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Climate Finance

Published on: Nov. 12, 2022, 1:22 p.m.
The negotiating strategy
  • Yadav inaugurating LiFE pavilion at Sharm El-Sheikh

By Rakesh Joshi. Executive Editor, Business India

Having updated its NDCs, India’s recalibrated stance involves raising the issue of climate finance to support deployment of renewable energy projects on a large scale. Indian negotiators at Sharm El-Sheikh are reiterating the demand for its ‘due share’ of financial assistance as the country seeks to go carbon-neutral by 2070.

In Glasgow last year, India had argued that it should get $1 trillion in climate funding out to 2030. According to Standard Chartered Plc, the country will need to spend more than $12 trillion by 2060 to put it on track to reach net-zero emissions. The demands are unlikely to be met. Rich nations had in 2009 made a commitment to provide $100 billion a year in climate finance to poorer countries. Even that hasn’t happened yet.

Like-minded developing countries, led by India, have now flagged a $6-11 figure to meet their climate action targets till 2030 in the latest round of negotiations at the ministerial-level dialogue on ‘new quantified collective goal’.

“The investments in renewable energy though on an upward trend needs significant scaling up in the light of updated NDC targets,” explains an environment ministry official, elaborating the crux of India’s negotiating strategy. “Renewable energy projects, especially in developing countries, face multiple challenges from the institutional, policy and regulatory level to the market and project level barriers, which can hinder the development and uptake of renewable energy. The latter include lack of financing and lack of relevant information on markets and resource availability.”

Pipeline of projects

India’s aim is to create a ‘pipeline of investment-mature projects’ by actively supporting early stage project development and bridging the funding gap by assisting project developers access appropriate funding opportunities. This gap funding needs to be met by international climate public financing to attract investors in the renewable energy domain, it is arguing. 

India has been raising the issue of climate funding at other multilateral forums as well. Nirmala Sitharaman had said in Washington recently that institutions like the World Bank were uniquely placed to bring together all stakeholders for developing an investment strategy for climate (and development finance). It should help all client countries in arranging concessional financing and technology transfer in areas like renewable and green energy. “Yet, we must never lose focus on the internationally agreed basic principle of common but differentiated responsibilities (CBDR),” she told the World Bank’s Development Committee. “This necessitates avoidance of a one-size fit-all approach”.

  • Indian pavilion at COP27: reminding global community the forgotten SDG-12 that calls for ensuring sustainable consumption and production patterns

    Indian pavilion at COP27: reminding global community the forgotten SDG-12 that calls for ensuring sustainable consumption and production patterns

An added problem is the clubbing of development finance with climate finance. In 2019, 70 percent of the public climate finance was given out as loans instead of grants. Only 6 per cent of climate finance was in grants. This is pushing developing countries into more debt. 

Loss and damage

At Sharm El-Sheikh, India also joined other nations susceptible to climate change in strongly making a case for ‘loss and damage’ concept. This is a term used in climate change negotiations to refer to the consequence of climate change that go beyond what people can adapt, or do when options exist but a community doesn’t have the resources to access or utilise them. Loss and damage are generally understood to result from extreme weather events like cyclones, droughts, heat waves, and slow-onset changes such as sea level rise, desertification, glacial retreat, land degradation, ocean acidification, and salinisation. 

Though the government continues to lobby for climate finance, it has serious reservations about the financing plans being promoted by the G-7 developed countries to phase out fossil fuels. Take the Just Energy Transition Partnership (JETP), a project of the G-7 countries to hasten the phase-out of coal and cut emissions. The idea behind JETP is to support green transitions by making funding from industrialised nations, multilateral institutions, and groupings of green investors available.

The $8.5 billion JETP was announced at COP26 in November 2021, and follows the publication by South Africa, its first beneficiary, of the Just Energy Transition Investment Plan (JET-IP) ahead of COP27. The French and German development banks, AFD and KfW, have signed agreements with the South African government to each extend €300-million in concessional financing to support the country’s transition to a cleaner energy system that is less reliant on coal.

Power ministry objections

But the power ministry in India, headed by R.K. Singh, has so far declined to even give its approval to India’s participation in the negotiations. The ministry has raised objections on the grounds that coal cannot be singled out as a fuel that causes pollution and that discussions about the energy transition must take place on an equal footing.

Officials describe the proposed talks as ‘unfavourable’, as it would give another country the right to review India’s energy transition action. The real cause of worry for India, however, is a crucial clause of the agreement which will demand the gradual closure of our coal mines and a decrease in the 90-odd coal-burning power plants that are now under construction.

  • Return to coal: Danish energy firm Orsted to restart operations at three fossil fuel facilities

G7 countries are now pressuring India to join JETP, claiming that it will help finance rapid deployment of clean energy projects here and possibly reduce the country’s dependence on coal. The developed countries are keen to announce the formal launch of JETP, if India accepts, in Sharm El Sheikh. Following the pressure, it appears that the external affairs ministry is now coordinating inter-ministerial consultations to bring the power ministry around.

On fossil fuels, India is following the example of Europe, caught in a pincer owing to Russia’s reduced gas supplies and pressure from the US. As Europe braces for winter, several European countries are returning to coal to fire decommissioned power plants. For instance, energy firm Orsted is to restart operations at three fossil fuel facilities after being ordered by Danish authorities to do so.

Another big European energy firm, Germany’s RWE, has said three of its lignite, or brown coal, units would “temporarily return to (the) electricity market to strengthen security of supply and save gas in power generation.” Germany’s Uniper will keep open a unit at its Ratcliffe coal power station in Britain to help shore up electricity supplies. 

India has taken a nuanced position on coal for some time now. Last year, during COP26 in Glasgow, India was opposed to hard targets on phasing out coal, still among the key sources of energy for developing nations.

India was among developing countries that opposed the language on coal and phasing out of fossil fuel subsidies in the Glasgow pact. It pushed to introduce equity and safeguards on fossil fuel subsidies for the poor following which the text in the final pact was reworded based on a mutual agreement. This stand has become more pronounced now.

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