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India’s Climate Finance Amid US Climate Withdrawal
US climate withdrawal spurs rethink on green funding
Context: In response to the United States’ withdrawal from the Paris Agreement earlier this year, India is revamping its climate finance strategy with a renewed focus on multilateral, bilateral, and private sector funding sources.
Global Climate Finance Shift After US Exit
- Blow to Climate Action: The US exit from the Paris Agreement on January 20 dealt a significant blow to global climate action, creating a funding vacuum in the international climate finance ecosystem.
- The move also included the US withdrawing from the board of the newly established Loss and Damage Fund, aimed at providing financial aid to countries suffering from climate-related disasters.
- COP 29: At COP29, the US had pledged substantial contributions toward a new $300 billion climate finance goal.
- However, with its abrupt exit, developing nations like India must now navigate a shifting landscape with reduced multilateral support.
India Turns to Bilateral and Multilateral Alternatives
India plans to increase engagement with international partners to secure funding for climate resilience projects. Key channels include:
- Indo-German Bilateral Partnership
- Green Climate Fund (GCF)
- Global Environment Facility (GEF).
- Multilateral Development Banks (MDBs) such as the Asian Development Bank (ADB) and the International Bank for Reconstruction and Development (IBRD)
Domestic Resources Still Drive Majority of India’s Climate Action
- Despite modest international funding, India’s climate response remains largely self-financed.
- According to a written reply by Environment Minister Bhupender Yadav in the Rajya Sabha, India had received $1.16 billion through the UNFCCC financial mechanisms as of February last year:
- $803.9 million from the Green Climate Fund
- $346.52 million from the Global Environment Facility
- $16.86 million from the Adaptation Fund
- However, the majority of India’s climate mitigation and adaptation efforts have been funded through domestic resources.
Economic Survey 2024-25 Emphasises Climate Resilience
- The Economic Survey emphasised the need to prioritise climate resilience to safeguard the economic gains made over the past decade.
- It highlighted the growing challenge of dwindling global financial commitments and stressed the importance of domestic resource mobilisation as the primary means to support climate ambitions.
Green Climate Fund: Inadequate for Global Needs
- India’s Fourth Biennial Update Report (BUR) to the UNFCCC, submitted in December 2024, criticised the Green Climate Fund’s current size of around $16 billion, calling it inadequate to meet the vast requirements of developing countries.
- Although the GCF’s second replenishment round (GCF-2) has seen a modest increase in pledges compared to GCF-1, the overall fund size remains insufficient.
- Moreover, GCF funding demands high co-financing from developing nations, typically sourced from their own public funding, further burdening their fiscal capacities.
Government Focus on Blended and Concessional Finance
- India is now exploring blended finance models to maximise climate funding.
- By using concessional finance—low-cost loans or grants—as a leveraging tool, the government aims to mobilise significantly larger pools of capital.
- This strategic move is expected to amplify the impact of green investments and accelerate the rollout of climate adaptation and mitigation programs.
- Additionally, the government is working to set up new climate funds that pool resources from various sources, further enhancing the financial ecosystem supporting India’s green transition.
