India @COP27: Why Development & Not Climate Finance Should Be Govt's Top Agenda

COP27: If fate turns, India might end up being a contributor to Loss and Damage Fund instead of being a recipient.

COP27 was held in Sharm-el-Sheikh, Egypt from the 6th to the 18th of November. 

Photo: UN

Income and wealth prosperity of the industrialised North has indeed been built by processing minerals and extensively burning fossil fuels dug out from the bosom of the earth with coal occupying the primacy of place for most of the industrial era.

Accumulated global carbon stock at the centre of climate change is the harmful by-product of this toxic bru of materials and fossil fuels.

Industrialised countries kept all the upside—fast GDP growth, income generated and wealth created. Carbon by-product on the other hand, was socialised and globalised with the non-industrialised South suffering from their ill effects primarily.

• Rising carbon stock causes global heating which led to significant climate change. It affects both the developed North as well as semi-industrialised and unindustrialised developing South.

• Global south, therefore, understandably wants climate justice. Their idea of climate justice is for the industrialised countries to pay for their past excesses.

• Same interests have finally persuaded the industrialised North to finance in form of a Loss and Damage Fund.

• Growth and development can be accelerated by adopting right policies and using domestic resources efficiently

Industrialised North Vs South

Industrialised countries are the developed countries of our world. Countries in the process of industrialisation and those catching up are developing and emerging market countries. Those unlucky ones which could attain very little industrialisation are the least developed ones.

These developing and least developed countries are coincidentally located in the south of the industrialised countries. This global South rightly feel short-changed and the victims of the excess of industrialised North.

Clamour for Climate Justice and Finance Intensifies

Rising carbon stock causes global heating which has led to a significant climate change. It affects both the developed North as well as semi-industrialised and unindustrialised developing South.

In an irony of geography and natural fate, the developed North responsible for much of the stock of carbon emissions is likely to suffer much smaller consequences of climate change. The global South—only marginally responsible for climate change until very recently, however, is suffering and would suffer much greater loss and damage on account of climate change.

Global south, therefore, understandably wants climate justice. Their idea of climate justice is for the industrialised countries to pay for their past excesses.

The industrialised countries do know that the developing countries in their quest for industrialisation, will cause big carbon build-up in future unless stopped in their tracks from using fossil fuels. They are, however, not prepared to accept any historical responsibility.

To keep the developing countries engaged and not to let the planet embark on the common suicidal path of further carbon build-up, they are willing to make some concessions in the form of providing clean energy technology and also some finance.

This concordance of developing countries’ desire to be compensated and developed countries’ interest in stopping further carbon-emitting development led to the industrialised North in 2009 offer USD 100 billion a year by 2020 in Copenhagen.

The same interests have finally persuaded the industrialised North to finance (amount not specified) in the form of a Loss and Damage Fund, the developing countries which might suffer the worst consequences of climate change.

The USD 100 billion climate finance did not yield any significant grant or real concessional finance to the developing countries. Will the Loss and Damage Fund do better?

How Is India Going To Benefit?

The Copenhagen promise has remained unredeemed.

The Copenhagen declaration committed the developed North “to a goal of mobilising jointly USD 100 billion dollars a year by 2020 to address the needs of developing countries”. As happens in these negotiations, the commitment was couched in unspecific language.

At one place in the Copenhagen accord, the commitment was “to provide new and additional resources”. It was also promised that “a significant portion of such funding should come through the Copenhagen Green Climate Fund”. Developing countries hang on to this and expected industrialised countries to provide additional development assistance mostly in grant and concessional form.

Later in the declaration, a somewhat dilutionary language was used to record that “this funding will come from a wide variety of sources, public and private, bilateral and multilateral, including alternative sources of finance.”

There has been massive wrangling over the definition of climate finance and the import of USD 100 billion a year pledge. Developed North goes by the report that OECD's annual production depends on how many green dollars have flowed in.

Copenhagen Accord and Climate Finance Deal

The latest OECD report for 2021 claims that USD 83 billion were delivered against the USD 100 billion pledge in 2021. OECD counts funds flow through four sources- multilateral finance (multilateral funding tagged as climate finance as per their definition in the ratio of the share-holding of developed countries), bilateral finance (Official Development Assistance-ODA including concessional credit, aimed at serving climate finance objective), export credits for green projects (though miniscule) and private finance (private debt and equity invested in green projects of developing countries).

