The term climate finance has been in limelight since United Nations Climate Change Conference (COP27) created history on Sunday by creating a loss and damage fund to help developing nations like India and Pakistan. The funds shall mainly be contributed by the developed countries.

The climate financing shall be majorly directed towards the developing nations that are particularly vulnerable to the adverse effects of climate change, the UN said in its statement. 

But how does climate financing affect the Indian economy from a broader perspective?

What is Climate Financing?

The United Nations has defined climate finance as the local, national or transnational financing—drawn from public, private and alternative sources of financing—that seeks to support mitigation and adaptation actions that will address climate change. 

As mentioned by the UN, 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 a way, Climate finance is funding and financing, which will help in the reduction of greenhouse gas emissions projects by helping set up renewable power systems like wind and solar. 

Besides, this local and transnational financing, which is likely to be from private and public alternate sources, shall also help communities to adapt to the impacts of climate change by offering simple solutions.

For example, resilient seeds can help farmers continue growing food even during droughts.

How does the new climate fund help India?

India has welcomed the new move declared at the conference. Although, countries like the US and a few other European nations have been slightly critical of the decision.

“As the destruction caused by climate-induced disasters has had a tremendous impact globally, particularly on the developing nations, India is happy with the launch of the loss & damage fund," Satyam Vyas, Founder & CEO, of Climate Asia said.

The loss and damage fund will focus on the least developed countries first, this is an important step towards addressing the climate crises" Vyas further said, who runs an organization focusing on various projects related to climate change.

According to many climate experts, India may not be the primary beneficiary of the loss & damage funds but it is surely seen as a victory for India which has been at the forefront of championing the cause of its inclusion at COP27 as well as aiding the final draft.

“Considering that India is an agrarian country and climate change impacts agriculture maximum, this loss and damage fund will help in the transition," said Shailendra Singh Rao, Founder, and MD, Creduce.

India has kept Agriculture transition out of its NDCs as it does not want to burden the farmers, the establishment of the fund will help the farmers transition to low carbon development,” Rao added, who operates an organization working on sustainable environmental projects.

Climate finance and upcoming budget

With Prime Minister Narendra Modi’s call for Net Zero 2070, many experts believe that climate finance could receive a huge boost in the upcoming budget 2023-24. (Image: Freepik)

Union Finance Minister Nirmala Sitharaman has already begun consultations with the Industry captains, there is expected to be a boost in climate finance.
“From incentivizing private financing to offering SOPs to large banks, the budget is expected to roll out important guidelines for climate financing. Besides aiding the farmers at large, the budget could also help small operators wanting to transition to renewable energy besides offering finance and cuts to corporates aiding start-ups in the renewable energy sector,” added Rao.

Kotak Institutional Equities mentioned in their report, India intends to roll out carbon pricing as one of the key strategies to reduce emissions. The bill for the rollout of carbon pricing has already been approved by the lower house of parliament and will be tabled in the upper house in the upcoming winter session. The rollout of carbon pricing will impact the cost dynamics and capital intensity of carbon-intensive
sectors, such as power, metals, and cement.