What are the roadblocks in the success of the Clean Development Mechanism? What ways can be found to tackle the issue of financing climate change? (15 Marks)

Mentors Comments:
1. Explain in brief, the Clean Development Mechanism.
2. Highlight it’s limitations in changing climate financing.
3. Suggest ways to rectify gaps and provide alternatives.
Answer:

The Clean Development Mechanism of the Kyoto Protocol allows developing countries to profit from climate-friendly projects, and India is second only to China in using the mechanism to help reduce its carbon emissions.

Challenges:

  • At global levels:
    • There is a gap between national needs and climate finance under Nationally Determined Contribution there is a need for additional international financial support.
    • Least Developed Countries receive much less approved funding in per-capita terms from the multilateral climate funds.
    • The rate of approvals is time taking, due to which the drawee nation has insufficient funds to complete its target and leads to the stalling of projects.
    • The uncertainties such as, the recent refusal of the US to pay $2 billion of its pledge this have created a shortage of funds at available GCF.
  • At National levels:
    • In India, the local market to climate finance are insufficiently involved in financial products that support climate change adaptation.
    • There is an imminent failure in securing viability-gap funding either from governments, or multilateral development banks.
    • Projects in climate change have longer gestation period which deter financial institutions from investing in them.
    • Shortage of funds due to insufficient budget allocation is often interfered with due to any excess or additional grants which leads to the stalling of green projects.

Way Forward

  • An analytical framework is necessary to combine potential climate risks with a systematic cost-benefit analysis.
  • Favorable policy and institutional actions are important for successful introduction or scaling up of financial instruments.
  • Such actions, through public-private partnership (PPP) and PPP People (PPPP), can help improving climate finance.
  • Climate finance should be equipped with noninstitutional financial services such as market funds, private, etc.
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