CLIMATE FINANCE TAXONOMY
1. Context
Presenting the Union Budget for 2024-25 , Finance Minister Nirmala Sitharaman announced that the government would develop a ‘climate finance taxonomy’ to enhance the availability of capital for climate adaptation and mitigation. This will help India achieve its climate commitments and green transition.
2. What is a climate finance taxonomy?
A climate finance taxonomy is a framework for identifying sectors of the economy that can be promoted as sustainable investments. This system aids investors and financial institutions in channeling significant funds into meaningful projects aimed at combating climate change.
According to a report by the Canadian government, "Taxonomies are often utilized to establish standards for categorizing climate-related financial tools, such as green bonds. However, their application is expanding to other areas where the benchmarking feature is advantageous, including climate risk management, planning for a net-zero transition, and climate disclosure
3.Why is a taxonomy significant?
- With global temperatures rising and the negative impacts of climate change intensifying, countries must move towards a net-zero economy, which balances the greenhouse gases emitted with those removed from the atmosphere.
- Taxonomies can be crucial in this transition by determining whether economic activities follow credible, science-based transition pathways. They can also boost the allocation of climate capital and mitigate the risks of greenwashing.
- For India, implementing a taxonomy could attract more international climate funds. Presently, green finance in India falls significantly short of the country's needs, representing only about 3% of total FDI inflows, according to the 2022 Landscape of Green Finance in India report by the Climate Policy Initiative.
- One major reason for the low levels of green finance is the lack of clear definitions for sustainable activities. A taxonomy would address this issue
4. Green Investments in India
- Based on analysis by the International Finance Corporation, India's potential for climate-friendly investments is substantial, estimated at $3.1 trillion over the period from 2018 to 2030. The electric vehicle industry stands out as the most promising sector, with an investment potential of $667 billion, driven by India's goal to transition all new vehicles to electric power by 2030. Additionally, the renewable energy sector remains attractive to investors, with opportunities valued at $403.7 billion during this timeframe.
- India aims to achieve 500 GW of renewable energy capacity by 2030. This ambitious goal opens significant investment opportunities in solar, wind, and hydroelectric power projects.
- Enhancing energy efficiency across various sectors, including industrial, residential, and commercial, presents vast investment prospects. This includes upgrading infrastructure, implementing smart grids, and adopting energy-efficient technologies
- Developing sustainable transportation systems, green buildings, and smart cities is crucial for India's growth. Investments in electric vehicles, public transit systems, and green construction technologies are essential components of this transformation
- Investments in climate-resilient infrastructure, such as flood defenses, water management systems, and agricultural technologies, are critical to mitigating the impacts of climate change
- As global attention on climate change intensifies, India has the potential to attract significant international climate finance. Implementing a robust climate finance taxonomy can enhance transparency and attract foreign investments
- The Indian government has introduced various policies and incentives to promote green investments. Programs like the National Solar Mission, FAME (Faster Adoption and Manufacturing of Hybrid and Electric Vehicles) scheme, and the Green Energy Corridor project provide a favorable environment for green investments
- Indian banks and financial institutions are gradually increasing their focus on green finance, offering green bonds and sustainable investment funds. This growing support from the financial sector can facilitate the flow of capital into green projects
