Climate change is a stark reality, with its impacts becoming increasingly evident. In 2024 alone, floods and landslides in the northeast have affected millions of people, while a severe heatwave in northern India has tragically led to fatalities. These extreme weather events pose significant risks to both the country and its economy.
The Reserve Bank of India highlighted in its 2022-23 Report on Currency and Finance that up to 4.5% of India’s GDP could be jeopardized by 2030 due to lost labour hours caused by extreme heat and humidity. India is making strides towards achieving net-zero emissions by 2070, yet this ambitious target will require substantial climate finance.
In a conversation with Nidhi Singal of Business Today, Vivek Sen, Acting India Director at the global non-profit Climate Policy Initiative (CPI), discusses pathways for India to secure climate finance, addressing challenges and identifying growth opportunities for a sustainable future. Edited excerpts.
In light of India's aim to achieve net-zero emissions by 2070, with interim targets set for 2030, what types of investments will be necessary for India to realize this objective?
Several estimates evaluate the investment needed to achieve net-zero emissions by 2070, ranging from $10.1 trillion to $15.1 trillion. Broadly on average, an investment of around $250 billion is needed annually to meet the mitigation and adaptation goal, so by 2030 around $1.5 trillion would be needed. Most of the investments required are to transform India’s energy-related sectors. Investments totalling $8 trillion would be required to significantly scale up generation from renewable energy and associated integration, distribution, and transmission infrastructure. An additional $1.5 trillion would have to be invested in the industrial sector to set up green hydrogen production capacity to advance the sector’s decarbonization. Transport sector investments would also be needed to decarbonize the transport sector requires around $1 trillion.
What strategies has India implemented thus far to attract climate finance, and which strategies have proven to be the most effective in garnering support?
India would need cumulative investments of $10.1 trillion to $15.1 trillion to achieve net-zero emissions by 2070. Saying that, India could face a significant investment shortfall hence, investment support, in the form of concessional finance, would be required from developed economies to mobilize foreign capital that bridges the gap. It’s important to note that these investments are not just costs, but opportunities for economic growth, job creation, and technological innovation. They will also contribute to global decarbonization efforts and shape how businesses and jobs of the future will look like. India has implemented several strategies to attract climate finance. Some of them are as follows:
• Private Finance and Climate Bonds: Private finance and climate bonds provide strategic avenues to state governments for mobilizing capital and infusing liquidity into the market.
• Harnessing Domestic Funds: Improving convergence across government schemes such as the MGNREGA can strengthen climate adaptation.
• Accessing Different Forms of Blended Finance: Enhancing state capacity for accessing different forms of blended finance is critical to achieving sustainable and climate-friendly growth targets.
• Green Growth Priority: The Green Growth priority, outlined in the Budget 2023, needs a champion. Given the significant investment requirement, the Ministry of Finance (MoF) is best placed to lead.
• Mechanisms for Climate-Vulnerable States: Putting in place mechanisms such as time-bound, climate-incentivized borrowing ceilings tailored to state-specific vulnerabilities, to facilitate increased access to finance for climate-vulnerable states.
• Robust Green Finance Data Infrastructure: Developing robust green finance data infrastructure to inform investment decisions and enhance transparency.
• Private Investment in Adaptation: Private investment in adaptation is crucial, and most reports that track private climate finance’s flow indicate that the investments are heavily skewed towards the renewable energy sector.
These strategies aim to attract private capital and offer policy recommendations to create a conducive environment for private players. It’s important to note that these strategies are part of India’s commitment to prioritize climate action, adaptation, and mitigation.
What are the primary obstacles hindering India's efforts to mobilise climate finance, and what measures can be taken to overcome these challenges?
India’s efforts to mobilize climate finance face several challenges.
The lack of clarity on the framework to ensure the successful implementation of climate action measures and commitments is a major concern. This is particularly true for developing countries like India which are more vulnerable to climate change. For example, the green finance Taxonomy is still a work in progress and once it is out – a lot of clarity will emerge on investments that could be categorized as green and sustainable.
There is a gap between the availability of viable climate solutions and the slow pace of their adoption. There is a need for collaborative efforts among various financial stakeholders to devise innovative financial mechanisms. In addition, state finances have been stressed by factors including the economic slowdown in 2019-20 and the COVID-19 pandemic, constraining their ability to invest in climate adaptation. There is also dearth of efficient project evaluation frameworks or ESG criteria to assess sustainability projects is a big challenge in mobilizing finance for green projects.
The Loss and Damage Fund (LDF), launched at COP28, received only around $700 million in funding commitments against the estimated requirement of about $150 billion per year. There is no clear indication of the specific quantity or target and the source of the funds to be generated for LDF.
Addressing these challenges requires policy interventions, regulatory prescriptions, and market and institutional mechanisms.
From which sources and through what means can India access funds to address climate change-related initiatives?
India can access funds to address climate change-related initiatives, which can be categorized into Domestic Sources and International Sources. India’s climate actions have so far been largely financed from domestic sources, including government budgetary support as well as a mix of market mechanisms, fiscal instruments, and policy interventions. For meeting the climate goals, however, International Climate Funds are critical as they help in reducing the cost of capital of climate-aligned investments. In the past, the Ministry of Environment and Forests has led the selection and oversight of projects, while the Ministry of Finance has been the nodal department for receiving financial assistance from multilateral and bilateral funds. These sources provide a mix of grants, loans, and technical assistance, and are often used in combination with each other to finance climate change-related initiatives. Institutional arrangements like those at the Green Climate Fund (GCF) and Climate Investment Funds (CIF) would help but are not enough.
What policy adjustments can the Indian government implement to cultivate a more appealing environment for international climate investors?
India has developed a strong policy response through missions and programs to reduce its climate vulnerability. The National Action Plan on Climate Change (NAPCC) was the start. It is a national strategy of 8 sub-missions to help adapt and magnify ecological sustainability in India’s development path.
The specific interventions like National Solar Mission (NSM), National Mission for Enhanced Energy Efficiency (NMEEE), National Mission on Sustainable Habitat (NMSH), National Water Mission (NWM), National Mission for Sustaining the Himalayan Ecosystem (NMSHE), National Mission on Strategic Knowledge for Climate Change (NMSKCC), National Mission for a Green India (GIM), and National Mission for Sustainable Agriculture (NMSA). Similarly, India’s financial ecosystem has responded to climate change in several ways; like RBI joining NGFS, SEBI releasing the BRSR framework, etc. The latest is the draft guidelines issued by RBI on the Disclosure framework on climate-related financial risks which mandate disclosure by regulated entities on four key areas of governance, strategy, risk management, and metrics and targets.
These responses indicate that India’s overall and India’s financial ecosystem is actively engaged in addressing climate change and is taking steps to transition towards a green economy. However, the challenge remains to mobilize the required resources and ensure their effective allocation to achieve the country’s climate goals.