Enhancing India’s Readiness to Climate Finance

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Enhancing India’s readiness to access and deliver international climate finance mandates on climate finance with clearly defined roles and responsibilities have not been clearly elaborated. Lessons & Options for India India can learn from the experiences in Indonesia, where legal mandates to implement national climate change plans have led to greater accountability in planning, financing, and implementation structures. In most countries climate finance mandates have not been clearly defined or implemented. However Indonesia has adopted legal mandates to take action on climate change, backed by a climate finance institution that has a clear mandate to coordinate the financing of climate interventions. Indonesia’s National Council on Climate Change is legally mandated to formulate strategies, programmes and activities on climate change; play a coordinating function in the implementation of climate change activities; set up policies and procedures for carbon trading; and carry out monitoring and evaluation of climate change policy implementation. In parallel with the NCCC, the Indonesian Climate Change Trust Fund (ICCTF) was established by Ministerial Decree in 2011 to align international financial resources and domestic budgets with Indonesia’s climate change and development priorities. 41 The ICCTF’s decisions are made by a steering committee that includes the Government of Indonesia, development partners and civil society organisations – with representatives of international agencies, local government, and intergovernmental agencies acting as observers. The National Development Planning Agency (BAPPENAS) administrates the ICCTF, and is responsible for formulating procedures and planning for climate finance, coordinating climate change loans and grants, and for mainstreaming climate change into national policies. The ICCTF is only at the early stages of operationalisation and cannot yet provide firm lessons on climate finance coordination at the national level. However once it begins to fund concrete adaptation and mitigation projects, the ICCTF will be able to provide early lessons on national coordination of climate change plans that are joined with robust financing strategies. Readiness Gap 2 There have been limited efforts to assess the impact of climate change on the national economy, and to prioritise climate-related investment within national and/or sectoral budgets, based on a detailed needs assessment. Based on analysis done by the Expert Group on Low Carbon Strategies, it is clear that present levels of funding for climate activities in India are insufficient to meet the goals of the NAPCC. In the shortterm, as the GoI elaborates a longer-term climate finance strategy, a detailed needs assessment could help to prioritise the most important climate change actions and interventions. A detailed needs assessment could also help to identify current gaps in climate funding, and to initiate a strategy to access further climate finance from a variety of different sources in-line with India’s most urgent priorities. A cost-benefit analysis of needs would also help to mainstream climate in development and sectoral strategies and ensure buy-in from line ministries on tacking cross-cutting issues. Lessons & Options for India Brazil and Indonesia have undertaken cost-benefit of climate actions and/or detailed needs assessments, which has helped to prioritise policy actions and investment to meet funding gaps. Brazil has committed to reducing its national emissions by 36.1-38.9% against BAU by 2020. A Federal Decree has mandated that mitigation plans for Brazil’s main sectors are included in the national action plan on climate change. Each of these plans include emission reduction 41 ICCTF Regulatory framework is supported by a number of Presidential Decrees, Laws and specific Ministry regulations. http://www.icctf.or.id/about/regulatory-framework/ Ref: Ricardo-AEA/R/ED59216/Final Report 39
Enhancing India’s readiness to access and deliver international climate finance targets to 2020; specific actions to be implemented; indicators for monitoring and evaluation; proposed regulatory tools and incentives for implementation; and a cost benefit analyses of the mitigation plans’ impact on sectoral competitiveness. External analysis undertaken by McKinsey, using a cost curve analysis, have shown that the average cost of emissions reductions per tCO 2 e is half the cost in Brazil compared to the world average. The McKinsey report also shows that the biggest opportunities in Brazil exist in the forestry (72%), agriculture (14%), industrial (7%) and energy (4%) sectors. 42 Under the auspices of the Ministry of Finance’s Fiscal Policy Office, Indonesia has undertaken detailed needs assessment to identify priority mitigation actions for different sectors, as well as an initial assessment of financing needs. Indonesia’s needs assessment study determined the emission reduction potential of each major sector in the country, and estimated the budget for meeting national, non-binding emissions reduction targets. 43 The NEEDS study was developed through a collaborative and inclusive dialogue, with national stakeholders and experts, producing a number of outputs – including technology assessments, abatement curves, sector roadmaps and low carbon development strategies. The abatement cost figures generated from the study show that the cost of two mitigation scenarios is only 0.72% (for a 26% reduction in emissions against BAU) and 1.45% (for a 41% reduction) of Indonesia‘s projected GDP in 2020 – costing $8.3 billion and $16.8 billion, respectively. However the funding gap is still immense. According to the UNDP, the Government of Indonesia can only afford to meet 23% of this cost. 44 The NEEDS study does show possible climate finance opportunities, however a coordinated effort to deliver on these financing opportunities, led by the ICCTF, will need to be undertaken in the years ahead if Indonesia is serious about meeting these targets. Like Brazil and Indonesia, India has made some progress in setting national targets, outlining priority sectors, and providing high-level cost estimates on implementing the NAPCC. Yet India needs to take the next step, backing these actions up by a more detailed needs assessment than has currently been undertaken by the Expert Group. A detailed needs assessment for India should be based on a more robust quantitative assessment, improved data, and parametric models, which gives a clearer list of priority interventions and associated cost estimates, so that the Government of India can develop a coordinated financing strategy for these interventions. This data would also help India take the next step to formally mainstream national and state-level climate change action plans into large sectoral programmes, which countries like Brazil and China have already done. Readiness Gap 3 The private sector has had limited engagement with the Government of India in climate change decision-making, and in coordinating a national financing strategy that encourages private sector investment in climate-related activities. The private sector has a significant role to play in India’s national climate change response – both in terms of the resources it can mobilise, and the high levels of efficiency, managerial capability and operational expertise it brings to the table. Despite the fact that India has been successful in attracting CDM investment, it has not leveraged this experience to create new opportunities to engage the private sector in an effort to pave the way for transformative investments in climate compatible development in the future. 42 King, D., Cole, M., Tyldesley, S., & Hogarth, R (2012). The Response of China, India and Brazil to Climate Change: A perspective for South Africa. Centre for Development and Enterprise (CDE). 43 Hadad et. al. National Economic, Environment and Development Study (NEEDS) for Climate Change – Indonesia Country Study (2009). 44 Tänzler, D., & Maulidia, M. (2013). Status of Climate Finance in Indonesia: Country Assessment Report. Ref: Ricardo-AEA/R/ED59216/Final Report 40
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Enhancing India’s Readiness to Climate Finance

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