Green Finance

Green Finance

Subject: Economy

Context:

India’s updated climate change action plan requires financial commitments from Indian and international sources.

Details:

• India’s updated climate change action plan:
  • Achieving 50 per cent of installed electric generation capacity through non-fossil fuel-based sources i.e 500GW by 2030.
  • Reducing emissions intensity of GDP by 45 per cent by 2030 compared to 2005 levels.
  • Pledge to reach net zero by 2070.

Key suggestions: 

• The Parliamentary Standing Committee on Energy has recommended to MNRE -to explore the possibility of prescribing Renewable Finance Obligation on the lines of Renewable Purchase Obligation.
• Indian banks have urged to include loans for electric vehicles and green hydrogen under the PSL category.
• RBI’s Discussion Paper on Climate Risk and Sustainable Finance expects banks to set internal targets to increase green funding.

Green Finance:

Green financing is to increase the level of financial flows (from banking, micro-credit, insurance and investment) from the public, private and not-for-profit sectors to sustainable development priorities.

Global framework for Climate Financing:

To facilitate the provision of climate finance, the UNFCCC has established the financial mechanism to provide financial resources to developing country Parties.

• The Adaptation Fund under Kyoto Protocol: It aims to finance concrete projects and programmes that help vulnerable communities in developing countries that are Parties to the Kyoto Protocol to adapt to climate change.
• Green Climate Fund: It is the financial mechanism of the UNFCCC, established in 2010.
• Global Environment Fund (GEF): GEF has served as an operating entity of the financial mechanism since the Convention came into force in 1994.
  • It is a private equity fund focused on seeking long term financial returns by investments in clean energy under climate change.
  • GEF also maintains two additional funds, the Special Climate Change Fund (SCCF) and the Least Developed Countries Fund (LDCF).

Climate Financing in India

• Green financing related to climate change is majorly mobilised from National Clean Energy Fund (NCEF) and National Adaptation Fund (NAF).
• The Government of India also provides funding through eight missions established under the National Action Plan for Climate Change.
• It has established a Climate Change Finance Unit (CCFU) in the Ministry of Finance, which is the nodal agency for all climate change financing matters.

Renewable Purchase Obligation:

• Under RPO, power distribution companies purchase a certain percentage of their requirements from renewable energy sources.
• Renewable purchase obligations set targets for states for both solar and non-solar energy procurement as part of their RPO.
• Under Renewable Purchase Obligation (RPO) bulk purchasers like discoms, open access consumers and capacitive users are required to buy a certain proportion of RECs(Renewable Energy Certificates). They can buy RECs from renewable energy producers.
  • Renewable Energy Certificates (RECs) is a market-based instrument to promote renewable sources of energy and development of the market in electricity.
  • One REC is created when one megawatt hour of electricity is generated from an eligible renewable energy source.
• RPO was instituted in 2011, it is a mandate that requires large power procurers to buy a predetermined fraction of their electricity from renewable sources.
• The proportion of renewable energy for utilities is fixed by the central and state electricity regulatory commissions.
• In India, RECs are traded on two power exchanges — Indian Energy Exchange (IEX) and Power Exchange of India (PXIL).
• The price of RECs is determined by market demand, and contained between the ‘floor price’ (minimum price) and ‘forbearance price’ (maximum price) specified by the Central Electricity Regulatory Commission (CERC).