India made five commitments at COP26: (1) it will increase its non-fossil energy capacity to 500 GW by 2030; (2) it will meet 50 percent of its energy requirements through renewable energy by 2030; (3) it will reduce the total projected carbon emissions by one billion tonnes until 2030; (4) by 2030, it will reduce the carbon intensity of its economy by less than 45 percent; and (5) by 2070, India will achieve its net zero target.
These commitments significantly enhance India’s already strong Nationally Determined Contributions (NDCs) under the Paris Agreement. The willingness to reduce carbon intensity by 45 percent built significantly on the 33-35 percent committed to in the Paris Summit. As of 2021, India has installed renewable capacity of only around 160 GW, making the planned tripling of installed renewable capacity over less than a decade an aggressive commitment.
India has laid out the green development pathway. There is an essential element in making the pathway real: green development is a shared responsibility of the world. While the developing world must quickly adopt green development, the pressure must also be on those who need to live up to the promises on climate finance.
Locking in the commitments
Bringing together transfer in capital, technology, and capacity for green transformation requires creating the right forums, processes, and structures.
Forums have been created at the global level, across bilateral and multilateral country groupings, between various public and private entities (largely in the financial sector), and many industry-led private initiatives. It is important to build coordination processes that these multiple initiatives and perspectives gain from each other rather than compete for capital or policy space. Appropriate trickle-down or bottom-up engagement opportunities between local, national, and global institutions are required. Financial structuring which can find and match the appropriate risk-taking capital with relevant projects is a crucial piece. Deployment of such capital will call for building national institutions that can channelise large sums of global capital to appropriate projects locally.
All parties should face some incentives and disincentives on the meeting or missing their commitments. As things stand, the global forums help create commitment by various countries, corporates, and investors. Countries report on how they are faring with respect to their nationally determined contributions. There is a reporting, championed by the OECD, which details the flow of funds from the developed world to the developing world. As that report highlights, a very large portion (more than 80 percent) of the funds that flow are equity and debt flows which seek return on their investments. A global order that rewards the meeting of commitments to reduce emissions and to contribute to the global kitty for such investments needs to be developed; similarly, there must be effective mechanisms to deal with non-compliance.
To bring the commitments to life, one proposed model is the creation of national institutions that will (a) coordinate the fund raising from the various entities (commitments made by nation states, grants and transfers by governments or impact funds, commercial equity and debt funds, etc.), and (b) identify the projects or managers to back in the country. Such national institutions will share part of the mandate of the local government as part of its nationally determined contribution. The institution can highlight the gap, if any, between investments required and funding available (from both global and local sources). Such institution will need to develop strong capabilities on monitoring and reporting on climate related outcomes of its investments. Creating institutions that are aligned to link finance to actual outcomes can help create local capacity and deployment.
The ultimate measure of whether the world is getting its climate governance right will be the avoidance of excess heating of the earth with its attendant consequences. The intermediate, measurable steps will be to see the proliferation of financially viable green development policies and projects across the world.
There is a need to have intermediate markers for checking if the investments in climate are yielding the appropriate amount of climate return, apart from financial returns. As more data is collected on the underlying projects helping reduce or absorb emissions, processes to cumulate them (after avoiding double-counting and weeding out greenwashing) need to be put in place. Such cumulative amounts of savings need to be corroborated with the readings of carbon in the atmosphere. An eventual path of Net Zero by countries will mean that the amount of carbon (measured in parts per million) will continue to rise for some time before it starts to stabilize.
Creating measurable metrics on the provision of financing, technology, and capacity, tracking it closely, requiring commitments and disclosures from all countries, and building in accountability can make green development come alive across the world. Identifying and creating these metrics can create the foundation of Net Financing pledges like the Net Zero commitments.
Net Financing refers to the net international investments that a country commits to and delivers. A broad framework to think of Net Finance is to think of Gross Financing that a country invests in green projects and taking out their domestic investments. This is then a measure of the Net Finance that a country provides to the world. The geographic dimension of Net Finance will help showcase the commitment by a country to invest in developing geographies. This basic concept can be detailed and expanded.
It is important to remember that Earth has seen higher concentrations of carbon in its atmosphere in many earlier epochs. Such high carbon atmosphere may not be conducive for human prosperity and survival. It is for the sake of humanity that all carbon action must be directed. This makes it both a global responsibility and grounds for a human movement. We must take the challenge head-on!
The author is with the National Investment and Infrastructure Fund (NIIF). Views are personal.