Financing the carbon emission reduction efforts in India

Since mid-2000s, India has been implementing Nationally Determined Contributions (NDCs) to conservative efforts. India has certain targets and ambitions towards low carbon emissions growth, and the country's traditional values combined with the future economic implications have geared up a massive subcontinent into action.

It's a long, arduous journey which was/is never going to be without challenges, mostly political and economical in nature. However, as a starting point, India did identify the financial input needed from within and from external sources over the course of ~15 years.

Arguably the best way to sustainably finance the conservative projects has already been created. The Kyoto Protocol established a system of trading of carbon credits, in an attempt to incentivise companies and countries to reduce greenhouse gas emissions by giving credits for each conservative effort, which they can trade in the carbon credit market. This was developed under the CDM (Clean Development Mechanism). Since India is a developing country, it didn't have set emission reduction targets as industrialized nations did, although the voluntary contributions meant to encourage smooth and fair entry into the carbon trade market meant India was still able to rack up a significant amount of emission reduction certificates (CERs). Further, by earning millions from these CERs through trade, India can effectively reinvest this sum back into emission reduction efforts, thus creating an overall robust strategy for GHG reduction.

10 years into the journey, India harvested most of the low-hanging fruits by optimally deploying its domestic resources, and achieved a reduction in emission intensity of GDP by 21% (2005-2014).

At least a part of the world is rooting for this strategy to work. Even though it might have much recently been almost stopped in its tracks, the initial idea and implementation had been successful (from a country's perspective).

There definitely has been a lot of experience gained from the shortfalls of internal strategy of financing & self-sufficiency with respect to the carbon credit system. This is further compounded by the economic stress of costly piled up projects which were commenced enthusiastically but eventually faced bureaucratic/financial bottlenecks. An ultimate major realization was that there needs to be external financial support from international sources such as World Bank and UN to curtail frequent bottlenecks in long-term emission reduction projects.

An often overlooked yet important consideration is that transitioning into a low-carbon ecosystem is cost intensive even for developed nations. The poorer sections of the population are the worst affected, with a significant cost arising from integrating climate imperatives into developmental sectors.

External financial requirements can be even more complex, requiring disbursement of large sum of funds regularly and taking bureaucracy to the international level. The mechanism behind several of the funds created for supporting and kick-starting emission reduction efforts in developing nations has been on the back of contributions from developed nations, who pledge money in order to replenish these funds. This system inevitably gets hampered by political disturbances and differences in ideologies.

For instance, during the sixth cycle of Global Environment Facility (GEF), which is one of the operating entities for financial mechanism of the United Nations Convention for Climate Change (UNFCCC), India received an indicative allocation of US$ 87.9 million, although only US$ 59.1 million was approved. Due to the difference between the pledges and the actual contribution to the GEF Trust Fund during this cycle, the indicative allocations for the next cycle for the member countries was reduced. In other words, the financial pledges made by the developed nations during the replenishment process is not being fulfilled. In the 7th cycle of GEF (2018-2022), India's indicative allocation has reduced by almost 50% to US$ 47.2 million.

Even though GEF is one of several entities working to support developing nations, comparing these figures already plagued by hurdles to the actual cost of mitigation, adaptation and integration of processes and projects gives a stark perspective on how far behind we could really be, financially.

Estimates by the government in 2014 indicated that the mitigation activities for moderate low carbon development would cost around US$ 834 billion till 2030. An Asian Development Bank (ADB) study, while assessing the cost of climate change adaptation in South Asia, indicates that approximate adaptation cost for India in the energy sector alone would roughly be about US$ 7.7 billion in the 2030s. International Finance Corporation (IFC) estimates a US$ 3.1 trillion climate investment for India in key sectors between 2018 and 2030, to fully meet its NDCs.

Being a large developing country with several key industrial sectors requiring natural resource boost to flourish amid high GDP growth expectations, India faces a unique challenge to finance and become self-sufficient in this journey to seamlessly switch over to renewable resources. It does seem like the odds may be stacked up against countries like India, though, and it remains to be seen whether there is an emergence of creative financial solutions, both at the national and international level.

Source: UNFCCC