Climate Finance for Developing Nations: Challenges and Requirements

Climate Finance for Developing Nations: Challenges and Requirements

Sub : Env

Sec Int conventions

Why in News

The upcoming 29th Conference of the Parties (COP29) of the United Nations Framework Convention on Climate Change (UNFCCC), scheduled to be held in Baku, Azerbaijan from November 11 to 22, 2024, is set to focus heavily on climate finance. Key discussions will revolve around developing countries’ vulnerabilities to climate change and the need for external financial support for mitigation and adaptation efforts.

What is Climate Finance?

According to the UNFCCC, climate finance refers to the mobilization of local, national, or transnational funding—from public, private, and alternative sources—to support actions aimed at mitigating and adapting to climate change. It has two key aspects:

Sources: Public or private financing, whether domestic or international.

End-Uses: Focused on climate mitigation (reducing emissions) or adaptation (adjusting to climate impacts).

The Convention, the Kyoto Protocol and the Paris Agreement call for financial assistance from Parties with more financial resources to those that are less endowed and more vulnerable.

In accordance with the principle of “common but differentiated responsibility and respective capabilities” set out in the Convention, developed country Parties are to provide financial resources to assist developing country Parties in implementing the objectives of the UNFCCC.

The Paris Agreement reaffirms the obligations of developed countries, while for the first time also encouraging voluntary contributions by other Parties.

The Organisation for Economic Co-operation and Development (OECD) regularly reports on financial flows from developed to developing countries.

Why are Developing Countries More Vulnerable?

Geographical Factors: Many developing nations are located in regions prone to extreme climate events.

Economic Dependency: Their economies are more reliant on sectors like agriculture, which are highly sensitive to climate variations.

Despite this, developing countries have contributed minimally to global emissions. The Sixth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC) shows that developed nations account for 57% of cumulative global emissions since 1850, despite hosting smaller populations. Meanwhile, developing countries face competing developmental needs that limit their ability to take sufficient climate action without external support.

The $100 Billion Pledge

Under the 2009 Copenhagen Accord, developed nations committed to providing $100 billion annually in climate finance to developing countries by 2020. However, the actual disbursement has been called into question, with the need for a new target for the post-2025 period becoming a priority at COP29.

India’s Climate Finance Requirements

India has ambitious climate targets that necessitate substantial investment:

By 2030, India aims to install 500 GW of non-fossil-fuel-based generating capacity, produce 5 million metric tonnes of green hydrogen annually, and promote electric vehicle (EV) adoption.

Achieving these targets requires significant financial support:

To achieve 450 GW of renewable energy by 2030, India would need an estimated investment of ₹16.8 lakh crore.

India’s National Green Hydrogen Mission will require an additional ₹8 lakh crore.

Consumers will need to invest ₹16 lakh crore to support the EV transition.

In the long-term, India needs a total investment of ₹850 lakh crore between 2020 and 2070 to reach net-zero emissions.

Establishing the New Collective Quantified Goal (NCQG)

A key focus of COP29 is determining a new annual climate finance target—called the New Collective Quantified Goal (NCQG).

Purpose and Background: The NCQG is intended to set a new global climate finance target for developed countries to support developing nations in their climate action efforts. It’s meant to succeed and expand upon the previous goal of mobilizing $100 billion annually by 2020, which was established at the 2009 Copenhagen Climate Conference.

Key Features:

1. Quantified Goal: The NCQG aims to establish a specific, measurable target for climate finance.
2. Collective Effort: It represents a joint commitment from developed countries, rather than individual national pledges.
3. Post-2025 Framework: The NCQG is set to come into effect after 2025, building on the previous $100 billion goal.
4. Comprehensive Scope: It’s expected to cover various aspects of climate finance, including mitigation, adaptation, and addressing loss and damage.

Negotiation Process: The NCQG is being discussed and negotiated through a series of technical expert dialogues and high-level ministerial meetings under the UNFCCC (United Nations Framework Convention on Climate Change) process.

Challenges: Determining the NCQG involves complex negotiations around the scale of funding needed, sources of finance, and mechanisms for delivery and transparency.

Importance: The NCQG is crucial for supporting developing countries in their climate action efforts and is seen as a key element in maintaining trust and cooperation in global climate negotiations.

About COP29 of UNFCCC:

Date: Scheduled for November 11-24, 2024

Location: Baku, Azerbaijan

It follows COP28 held in Dubai, UAE, in 2023, which saw significant discussions on the phase-out of fossil fuels and the operationalization of the loss and damage fund.