5. Do other countries have taxonomies?
- The EU Taxonomy is one of the most comprehensive frameworks, establishing clear criteria for what can be considered environmentally sustainable economic activities. It covers various sectors and aims to direct investment towards the EU's climate goals
- China has implemented its own Green Bond Endorsed Projects Catalogue, which outlines the criteria for green projects eligible for green bond financing. This taxonomy focuses on promoting clean energy, pollution prevention, resource conservation, and other environmentally beneficial project
- The UK is developing a Green Taxonomy aligned with the EU framework but tailored to the specific needs and priorities of the UK economy. It aims to support the country's commitment to net-zero emissions by 2050
- Japan has introduced its Green Bond Guidelines to encourage green bond issuance and investment in projects that contribute to environmental sustainability. These guidelines align with international standards but reflect Japan's unique environmental challenges and goals
- Canada is working on a national climate finance taxonomy to help standardize the classification of sustainable investments. This taxonomy aims to facilitate climate risk management, transition planning, and climate disclosure
- Singapore has developed the Singapore Green Bond Framework, which provides guidelines for green bond issuances in the country. This framework supports sustainable finance and investments in projects that address environmental challenges
6. Way Forward
India aims to achieve net-zero economy by 2070. It has also pledged to reduce the emissions intensity of its GDP by 45% by 2030, from the 2005 level. India has committed to achieve about 50% cumulative electric power installed capacity from non-fossil fuel-based energy resources by 2030 as well
|
For Prelims: COP28, Organisation for Economic Cooperation and Development, Climate Finance, Climate Change, United Nations Framework Convention on Climate Change, Nationally Determined Contributions, COP27, Copenhagen Accord, Paris Agreement
For Mains:
1. Discuss the impact of climate change on developing economies. How can climate finance be effectively utilized to promote sustainable development in these economies? (250 Words)
|
|
Previous Year Questions
1. With reference to the Agreement at the UNFCCC Meeting in Paris in 2015, which of the following statements is/are correct? (UPSC 2016)
1. The Agreement was signed by all the member countries of the UN and it will go into effect in 2017.
2. The Agreement aims to limit greenhouse gas emissions so that the rise in average global temperature by the end of this century does not exceed 2°C or even 1.5°C above pre-industrial levels.
3. Developed countries acknowledged their historical responsibility for global warming and committed to donate $1000 billion a year from 2020 to help developing countries cope with climate change.
Select the correct answer using the code given below
A. 1 and 3 only
B. 2 only C. 2 and 3 only D. 1, 2 and 3 Answer: B
2. The term ‘Intended Nationally Determined Contributions’ is sometimes seen in the news in the context of ( UPSC 2016)
A. pledges made by the European countries to rehabilitate refugees from the war-affected Middle East
B. plan of action outlined by the countries of the world to combat climate change
C. capital contributed by the member countries in the establishment of the Asian Infrastructure Investment Bank
D. plan of action outlined by the countries of the world regarding Sustainable Development Goals
Answer: B 3. The UN Framework Convention on Climate Change (UNFCCC) has announced which country to host the 28th Conference of the Parties (COP28) in 2023? (SSC CGL 2023) A. UAE B. US C. UK D. Russia Answer: A
4. Consider the following statements with reference to Organisation for Economic Co-operation and Development (OECD): (RBI Grade B 2022)
1. OECD is an official Permanent observer to the United Nations and is referred to as a think-tank or as a monitoring group.
2. India is not a member of OECD.
3. OECD is funded by its member countries.
Which of the statement given above is/ are correct?
A. 1 only B. 1 and 2 only C. 2 and 3 only D. 1, 2 and 3 E. 2 only Answer: D 5. Which of the following statements regarding 'Green Climate Fund' is/are correct? (UPSC 2015)
1. It is intended to assist the developing countries in adaptation and mitigation practices to counter climate change.
2. It is founded under the aegis of UNEP, OECS, Asian Development Bank and World Bank.
Select the correct answer using the code given below.
A. 1 only B. 2 only C. Both 1 and 2 D. Neither 1 nor 2 Answer: A 6. The 27th annual UN meeting on climate, COP27 (Conference of Parties) took place from 6th to 18th November, in which of the following country? (SSC GD Constable 2023) A. France B. Brazil C. Indonesia D. Egypt Answer: D 7. According to the Copenhagen Accord, what percentage of India has promised to reduce carbon emissions by the year 2020 as compared to 2005? (UP Police SI 2017) A. 20-25 percent B. 10-15 percent C. 30-35 percent D. 5-10 percent Answers: 1-B, 2-B, 3-A, 4-D, 5-A, 6-D, 7-A Mains 1. Describe the major outcomes of the 26th session of the Conference of the Parties (COP) to the United Nations Framework Convention on Climate Change (UNFCCC). What are the commitments made by India in this conference? (upsc 2021) |
Source: Indianexpress
