The 29th Conference of the Parties (COP29) to the UNFCCC will take place in Baku, Azerbaijan, from November 11 to 22, 2024.

• The conference is expected to focus on key climate finance issues, making it a significant event for discussions on funding climate action.

What Is Climate Finance?

• According to the UNFCCC, climate finance refers to funding from various sources (public, private, or alternative) aimed at supporting efforts to mitigate or adapt to climate change.
• It can originate from both private and public sources and is often facilitated by intermediaries like multilateral development banks and other agencies that transfer resources from developed to developing countries

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• OECD Reports: The Organisation for Economic Co-operation and Development (OECD) provides reports on climate finance from developed to developing countries, covering four key sources, including international public finance.
  • Types of Finance: International public finance consists of loans, grants, equity, and other financial instruments.2022 Figures: In 2022, loans made up 69.4% of climate finance, while grants accounted for 28%.
• Obligations of Developed Countries
  • Developed nations are obligated to provide new and additional financial resources to low and middle-income countries under the UN Climate Convention.
  • The 2015 Paris Agreement aimed to limit global warming and includes financial mechanisms to support mitigation and adaptation efforts.

Key funds and Mechanisms

• Green Climate Fund (GCF): World’s largest climate fund.
  • Is established under UNFCCC.
  • It helps developing nations to combat emissions. 
• Adaptation Fund (AF):  This fund finances vulnerable communities to adapt to changes in the climate in the developing nations. 
  • It allows institutions working on the national level to manage projects and access financing directly. 
• Global Environment Facility (GEF); It is a mechanism that grants funding to developing nations to resolve environmental issues. 

Principles of Climate Finance

• ‘polluters pays’ principle: According to this principle, the person producing pollution is liable to bear the cost of its management for preventing damage to the environment. 
• Common but Differentiated Responsibility and Respective Capability (CBDR–RC): This principle states that developing countries have more responsibility (all countries are also responsible to combat climate change issues)  to address environmental issues. 
  • It is because of their historical emissions and great capacity to act. 

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Why Are Developing Countries More Vulnerable to Climate Change?

• Geographical Factors: Developing countries often have geographic features that make them more susceptible to climate impacts.
• Economic Dependence: These nations rely heavily on agriculture, which is sensitive to climate change.
• Limited Resources: They typically have fewer financial and human resources to adapt to climate changes or recover from climate-related disasters.
• Low Emission Contribution: Despite their vulnerability, developing countries have contributed little to global emissions, with developed countries responsible for 57% of cumulative emissions since 1850.
• Competing Development Needs: Developing countries face many developmental challenges, making it hard for them to focus solely on climate actions.

Challenges in Climate Finance

• Tracking Financial Flows: Measuring and monitoring where and how climate finance is used can be complex.
• Equitable Support: Ensuring fair financial assistance to developing countries for emission reductions and adaptation is challenging.
• Private Sector Incentives: Creating effective incentives for private investments in climate initiatives can be difficult.

Who Needs Climate Finance?

• Need for External Funding: Developing countries require external financial support for effective climate action.
• Access to Electricity: In 2021, 675 million people in developing countries lacked access to electricity, highlighting the need for increased energy consumption.
• Higher Costs of Capital: Developing countries face higher capital costs for renewable technologies, with costs for solar technology approximately twice as high compared to developed nations.
• Balancing Development and Climate Action: Access to external finance is crucial for these countries to achieve sustainable development while addressing climate change.

India’s Climate Finance Needs

• Climate Targets: India aims to achieve significant climate goals by 2030, including:
  • 500 GW of renewable energy capacity.
  • 5 million metric tonnes of green hydrogen production capacity.
  • Increased penetration of Electric Vehicles (EVs).
• Estimated Investments:
  • To achieve 450 GW of renewable energy, an additional investment of ₹16.8 lakh crore is needed.
  • The green hydrogen target will require ₹8 lakh crore.
• Long-Term Investment Needs: To achieve net-zero emissions, India will need about ₹850 lakh crore from 2020 to 2070.

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India’s Initiatives regarding Climate Finance

• National Adaptation Fund for Climate Change (NAFCC): Launched in 2015.
  • It helps States and Union Territories in India to address the issue and impact of climate change. 
  • Objective: It focuses on supporting adaptation activities in various regions vulnerable to climate change. 
    • It operates in project mode.
• National Clean Energy Fund: Set up in 2010. 
  • Objective: It aims to promote and fund clean energy projects, development of innovative clean energy technologies, and research. 
  • Projects supported: This fund supports various initiatives such as the Green Energy Corridor, Namami Gange, and the Jawaharlal Nehru National Solar Mission.

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