Akash Jha
India is becoming more susceptible to climate change. The increasing frequency of natural calamities that can be attributed to climate change causes a loss of approximately one percent of our annual GDP. A growing number of Indians acknowledge this reality and express concern.
We have done well to set a net-zero goal and aggressively accelerate the deployment of renewable energy. However, it is necessary to create a road map with agreed-upon milestones, particularly for previously lost opportunities.
Climate action financing is our greatest challenge. According to the Climate Policy Initiative, approximately one-fourth of the required climate finance was mobilised in 2021, totaling approximately $44 billion. The majority was allocated to mitigation initiatives, specifically renewable energy. Domestic capital contributed approximately 85%, with the private and public sectors contributing 60% and 40%, respectively.
Clearly, financing needs to be increased. We also require supportive policies and business models, particularly for low-investment sectors. For instance, cities must be prioritised due to their heightened susceptibility to climate impacts and high energy consumption.
Priority should be given to financing solutions that provide the greatest return on investment. Energy conservation, decentralised energy generation, and public transportation are examples. On the adaptation side, it is, among other things, revitalising water bodies, urban forests, vertical gardens, recycling plastic refuse, and constructing sea walls in coastal areas. Forestry, land use, and agriculture deserve substantial national investments.
In addition to prioritisation, multiple strategies at the policy, programme, and institutional levels are required to sustainably increase climate funding.
The Green Growth priority outlined in Budget 2023 requires a champion first. Given the significant investment demand, the Ministry of Finance (MoF) is best suited to take the initiative.
A modified role for the Ministry of Finance has numerous benefits, including expedited and coordinated policy action. The MOF must recognise that climate hazards are a significant source of financial instability and macroeconomic change. Consequently, climate financing must be incorporated into the larger economic strategy and budgetary allocations.
Moreover, public funding must increase to fill the voids. MoF has the ability and responsibility to prioritise investments with the greatest impact. This is crucial because there are multiple solutions, but line ministries are constrained by limited mandates or a lack of industry response.
Adopting nature-based strategies, such as shading, increased ventilation, building orientation, double masonry or cavity walls, and cool roofs, for instance, is technically optimal and has always been a part of our architecture. As a result of a dearth of incentives and commercial interest, modern construction typically disregards them.
The Ministry of Finance can implement innovative new policies, such as sustainable procurement, which can integrate sustainability into product design and supply chains. Such an approach will increase the adoption of nature-based options while optimising energy consumption and investment needs.
In addition, policy actions regarding carbon tax, subsidies, and investments in fossil fuels should be evaluated from a broader economic perspective. This will assure coordinated action across the federal government, states, cities, and economic sectors. We do not advocate a return to central planning, but we do recommend prioritising climate investments to optimise demand. Without such an agreement, combating climate change will be difficult and expensive.
While the Ministry of Finance can influence fiscal policy and budgetary allocations, it is necessary to collect, combine, and invest funds from multiple sources. Significant institutional capacity will be required to structure annual investments exceeding $100 billion. Therefore, the second strategic intervention should be to establish a Green Bank whose mission is to mobilise and direct climate finance.
There are multiple global precedents for green banks, including several regional US green banks. Similarly, Australia, Malaysia, and the United Kingdom have established specialised corporations and institutions to direct green infrastructure investment. A dedicated institution will provide the necessary concentration.
Additionally, a Green Bank is best positioned to expand the recent success of sovereign green bonds. Additionally, it can create specialised bonds such as Sustainability Bonds, Impact Bonds, Catastrophe Bonds, and Blue Bonds.
The NDC of India relies on low-cost international financing, but it has played a minor role thus far. Therefore, the third set of strategies should centre on attracting $10–20 billion in annual international capital.
Accelerating international financing will require policies and strategies to attract new investors, especially larger capital pools such as sovereign wealth funds, pension funds, and insurance funds.
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A pipeline of aggregated investable projects can facilitate action on lesser projects that are unattractive to large investors on their own. To mobilise funding, cities, distribution companies, and other large corporations can function as aggregators of small, decentralised projects. The expansion of international climate finance for cities will necessitate urban reforms, such as the delegation of functional and financial authority to ULBs. Cities will be able to access international funding through accredited agencies thanks to urban reforms. Such organisations as SIDBI and NABARD have already been accredited. However, much more work is required. Each jurisdiction should ideally have one.
Existing urban development and finance corporations exist in the states of Karnataka, Andhra Pradesh, and Tamil Nadu, namely KUIDFC, APUIAML, and TNUIFL, respectively. Given the extant expertise and institutional structure, these can be accredited.
As stated, increasing numbers of Indians are aware of and concerned about climate change. Recent research from the Yale School of Environment revealed that more than 80 percent of Indians are concerned about global warming.
The race of our lives is climate action, and its financing is the exam. We must act immediately and decisively, not only to invest in our future, but also to have one.
