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.
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.
- 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.
- 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.