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.