Paris finance meet: Key takeaways from a summit that showed the scale of the challenge ahead

• The Summit for a New Global Financing Pact was recently held in Paris with an objective of tackling the lack of financial support for developing countries.
• The Summit was announced at the 27th Conference of Parties (COP27) of the UNFCCC. The summit was also attended by India’s Finance Minister.

What are the Key Highlights of the Summit?

• The Scale of Crises Faced by Developing Countries:
  • Developing countries are grappling with a combination of crises, including poverty, escalating debt levels, and inflation triggered by events such as the Russia-Ukraine Conflict.
  • Besides economic challenges, developing nations are under pressure to decarbonise their economies while lacking sufficient Climate Finance.
• Demands from the Global South:
  • Leaders from the Global South demand that Multilateral Development Banks (MDB) address transboundary challenges and provide increased resources for development, including climate finance.
  • Developing countries call for more concessional and grant financing to address their debt burdens, also advocating for debt reductions particularly for the least developed nations.
  • While acknowledging the potential of private sector investment, they emphasise that long-term development funds are necessary to complement private sector financing.
• Announcements at the Summit:
  • The Summit announced the unlocking of an additional USD 200 billion lending capacity for emerging economies.
    • The World Bank introduced disaster clauses to suspend debt payments during extreme weather events.
  • The IMF announced the allocation of USD 100 billion in SDRs (Special Drawing Rights) for vulnerable countries, although some SDRs still require approval from the US Congress.
  • A new Just Energy Transition Partnerships (JETP) deal worth 2.5 billion Euros was announced for Senegal, aimed at increasing the share of renewable energy in the country’s electricity mix.
  • Zambia reached a USD 6.3 billion debt restructuring deal, and calls were made for a Global Expert Review on Debt, Nature, and Climate.
  • The EU called for increased coverage of global emissions by Carbon Pricing Mechanisms and allocating a portion of revenues to climate finance.
  • The Summit indicated that the long-awaited USD 100 billion climate finance goal would be achieved this year.
    • This commitment was made at UNFCCC COP 15 in Copenhagen in 2009.

What is Climate Finance?

• It is a type of financing that can be local, national, or transnational, and it can come from public, private, or alternative sources of financing. The goal of this type of financing is to support actions that will mitigate climate change and adapt to its effects.
• Global Discussions:
  • • Developed countries, which have more financial resources, are required to provide financial assistance to developing countries, which have fewer resources and are more vulnerable, according to the UN Framework Convention on Climate Change (UNFCCC), the Kyoto Protocol, and the Paris Agreement.
    • This is in line with the principle of “Common but Differentiated Responsibility and Respective Capabilities” (CBDR), which states that responsibilities should be shared but capabilities should be differentiated.
  • In UNFCCC COP26, new financial pledges to support developing countries in achieving the global goal for adapting to the effects of climate change were made.
• Significance:
• Climate Change Impact Mitigation and Adaptation:
  • Climate finance is needed for climate impact mitigation; large-scale investments are required to significantly reduce emissions.
  • It is equally important for adaptation; significant financial resources are needed to adapt to the adverse effects of a changing climate.
  • Climate finance is critical to achieve the goal of limiting the rise in the earth’s average temperature to below 2°C over pre-industrial levels, (2018 IPCC report).
  • Recognition of Responsibilities:
  • It acknowledges that different countries have vastly different capacities to prevent climate change and deal with its effects, as well as different levels of responsibility for contributing to the problem.
  • Hence, developed countries should also continue to take the lead in mobilising climate finance through a variety of actions, including supporting country-driven strategies and taking into account the needs and priorities of developing country Parties.

Initiatives regarding Climate Finance

• Global:
  • In 2010, the 194 member countries agreed to create the Green Climate Fund (GCF) at UNFCCC COP 16.
    • The Green Climate Fund (GCF) was established to aid developing nations in their fight against climate change by assisting these nations in transitioning to a mode of development that produces fewer emissions and is more resistant to the effects of climate change.
    • It is headquartered in Incheon, Republic of Korea.
  • At the COP27 summit, delegates from the UN agreed to create a ‘Loss and Damages’ fund to compensate the most vulnerable countries for their losses due to climate-related disasters.
• India:
  • National Adaptation Fund for Climate Change (NAFCC):
    • It was established in 2015 with the intention of covering the expenses associated with the adaptation to climate change required by the Indian states and union territories that are especially susceptible to the debilitating effects of climate change.
  • National Clean Energy Fund:
    • It was established through the Finance Bill 2010-11 on the recommendation of the Cabinet Committee of Economic Affairs (CCEA) to promote the use of clean energy and was funded through the imposition of an initial carbon tax on industries that make use of coal.
    • An Inter-Ministerial Group, of which the Secretary of Finance serves as Chairman, is in charge of its governance.
    • It is tasked with the responsibility of providing financial support for research and development of cutting-edge clean energy technology in both the fossil fuel and non-fossil fuel-based industries.
  • National Adaptation Fund:
    • In 2014, the fund with a corpus of one hundred crores of rupees was established with the intention of bridging the gap between the amount of funds that are required and the amount of funds that are currently available. The fund was established with a corpus of one hundred crores of rupees.
    • Management and administration of the fund are responsibilities that fall under the purview of the Ministry of Environment, Forests, and Climate Change (MoEF&CC).