Enhancing India’s Readiness to Climate Finance

Enhancing India’s readiness to access and deliver international climate finance
2 The landscape of international climate
finance
2.1 The complex landscape of international climate finance
It has been widely reported that efforts to limit global temperature increases to 2°C will require scaledup
climate finance – particularly in developing countries like India, where there is huge potential for
transformational. Estimates suggest that decarbonising the global energy system will require $36-42
trillion between 2012 and 2030, or approximately $2 trillion per year. 10 At present, global climate
finance flows are significantly lower, totalling $359 billion, of which 15% - or $54 billion – are transfers
of public climate finance from OECD countries to developing countries. 11
Since the Rio Conventions were signed in 1992, the international landscape has grown increasingly
more complex. In the 1990s, the World Bank’s Global Environmental Facility (GEF) was the chief
multilateral agency funding projects and programmes relating to climate change, and the Clean
Development Mechanism (CDM) under the Kyoto Protocol was the main source of private climate
investment. Over the past decade, however, the international ‘architecture’ of climate finance has
becoming increasingly fragmented. At the international level, new funding instruments such as the
Adaptation Fund (AF) and the Climate Investment Funds (CIFs) have been created to direct funding
to important international priorities. At the bilateral level, initiatives such as the UK government’s
International Climate Fund (ICF) and the German government’s International Climate Initiative (ICI)
have been at the forefront of Annex I country efforts to scale-up climate finance in the fast start period
between 2010 and 2012. At both of these levels, funding is fragmented across a growing number of
streams targeted at specific regions of the world (e.g. least developed countries, the Congo Basin);
themes (e.g. adaptation, renewable energy, forestry); and new policy agendas (e.g. such as National
Adaptation Plans (NAPs), Nationally Appropriate Mitigation Actions (NAMAs), and low-emission
development strategies).
There are also a number of private sector actors increasingly involved (or being enticed to be
involved) in low carbon and climate resilient investment. New private sector platforms and networks of
institutional investors signal that there is an increasingly large role for private capital to play in
promoting climate-compatible development in developing countries. In addition, the concept of
‘leveraging’ – using public climate finance to attract large investment from the private sector – has
grown increasingly important in the climate finance policy space. It is expected that leveraging private
sector finance will play a major role in closing the financing gap for climate-related investment over
the next decade.
With more than 50 international public funds and 6,000 private equity funds already providing “green”
finance 12 across such a wide variety of themes, many developing countries report challenges in
knowing where to target their efforts to access climate finance. The complexity of the climate finance
delivery architecture can also pose challenges for project developers, technology providers and
private sector investors – as bureaucratic structures and long waiting periods between pledges,
approval and delivery slow down the implementation of projects and limit the ability to quickly replicate
and scale-up previous successes.
While fragmentation and complexity have been the predominant features of the international climate
finance landscape over the past decade, emerging trends indicate that the climate finance policy
space is at a crossroads. On the one hand, Parties to the UNFCCC have agreed on the design of the
Green Climate Fund – which is expected to be the main financing vehicle for international pledges to
mobilise $100 billion of climate finance per year in by 2020. On the other hand, new initiatives which
10 Kaminker, Ch., Stewart, F. (2012), “The Role of Institutional Investors in Financing Clean Energy”, OECD
Working Papers on Finance, Insurance and Private Pensions, No.23, OECD Publishing, p4.
11 Climate Policy Initiative (2013). The Global Landscape of Climate Finance 2013
12 UNDP (2012) Readiness for Transformative Climate Finance
Ref: Ricardo-AEA/R/ED59216/Final Report
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