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CLIMATE FINANCE INITIATIVES

22nd October, 2024

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Context: 

The 29th Conference of the Parties (COP29) of the United Nations Framework Convention on Climate Change (UNFCCC) has key climate finance issues at the top of its agenda.

What is Climate Finance?

Climate finance is a regional, national or transnational financing made from public, private and any other alternative sources of financing to support mitigation and adaptation actions to address climate change. 

Evolution of Climate Financing

1992: UNFCCC Established

  • The origin of climate finance dates back to 1992 when the United Nations Framework Convention on Climate Change (UNFCCC) was established.

1997: Kyoto Protocol

  • The protocol introduced the Clean Development Mechanism (CDM) which allowed the developed countries to invest in emission reduction projects in developing nations for carbon credits.

2007: Bali Action Plan

  • This action plan shifted focus to long-term financing for mitigation and adaptation and called for a fund to mobilize $100 billion annually by 2020.
  • It also established the Adaptation Fund for adaptation financing.

2009: Copenhagen Accord

  • Though not a legally binding accord, it recognized the importance of climate finance and here the developed countries pledged to provide $30 billion from 2010-2012.

2010: Green Climate Fund (GCF) Established

  • It became the primary funding mechanism under UNFCCC.
  • It aimed to support developing countries to mitigate emissions and adapt to climate impacts.

2015: Paris Agreement

  • It solidified global commitment to combat climate change and reaffirmed the developed countries' pledge of $100 billion annually by 2020.

2019: GCF Initial Resource Mobilization

  • By 2019 the developed countries successfully mobilised $9.8 billion in pledges and it marked the progress towards the $100 billion target.

2021: Glasgow Climate Pact (COP26)

  • It aimed to limit global warming to 1.5 degrees Celsius and reaffirmed the commitment to $100 billion annually.
  • The pact called for the need for sourcing additional climate finance from all sources, including the private sector.
  • It also called for accessible, predictable, and sustainable climate finance.
  • It also recognised the need to strengthen capacity in developing countries to manage climate finance.
  • It proposed the establishment of a Loss and Damage fund for countries which face irreversible climate impacts such as small Island Ocean Countries.

Major Climate Finance Funds in the World

Green Climate Fund (GCF)

It was the first such climate fund established in 2010 under the UNFCCC.

It is the largest dedicated climate finance fund that supports low-emission and climate-resilient projects in developing countries.

To obtain the financing under it the project proposals must be submitted through accredited entities.

Accredited Entities are organizations which partner with the Green Climate Fund to implement GCF-financed projects. 

AEs can be private, public, non-governmental, sub-national, national, or regional. They work with countries to develop project ideas, submit funding proposals, and manage and monitor projects

Example: GCF approved a $300 million project in Bangladesh for coastal climate resilience in 2019.

Adaptation Fund (AF)

It was established in 2001 under the United Nations Framework Convention on Climate Change (UNFCCC).

It finances adaptation projects in vulnerable developing countries.

It is governed by the Adaptation Fund Board and allows direct access for countries like Least Developed Countries (LDCs).

Water management in Ethiopia and early warning systems for cyclones in Madagascar are notable projects.

Climate Investment Funds (CIF)

They were established in 2008 to finance pilot projects in developing countries.

It provides financing for renewable energy, energy efficiency, and climate resilience.

It has invested in solar power projects in India in Gujarat and energy efficiency improvements in Kenya's agriculture.

It includes the Clean Technology Fund (CTF) and the Strategic Climate Fund (SCF).

Clean Technology Fund (CTF)

It supports financial resources to invest in clean technology projects in developing countries.

The CTF focuses on low-carbon technologies with the potential to reduce greenhouse gas emissions, such as renewable energy, energy efficiency, and clean transport.

Strategic Climate Fund (SCF)

It provides dedicated funding to new pilot projects to address climate change challenges.

It supports seven targeted programs that include the Forest Investment Program, Pilot Program for Climate Resilience, and Scaling Up Renewable Energy Program in Low-Income Countries

Global Environment Facility (GEF)

It was established before the 1992 Rio Earth Summit and includes 184 countries and international institutions, civil society organisations, and the private sector.

It offers grants and concessional financing through programs like the Special Climate Change Fund and the Least Developed Countries Fund.

Loss and Damage Fund (LDF)

The fund was established at the 2022 UNFCCC Conference (COP27) held in Egypt.

It is newly established under the UNFCCC to support countries facing irreversible and unavoidable climate impacts.

It is overseen by a Governing Board and the World Bank serves as the interim trustee for four years.

India’s Initiatives Regarding Climate Finance

The National Adaptation Fund for Climate Change (NAFCC): 

It was created in 2015 to cover the costs of climate change adaptation for India's Union Territories and States that are most at risk from its negative consequences.

The National Clean Energy Fund: 

It was established to support clean energy and was initially financed by a carbon tax on the industry's use of coal.

The Finance Secretary serves as the chairman of an Inter-Ministerial Group that oversees it.

Its mission is to finance the development of new clean energy technologies in both the fossil fuel and non-fossil fuel industries.

National Adaptation Fund:

It was established in 2014 with a corpus of Rs. 100 crores to bridge the gap between the need and the availability of climate funds.

The fund operates under the Ministry of Environment, Forests, and Climate Change (MoEF&CC).

Important articles for reference

Green credit and Carbon credit

Evolution and Essentials of climate policy

Climate finance 

Climate Finance Action Fund

Sources:

HINDU

UNFCCC

IIHS

PRACTICE QUESTION

Q.Consider the following statements about Climate Investment Funds (CIF): 

  1. It provides financing for renewable energy, energy efficiency, and climate resilience in developing countries.
  2. Fund includes the Clean Technology Fund (CTF) which supports financial resources to invest in clean technology projects in developing countries. 
  3. The World Bank is the Trustee of the CIFs.

Which of the above  statements are incorrect? 

A)1 and 2 only

B)2 and 3 only

C)1, 2 and 3 only

D)None

Ans: D

Explanation:

Statement 1 is correct:

Climate Investment Funds (CIF) were established in 2008 to finance pilot projects in developing countries.

It provides financing for renewable energy, energy efficiency, and climate resilience.

It has invested in solar power projects in India in Gujarat and energy efficiency improvements in Kenya's agriculture.

Statement 2 is correct:

Fund includes the Clean Technology Fund (CTF) and the Strategic Climate Fund (SCF).

Clean Technology Fund (CTF)

It supports financial resources to invest in clean technology projects in developing countries. The CTF focuses on low-carbon technologies with the potential to reduce greenhouse gas emissions, such as renewable energy, energy efficiency, and clean transport. 

Strategic Climate Fund (SCF)

It provides dedicated funding to new pilot projects to address climate change challenges. It supports seven targeted programs that include the Forest Investment Program, Pilot Program for Climate Resilience, and Scaling Up Renewable Energy Program in Low-Income Countries.

Statement 3 is correct:

The World Bank is the Trustee of the CIFs, which works with most major multilateral development banks.

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