banks?

A multilateral development bank (MDB) is an international financial institution chartered by two or more countries for the purpose of encouraging economic development in poorer nations.
Multilateral development banks consist of member nations from developed and developing countries. MDBs provide loans and grants to member nations to fund projects that support social and economic development.

Funding Mechanism for Climate Change:

Government and Intergovernmental organizations such as the UN- are among the most significant funders of Climate change actions.
Green Climate fund: It was created by UNFCCC which aims to support a paradigm shift in the global response to climate change. It allocates its resources to low-emission and climate-resilient projects and programs in developing countries.
Climate change fund: It is an initiative of NABARD to foster sustainable development. NABARD contributes annually from its profit towards the corpus of the fund.

Why India ‘urgently’ needs green finance?

To meet its Panchamrit targets.
To stop turning into an inhabitable country: Many parts of the country will likely turn inhabitable due to extreme heat, with wet-bulb temperatures breaching 32°C.
To minimize the impacts:
- Climate change will lead to 40% of India's population facing water scarcity by 2050, while megacities like Mumbai and Chennai will be affected by rising sea levels.
- Floods will become frequent in the Ganges and Brahmaputra basins, and crop production will also be impacted.
- As per International Labour Organization (ILO) by 2030, 34 million full-time jobs will be lost, especially in the farming community due to climate change.

India’s Panchamrita Points

India approved the updated Nationally Determined Contributions (NDCs) incorporating PM Modi’s ‘Panchamrit’ strategy announced at the Glasgow conference into enhanced climate targets:

India will get its non-fossil energy capacity to 500 gigawatts (GW) by 2030
India will meet 50 percent of its energy requirements from renewable energy by 2030
India will reduce the total projected carbon emissions by one billion tonnes from now onwards till 2030
By 2030, India will reduce the carbon intensity of its economy by less than 45 percent
So, by the year 2070, India will achieve the target of Net Zero

* In the 2022 Budget, the government initiated steps like green bonds and aid for climate-friendly projects.

Hurdles/Challenges

Greenwashing: One of the hurdles in the green financing boom is greenwashing (misleading information)
Lack of capital: Access to capital is a challenge, and social safeguards are relatively weak.
Weak public sector: Pumping out of funds from other sectors can leave the ‘public sector and ‘countries with weaker resources’.
Governance issue of global fora: International finance institutions such as the MDBs continue to have inflexible governance structures (voice and vote, leadership selection, etc.) and this undermines the legitimacy of these institutions in the eyes of the emerging market countries.

Way forward:

Funds must get available for developing countries to get started with their nationally determined Contributions (NDCs).
Other financing Institutions and Developed counties must also support the stance of other developing countries to promote renewable infrastructure.