Enhancing India’s Readiness to Climate Finance

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Enhancing India’s readiness to access and deliver international climate finance 4. Institutional response to climate change – Have effective institutional mechanisms to respond to climate change been put into place? 1.6 India has launched several plans and policies (emission intensity targets, NAPCC and SAPCC) to address climate change but they are lacking detail in terms of implementation, internal procedures, coordination and funding. The majority of plans are not very detailed or ready for implementation, and do not have clear funding strategies. The key actors involved in the process are: − − − − Political Function: Prime Minister’s Council on Climate Change Strategic Function: Planning Commission and MoEFCC Financial/ MRV: Climate Change Finance Unit, MoF Execution/ Implementation: MoEFCC and other line ministries & departments such as MNRE, MOP, BEE, Financial institutions such as IREDA, NABARD, SIDBI etc. Clear systems and procedures are in place but the level of engagement and frequency of meetings have been limited. Even though there is high-level political commitment to the NAPCC at the PMO-level, the operationalisation of the strategy has been slow and limited. Climate change programmes are not legally mandated, though they are formally assigned to key ministries for planning & execution purposes. These programmes are appraised like all other major Government programmes and funded by budgetary allocations. 5. Institutional capacity to access & coordinate climate finance – Is there strong institutional experience/knowledge in accessing & delivering international climate finance? 1.9 There is knowledge within a number of Ministries and agencies (e.g. MoEFCC, NABARD) on opportunities to access international climate finance through traditional routes. To date India has accessed more than $550 million in international public climate finance (see Chapter 3) from multilateral funds – mainly through the CTF and the GEF. Limited analysis has been undertaken to identify key sectors and activities where international climate finance would add more value. According to the 12 th Five Year Plan, all direct climate-related spending should come from international sources; however a strategic assessment of how this will be achieved has not been undertaken. Capacity constraints and knowledge gaps still exist for scaling up access and deployment of international climate finance. Existing government departments (MoEFCC and DEA) and Development Finance Institutions (SIDBI, IREDA, NABARD) have good experience in accessing international climate funds and deploying climate finance in key projects, respectively. However, it is not clear whether existing skills and experience are transferable to emerging modalities such as the GCF. Capacity gaps that still remain include: limited sectoral coverage for projects; technical capabilities to design, evaluate, and screen programmes; limited geographical reach; lack of experience in using innovative financial instruments; and MRV capabilities. 6. Mainstreaming climate change into national budgets – Is climate change mainstreamed into the national budget and financial planning cycle? 1 There is limited capacity and coordination within ministries to integrate climate plans with other strategic plans and budgeting cycles. Climate change is not systematically mainstreamed into national and State budgets, as most development policies/programmes view climate/environmental outcomes as co-benefits rather than as explicit programme objectives. With the setting up of the Climate Finance Unit at the MoF, the process is beginning to be streamlined. However, the CFU needs to be strengthened to be able to Ref: Ricardo-AEA/R/ED59216/Final Report 31
Enhancing India’s readiness to access and deliver international climate finance support key national nodal agencies in mainstreaming domestic and international action on climate change – particularly on issues related to financing. Climate change planning and financing at the State level is at a very early stage of development. The 12 th FYP document emphases that most of the resources required for sectoral actions under the State Action Plans will need to be provided by State Governments. However the 13 th Finance Commission of India suggested that central government transfers to States could support climate change activities. Towards this end, an umbrella scheme on Climate Change Action Programme is proposed to be launched during the 12 th FYP. Support to State Governments could be based on a set of transparent and objective criteria to be monitored by a Steering Committee in the MoEFCC. In addition, State Government may earmark provisions for implementing activities under their SAPCC. 7. Role/engagement of private sector – Is the private sector involved in the national climate change response? 1 The Government of India has provided regulatory mechanisms and economic incentives for engaging the private sector, but actual deployment of programmes has been slow. GoI has attempted to engage the private sector through incentives such as Feed in Tariff (FITs), fiscal incentives, generation-based incentives, market instruments (Performance, Achieve and Trade (PAT) and Renewable Energy Certificates (REC)), access to international capital and streamlined approval processes for projects. The deployment of PAT, REC and FITs has been hampered due to enforcement and early stage implementation issues. Other GoI programmes such as the Partial Risk and Guarantee Fund (PRGF), Venture Capital Fund (VCF), NCEF to attract private sector investment are still under development. There has been major private sector investment in the RE sector, but government incentives to attract private investment in other climate related sectors have been limited. Private sector understanding of climate change impact is very limited. Hence, investment plans rarely include implication of climate change on investments. There have been limited public-private forums put in place to engage the private sector on climate change issues in order to address this imbalance, and there is no private sector representation in any of the national committees and bodies on climate change. Climate change concerns are limited to GHG accounting under CSR obligations for some private sector players. There is a limited understanding of climate risk in private sector investments. There is a need to develop innovative market-based financing mechanisms in the form of infrastructure debt funds, green bonds, etc. to promote greater private sector investments. Currently, operating and maintenance insurance is available for wind, solar, and general engineering, procurement and construction (EPC) risk-related insurance. 5.4 Financial function 5.4.1 Headline messages India has strong experience in accessing and delivering international finance for renewable energy projects, and more limited experience in financing EE and resource efficiency projects. Agent/actor/institution: Competency Gaps: NABARD, IREDA, SIDBI, PFC, IDBI, IDFC and BEE. Limited capacity to scale up existing programmes, deliver finance to other specific sectors, and extend to wider regional coverage. Delivering projects with blended finance has been limited. Ref: Ricardo-AEA/R/ED59216/Final Report 32
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Enhancing India’s Readiness to Climate Finance

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