There is very little of new and additional grant finance in USD 83 billion. Multilateral agencies like World Bank and ADB, have directed a part of their normal financing for development projects for SDGs and tagged these as climate finance projects. There is considerable evidence that Official Development Assistance (ODA) did not increase. Private finance (FDI and debt) comes for green projects on purely commercial consideration which would have been the case if there was no Copenhagen accord.

Green Climate Fund (GCF) was established. Until 2016, it got equity contributions of only about USD 10 billion. India has hardly received commitments of about USD 1 billion so far.

Donald Trump, accusing India of being the big beneficiary of GCF at the cost of American taxpayers cut off American investment in GCF and walked out of Paris Convention. The GCF has trudged along thereafter, providing financing of about USD 1-1.5 billion dollars to the developing countries a year.

COP’s Loss and Damage Fund

The relevant decision text notes that the Conference of Parties (COP) ‘establish a fund for responding to loss and damage whose mandate includes a focus on addressing loss and damage.'

To further restrict the recipient of the Fund, COP agreed to establish the new funding arrangements “for assisting developing countries that are particularly vulnerable to the adverse effects of climate change”.

To make sure that no one entertains any expectations of new additional or grant resources, the COP decision further notes that “these new arrangements complement and include sources, funds, processes and initiatives under and outside the Convention and the Paris Agreement”.

There could not have been a vaguer commitment for correcting climate injustice. Fund size has not been specified. No new grant resources have been committed. The Fund will only complement and include resources earlier committed.

If you look at what happened to the USD 100 billion a year pledge and to the Green Growth Fund, you can very unhesitatingly assume that the Loss and Damage Fund would not deliver even USD 20 billion in the next 10 years to the developing countries.

Why Is India Chasing Climate Finance Justice Chimera?

India was at the forefront of the coalition which fought for common and differentiated responsibility of developed and developing countries in Rio in 1992.

India was also in the lead when Barack Obama and others in the developed north agreed in Copenhagen in 2009 to provide the climate finance of USD 100 billion per year by 2020.

India again led from the front to negotiate hard to get the Loss and Damage Fund in COP27 held in Egypt last week.

The reality is that the climate finance of USD 100 billion a year by 2020 has remained effectively a paper/pledge illusion. The Loss and Damage Fund is likely to meet the same fate. India is unlikely to get anything. In a turn of fate, India might end up being a contributor to the Loss and Damage Fund instead of being a recipient.

Given the fate of climate finance commitments, why is India wasting its energy and time on negotiating these worthless agreements?

In the Industrial Age, countries developed by building industrial production capacity and exporting to the developed countries. Many countries in the global south- South Korea, Taiwan, Malaysia developed industrially.

Even after Copenhagen Accord happened, China and other East Asian countries continued to invest in industrialisation including using coal extensively without waiting for finance from the global North.

China’s Post Industrialisation Climate Startegy

Industrialisation in China led to it consuming 50% of global coal in 2010s. China paid lip service to climate talk until it needed to industrialise. It also invested in the development of alternative energy and transportation technologies.

China’s fossil fuel consumption led to massive pollution as well. At one point of time, the majority of 25 most polluted cities were in China. Once it reached upper middle-income status, it started cleaning up the environment and mainstreaming new energy technologies. China is now a USD 11,000 per capita income country. No Chinese city is now in the top 25 most polluted cities.

Instead of chasing climate finance chimera, we should focus on developing India.

What should India do To Have A Climate-Safe Future?

We need to catch up on industrialisation and seize on the new opportunity of digitalisation and energy transition.

Fortunately for us, alternative solar and wind energies have become commercially competitive by now. By liberalising solar and wind energy generation and distribution, we can reduce industry energy costs massively.

By favouring energy generation in place of making cells and modules in India by doing away with excessive duties of their import, Indian government can unleash establishment of green energy. By establishing mega pit head coal plants (and dismantle inefficient old technology coal plants far away from the coal mines), India can also maximise use of its coal reserves.

Growth and development can be accelerated by adopting right policies and using domestic resources efficiently. Let us get over the victimhood of the past. Let us just separate the climate justice and climate finance from the rest.

We should focus on building digital and environmental economy of 21st century by using the technology and resources of current times and our excellent and promising human resources.

(The Author is the Chief Policy Advisor, SUBHANJALI, Author: The $10 Trillion Dream and Former Finance and Economic Affairs Secretary, Government of India. This is an opinion piece and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)