Role of capital markets for raising green and transition finance

The climate crisis is a global commons problem requiring concerted actions by all. While recognising this, the United Nations Framework Convention on Climate Change has also acknowledged the principle of ‘common but differentiated responsibilities and respective capabilities,’ which assigns greater responsibilities to developed countries in mitigating greenhouse gas (GHG) emissions and reducing their carbon footprint. There have also been deliberations at successive meetings of the Conference of the Parties (COP) on developed countries providing financial and technical support to developing states. Despite commitments, however, developed countries have failed to transfer any significant amounts to the developing countries. Such delays have only worsened the situation, amid the increasing incidence and intensity of extreme weather conditions and natural calamities worldwide. Developing countries are more vulnerable to the massive consequences of these events and face an uphill task in arranging funding to finance their climate mitigation and adaptation requirements.

India is a vast country with a 1.4-billion population, a per capita income of approximately $2,500 per annum, and significant income disparity. India is also among the countries most affected by extreme weather events. Although India’s per capita annual GHG emission in 2021 was only 1.6 carbon dioxide equivalent (CO2e) metric tons as compared to, say, the 13.8 CO2e metric tonnes of the United States (US), China’s 7.5 CO2e metric tonnes, and the global average of 4.3 CO2e metric tonnes, it was the third largest incremental annual emitter of GHG in the world that year.

India has outlined ambitious targets to contain climate change impacts and meet its nationally determined contributions under the Paris Climate Agreement. These targets should also help the country achieve the Sustainable Development Goals by 2030, besides fulfilling its net-zero GHG emissions commitment by 2070—even as it aspires to become a developed country by 2047. Given its geographical size, population and diversity, however, India faces unique obstacles to these targets. For instance, over 75% of its districts (home to 638 million people) are categorised as hotspots for extreme climate events.  The climate financing strategies have to be appropriately mainstreamed in the overall development model.

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This paper is authored by Ajay Tyagi and Rachana Baid, ORF.