Framework of India’s Climate Finance Taxonomy

Why in News ?   The Finance Ministry has released a draft document titled “Framework of India’s Climate Finance Taxonomy”, aiming to align investments with India’s climate action goals and facilitate the transition to a low-carbon economy. The initiative supports India’s target of achieving Net Zero emissions by 2070 and addresses concerns about climate finance and greenwashing

Relevance :  UPSC Pre & Mains

Prelims: Green Washing/ New Collective Quantified Goal (NCQG)

Mains : GS Paper III: Environment and Climate Change

Key Points of the News:

Purpose of Climate Finance Taxonomy:

• A tool to identify activities consistent with India’s climate goals and transition pathways.
• Aims to direct investments toward clean energy projects and climate-resilient infrastructure.

Objectives:

• Encourage investment in climate-friendly technologies.
• Prevent greenwashing (misleading claims about environmental benefits).
• Align with India’s developmental vision of ‘Viksit Bharat’.
• Enable long-term access to reliable and affordable energy.

Global Context:

• Developing countries demand significant climate finance from developed nations for renewable energy projects and climate adaptation.

• At the 29th Conference of the Parties (COP29) in Baku, Azerbaijan (November 2024), developed nations committed to only $300 billion annually by 2035 for climate finance under the New Collective Quantified Goal (NCQG), far below the $1.35 trillion demanded by developing countries. Disagreements over the definition of “climate finance” underscored the need for a clear taxonomy, making India’s framework timely.

Classification of Activities:

Climate Supportive Activities:

• Reduce greenhouse gas emissions and emissions intensity.
• Offer adaptation solutions to mitigate climate risks.
• Support R&D for achieving these goals.

Climate Transition Activities:

• Improve emissions intensity in hard-to-abate sectors (e.g., iron, steel, cement).

 Budget Announcement:

• The framework follows Finance Minister Nirmala Sitharaman’s Budget speech announcement in February 2024.

Alignment with Global Goals:

• Supports India’s Net Zero by 2070
• Highlights the need for subsidized technology transfer and grants from developed nations.

Significance:

• Encourages sustainable development and private-sector participation.
• Addresses challenges in financing the global and domestic climate agenda.

• About  New Collective Quantified Goal (NCQG): ·         The New Collective Quantified Goal (NCQG) on climate finance, finalized at COP29 in Baku, Azerbaijan (November 11–24, 2024), represents a significant shift in global climate finance commitments. ·         It aims to mobilize resources to support developing countries in their climate actions post-2025, replacing the earlier $100 billion per year pledge from the 2009 Copenhagen Climate Summit.

  Ensures transparency and accountability in classifying climate-related activities.

Objectives:

• Establish a new financial target for climate finance from 2025 onward to assist developing countries in:

Mitigation: Reducing greenhouse gas emissions.

Adaptation: Building resilience to climate impacts.

Loss and Damage: Addressing irreversible climate impacts.

• Align with the Paris Agreement goals to limit global warming to 1.5–2°C and promote a just transition to low-carbon, climate-resilient economies.

  Financial Commitment (COP29 Outcome):

Core Target:

• • At least $300 billion annually by 2035 from public and private sources, primarily from developed countries, to support developing nations.

Additional Layer:

• A broader target to scale up climate finance to $1.3 trillion annually by 2035, including contributions from:
  • Private sector.
  • Multilateral Development Banks (MDBs).
  • Voluntary contributions from select developing nations (e.g., China, Singapore).

Demand by Developing Countries:

• India and others argued for $1.1–1.3 trillion annually from 2025, deeming the $300 billion target insufficient and delayed.