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To achieve India’s climate commitments, the Union Budget 2024-25 had a climate finance taxonomy to make available capital for climate adaptation and mitigation.

The focus of the international community on fighting climate change has so far not reaped any result, considering none of the targets set by it has ever been met.

India introduced two chapters in the Economic Survey presented on July 22 to highlight the flaws and inequities in the system. India has also been vociferously suggesting alternative ways to reduce greenhouse gas emissions.

WHAT IS INDIA’S STAND?

India has clearly stated in the Economic Survey that developing countries need to be free to choose their pathways as they have to balance developmental goals with meaningful climate change.

Although India has raised these arguments previously at international forums, the survey took these views up and blamed the rich nations for the current climate mess.

The survey tabled by Finance Minister Nirmala Sitharaman in Parliament said the country’s per capita carbon emission is only about one-third of the global average despite being one of the fastest-growing economies in the world.

The survey stressed India’s net-zero goal of 2070 and climate financing noting that the country requires investment support of $1.4 trillion – an average of $28 billion per year – to become a net-zero economy.

India has committed to achieve about 50% cumulative electric power installed capacity from non-fossil fuel-based energy resources by 2030 as well.

The Economic Survey also highlighted the government’s support for voluntary environmental actions through the Green Credit Programme (GCP), which incentivizes individuals, communities, private sector industries, and companies to participate in environment-positive activities by offering green credit as a reward.

WHAT IS CLIMATE FINANCE?

Climate finance refers to financial resources and instruments that are used to support action on climate change. It is critical to address climate change because of the large-scale investments that are needed to transition to a low-carbon global economy and to help societies build resilience and adapt to the impacts of climate change.

Climate finance can be in the form of grants, donations, green bonds, equities, debt swaps, guarantees, and concessional loans. It can be used for mitigation, adaptation and resilience-building.

Governments and the private sector can also access market-based and concessional loans from financial institutions such as the World Bank, the African Development Bank, and the Inter-American Development Bank, among others.

Governments can also mobilise climate finance from carbon trading and carbon taxes.

WHAT IS THE CLIMATE FINANCE TAXONOMY INTRODUCED BY FM?

A climate finance taxonomy refers to a set of regulations and guidelines for companies and investors to make sustainable investments. It helps guide investors and banks in directing trillions toward impactful investments to tackle climate change.

The term taxonomy originally came from the field of biology. It is the scientific method of naming and classifying organisms, including plants, animals, and microorganisms.

According to the International Finance Corporation (IFC), a member of the World Bank Group, “diverse interpretations fragment markets and confuse investors. What seems ‘green’ in one country may appear ‘brown’ elsewhere, stalling environmental progress.”

WHY IS CLIMATE FINANCE TAXONOMY IMPORTANT?

Countries need to transition to a net-zero economy and strike a balance between the amount of greenhouse gas that is produced, and the amount that is removed from the atmosphere.

According to the UN Framework Convention on Climate Change’s (UNFCCC’s) first ‘Needs Determination Report’, financing of $5.8-5.9 trillion is required to implement developing countries’ climate action plans by 2030, and this does not fully include adaptation costs.

Climate financing could help a country like India to carry forward its action plan. At present, green finance flows in India account for 3% of total FDI inflows to India, according to the Landscape of Green Finance in India 2022 report, published by Climate Policy Initiative.

According to a report by the International Finance Corporation (IFC), India has a climate-smart investment potential of $3.1 trillion from 2018 to 2030. India’s electric vehicle segment has a potential for investment of $667 billion as it aims to electrify all its new vehicles by 2030. The renewable energy sector can also draw more funds, with a potential of $ 403.7 billion, the report added.