Why is it in the news?

• The 29th Conference of the Parties (COP29) of the UNFCCC, scheduled for November 11 to 22 in Baku, Azerbaijan, is expected to prioritize climate finance discussions.

Vulnerability of Developing Countries

• Developing nations are particularly vulnerable to climate change due to geographical factors and economic reliance on sensitive sectors like agriculture.
• Despite their heightened vulnerability, these countries contribute minimally to global emissions; developed nations are responsible for 57% of cumulative emissions since 1850, according to the Sixth Assessment Report from the Intergovernmental Panel on Climate Change.
• Additionally, developing nations face competing developmental priorities, making it challenging to tackle climate change independently.
• The 2009 Copenhagen Accord committed developed countries to providing $100 billion annually in climate finance to developing nations by 2020, a target extended to 2025, with discussions on a new mobilization goal for post-2025 at COP29.

Understanding Climate Finance

• The United Nations Framework Convention on Climate Change (UNFCCC) defines climate finance as funding—whether local, national, or transnational—derived from public, private, and alternative sources to support climate change mitigation and adaptation efforts.
• This definition highlights two key aspects: the sources of finance (public or private and domestic or international) and their intended uses.
• The Organisation for Economic Co-operation and Development (OECD) reports on climate finance flows from developed to developing countries, detailing contributions from various sources, including international public finance.
• In 2022, loans comprised 69.4% of international public climate finance, with grants making up 28%. However, criticisms from developing countries and organizations like Oxfam emphasize that these reports should reflect actual disbursements rather than mere commitments and that financing should be new and additional, excluding reclassified existing aid.

The Need for Climate Finance

• External financing is essential for developing countries to effectively address climate change. According to the International Energy Agency (IEA), 675 million people in the developing world lacked access to electricity in 2021, necessitating universal access and increased consumption.
• Additionally, developing nations typically have smaller domestic financial systems relative to their GDPs and face higher capital costs—approximately double for solar photovoltaic and storage technologies compared to developed countries.
• Hence, accessible external financing is crucial for balancing development and climate action.

India’s Climate Financing Needs

• India has set both short-term and long-term climate targets. By 2030, the country aims to install 500 GW of non-fossil fuel generating capacity, achieve five million metric tonnes per annum in green hydrogen (GH2) production capacity, and promote differentiated levels of Electric Vehicle (EV) penetration.
• To meet the 450 GW renewable energy target by 2030, an estimated investment of ₹16.8 lakh crore is needed, while the National Green Hydrogen Mission indicates the GH2 target will require ₹8 lakh crore. Further, consumers are expected to invest around ₹16 lakh crore in EVs.
• Looking ahead, India projects a need for ₹850 lakh crore in investments from 2020 to 2070 to achieve net-zero emissions.

The New Collective Quantified Goal (NCQG)

• Establishing a new annual climate finance mobilization target, known as the New Collective Quantified Goal (NCQG), is a critical focus at COP29.
• The NCQG should include actual disbursements rather than mere commitments, be new and additional, consist of public capital in the form of direct grants, and include private capital mobilized by public funding. However, finance that flows privately to developing countries should be excluded.
• An independent high-level expert group, set up by the presidencies of COP26 and COP27, has indicated that developing nations (excluding China) will require approximately $1 trillion in external finance by 2030.