National Clean Energy Fund “collapses”, yet govt hasn’t devised consistent climate finance policy

solarenergy-india

By Deepak John*

Since 2011, the coal cess has been at the heart of India’s climate finance mobilization strategy. The recent reports suggest that the National Clean Energy Fund (NCEF), formed through coal cess accrual, had collected more than Rs 54,000 crore until early this year. The NCEF was created with a mandate to fund research and innovative projects in clean energy technology.  It was symbolic of a financial promise to lead the nation to low carbon development pathway.

But the news of this fund being diverted for GST (Goods & Services Tax) compensation and other budgetary shortages has cast serious shadows on the government’s commitment. It is highly doubtful that the NCEF would survive or even be revived in the following years. The Government has not been successful in devising a consistent climate finance policy.

The current circumstances call for exploring newer avenues for resource mobilization and address the challenges in the accessing these resources especially private finance. Developed nations have committed to mobilize $100B in climate finance per year by 2020. This is a humongous task. It is impractical to reason that the governments of the developed world alone will be able to conjure up this much. The UNFCCC had taken cognizance of the enormity of this effort by highlighting the support of the private finance in its charter. The Green Climate Fund has designed a private sector facility to enhance private sector engagement. The Report of the Centre for Policy Research acknowledges private finance as the critical link to bridge the climate funding gap.

In India, the private finance route has considerable potential considering mature financial sector and enterprising corporate and industrial sector. Until 2015, around USD 34 billion have been invested in India to mobilise private climate finance, predominantly in renewable energy, energy efficiency and transport sector. However, there are limiting barriers to scaling up that have deterred them from entering this space. The private sector in India faces significant policy, financial, technical and behavioural barriers.

One of the significant barriers is the lack of policy clarity and loose engagement with private sector on climate change policy framework. There has been increasing focus on renewable energy generation due to various incentives like fiscal incentives and generation based incentives. It has been further supported by faster and transparent approvals. This reflects a policy bias toward renewable energy and energy efficiency sector. The government has not incentivized other climate-related fields with comparable enthusiasm. Also, another major factor is limited engagement with private sector for designing climate change plans and strategies.

The private sector has restricted decision-making power in climate change policy process. The private stakeholdership in climate dialogues is limited to weighing in views and opinions. But more often than not, their engagement is impaired by the lack of technical understanding on subject matter itself. As Michael Bloomberg said, “It’s critical that industries and investors understand the risks posed by climate change, but currently there is too little transparency about those risks”.  No one really understands the risks it poses or impact it has.

The climate finance delivery cannot be complete without the engagement of Indian banks and Financial Institutions(FIs) as they form the primary conduit for climate investments. However, the financial landscape for climate-friendly investment is still in its nascent stages. Indian banks have enough funds but they are apprehensive of foraying into these new sectors.  Currently, the loans granted have lower tenure with high interest rates, which raises the cost of capital considerably. Also, there is a need to integrate climate priorities in the various steps of credit appraisal, risk assessments, project implementation and monitoring.

A lack of comprehensive project evaluation framework deters private finances. However, private banks like Yes Bank have taken a proactive lead in including climate change and sustainability component in the project evaluation process. In 2015, it aimed to mobilize USD 5 billion from 2015 to 2020 for climate action through lending, investing and raising capital towards mitigation, adaptation and resilience.

Interestingly, a bright spot in India’s private finance setting is CDM financing, which is a creative market mechanism to fund projects. India is the second largest recipient of CDM projects after China, with a total of 563 projects till 2014, representing almost 33% of CDM projects in Asia and 22% of CDM projects worldwide as per the Ministry of Finance (MoF).  CDM or clean development mechanism allows a country with emission reduction target under Kyoto protocol to implement emission reduction projects in developing countries.

Implementing these projects helps developed nations to either offset emissions which were discharged above their stipulated quota or gain CERs (Certified Emission Reduction) that are tradeable in carbon markets. For the developing nations, this route provides for funding domestic projects. A win-win for both developing and developed countries under Kyoto framework. In India, it was found that CDM projects are concentrated in states that are more industrialised, such as Gujarat and Maharashtra. In contrast, poorer and less industrialised states generally implement fewer CDM projects. India needs to diversify its CDM investments with an overarching policy structure in place for all the implementing states.

Private finance route can amply supplement public finance if there is coherent and coordinated mechanism to set common priorities for climate action. This calls for a more proactive engagement with the private sector. This will also lower behavioural attitude that assumes climate-borne compliance as just another burden.

*Senior Research Associate, Institute for Sustainable Development and Governance, India, researches  on inter-linkages in climate change, environment and alternative energy in the context of sustainable development

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s