Climate Finance: The Solution to All Climate-driven Ills?

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Posted by: Aishwarya Bhatia
Category: Livelihoods and Natural Resources
Climate Finance: The Solution to All Climate-driven Ills?

In the last blog, we talked about climate inequity and how it became one of the biggest barriers to mitigating climate change. Statistics reveal that the world’s top 1% of emitters produce over 1000 times more CO2 than the bottom 1%. In fact, further studies have revealed that the richest 0.1% of the world’s population emitted ten times more than all the rest of the richest 10% combined.

These figures make one thing explicitly clear: if these top emitters globally continue to maintain such carbon levels, there is no way we can decarbonize fast enough. In fact, substantial and quick action by the richest 10% is one of the fastest ways we can achieve some stability in terms of global temperatures.

What kind of action is required to mitigate climate change?

The Paris Agreement rolls out a framework that provides financial, technical, and capacity-building support to the countries that need it. Developed countries are taking up the responsibility to give financial assistance to the less endowed countries, which are also more vulnerable to climate change. This is where the concept of climate financing first came in.

What is climate finance?

The UNFCC defines it as local, national, or transnational financing that seeks to support mitigation and adaptation actions to address climate change. Simply put, it helps countries reduce greenhouse gas emissions by funding renewable power like wind or solar.

Let’s understand this with the example of solar power.

Having read our textbooks in schools, we know that solar power is a prominent source of renewable energy for a world that is depleting its coal reserves at a shocking pace. The industrial processes are here to stay, and for us to avoid decapitating the world to the point of no return, large-scale investments in energy sources such as solar power are crucial.

Solar power, as we all know, captures sunlight to fulfil our energy requirements but also necessitates large upfront investments, which is why it wasn’t accepted at such a large scale at first. However, over time, industries began to adopt solar energy systems, with tax credits awarded by the governments that incentivized the rich to invest more. Eventually, increased production, subsidies by the governments, and increasing discourse around environmental concerns led to a decrease in the direct costs of solar energy for consumers.

Today, renewable energy is more cheaply produced than fossil fuels in some markets. Due to the increasing competition in the solar energy industry, installation costs have also seen a sharp decline, making it a fiscal win for large companies globally. Global agreements, therefore, work as a touchstone for nations to support one another in adapting to climate change. In fact, it is not just financial but also technological support that developed nations help others to make considerable strides in climate adaptation.

One such nation is Nepal. Through support from international finance, Nepal has improved its disaster preparedness, pioneered ecosystem-based solutions through community forest restoration, scaled climate-smart agriculture, and worked towards the goal of becoming a carbon-neutral tourist destination.

In keeping with the solar power adaptation, Cambodia has developed solar energy to reduce electricity costs by two-thirds while moving away from its dependence on coal and hydroelectric power.

Furthermore, with support from international climate finance funds, Zambia is recovering from the drought in rural areas, which has stopped crops from growing naturally. To recover from such a disaster, Zambia has received support in goat-rearing as a whole new sector of the agricultural economy, which has benefitted women in adapting their livelihoods.

Another form that climate financing takes is through carbon trading and carbon taxes.

Carbon trading involves buying and selling of credits that allow a company or other entity to emit a certain amount of carbon dioxide. So, for a nation that buys carbon, it buys the right to burn it. While the nation that sells carbon surrenders the right to burn it. For example, the UNFCCC awarded the Delhi Metro Rail Corporation (DMRC) with carbon credits for reducing greenhouse gas emissions in the city. However, this idea has its own critics and supporters. While cumulatively, greenhouse gas emissions may be reduced while some countries reap economic benefits, some say it can create an exploitative environment.

Nonetheless, these concepts have been gaining significant traction over the years and are used to discourage the use of products that leave a large carbon footprint. Carbon tax is another method to do the same. Electricity generated from fossil fuels can be taxed differently, funds from which are used to invest in renewable energy and other forms of climate action.

Having learnt the various mechanisms in place to keep Earth’s temperature from rising, now, we now need to understand how well these mechanisms actually end up working. The concepts are in place, but how well do they translate into impact? This is what we will explore in the next and final blog in this series.

Aishwarya Bhatia, Sambodhi 

Author: Aishwarya Bhatia