Last month, 2021 United Nations Climate Change Conference (COP26) President Alok Sharma assured that one of his key goals is to ensure that developed economies make good on their promise to mobilise at least $100 billion (₹7.3 lakh crore) in climate finance a year. Obviously, he was responding to India’s stance that the developed world must act to deliver on this piece of the Paris Agreement if they expect others to raise their ambition for stronger mitigation actions. Sharma’s statement points to the possibility that scaled-up global finance for climate may be used to strike a deal for enhancement of nationally determined contributions (NDCs) targets at COP26 in Glasgow in November.COP26 obliges 24 industrialised countries to mobilise $100 billion (₹7.3 lakh crore) a year and provide it through bilateral and multilateral channels to developing economies to support their actions. By all accounts, it appears that the Britain’s presidency has no intention to tinker with the differentiation among the donor and recipient countries. But the effort has been to draw discussions away from government sources of finance and focus instead on partnerships among governments, global financial institutions and institutional investors to mobilise private and non-government finance into greener channels.India is not a significant beneficiary of international climate finance. But its needs are substantial. Projections show that the cumulative costs of meeting current NDCs from 2017 till 2030 could be around $7,057 billion (₹515.2 lakh crore), and the gap in financing NDCs from all sources put together could be in the range of $1,140 billion (₹83.2 lakh crore) by 2030.Given this estimate, stronger domestic targets for emissions intensity reduction would entail still higher volumes of finance. Currently, more than 70% of available green flows in India come from domestic sources. However, the scale of mobilisation required is so large that domestic finance alone may not be adequate.India needs finance not only for enhancing energy efficiency in production and consumption, but also to lower the carbon intensity of products to be ahead of the sustainability curve. This requires huge investments in new technologies such as higher electrification across sectors, innovation in low- or zero-carbon fuels, and application of carbon capture and use technologies. Augmenting the sources and enhancing access to financial resources for such actions are, therefore, critical to achieving the NDCs.There are three important barriers. One, the cost of capital in India is significantly higher than in the international markets, making green investments costlier. Two, the industry is reluctant to adopt green technologies because of higher initial capital cost and uncertainties associated with its impact on operational and competitive efficiency. Three, the domestic finance for mitigation is primarily focused on energy efficiency and renewables where the returns are predictable, leaving the needs of other sectors unattended.To attract adequate climate finance, government and industry need to work together on a set of measures that would help them overcome these barriers. For attracting large-scale and long-term finance into sustainable projects, for starters, there should be a definition or taxonomy of activities and investments deemed ‘sustainable’. Precise and consistent classification of ‘green’ and ‘sustainable’ activities could introduce predictability and instil investor confidence. This could potentially unlock a market for green bonds and reduce the dependence of project developers on commercial banks.The next measure could focus on enhancing data disclosure by industry and businesses in terms of green operations. Sebi is currently working on a revised sustainability reporting framework for businesses. A similar standardised disclosure framework for industry may help it raise finance more easily from domestic or international sources. Gradually, this could be woven into the regulations to reduce additional financial or reputational risk for industry. Internationally, the Task Force on Climate Disclosures (TFCD) set up by the Financial Stability Board (FSB) has already started work on this.Finally, a set of financial instruments must be created, through which industry and businesses may be incentivised or assisted to access the capital market on affordable terms. This could include mechanisms or funds for reducing or moderating currency risks of borrowing abroad, credit enhancement, viability gap funding and partial credit guarantees to green ventures.In the absence of adequate finance, the government will be forced to resort to mandatory regulations. This may raise the cost for consumers and affect industry’s competitive. It is, therefore, critical to evolve measures aimed at lowering the risk and cost of finance flows in greener areas, while ensuring higher predictability in the scale of finance.
from Economic Times https://ift.tt/2WXOj3T
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