Last month, the IMF published its analysis which says one-third of the global economy is set to contract this year or next , amidst shrinking incomes and rising prices. There are multiple influences at play. The global economy continues to face steep challenges, shaped by the Russian invasion of Ukraine, a cost of living crisis caused by inflation pressures, and the slowdown of China.

There is chaos in the real world and that is being seen and felt closely by everyone. For some, it is the rising energy prices caused by the historic economic sanctions by the EU on Russia and its resultant politics; for example, the UK. For some others, like Pakistan, it’s the punishing impacts of climate change in the form of rains. Overall, the three largest global economies, US, China and EU continue to stall.

Europe experienced its worst drought in 500 years, affecting cargo transport, power production, drinking water, animal products (including meat and dairy), and crops. In the UK, half of potato and carrot yields have been lost this year. The US and China suffered the worst ever heatwaves this year. Deadly floods in Pakistan created a 100-km wide inland lake while causing unprecedented loss of life and property. Pakistan’s glaciers are melting faster, creating lakes. Nothing surprising here. But it is sad.

The Indian heat wave was torrid with temperatures touching 49 degrees Celsius as early as March. There was no spring. At one point, India started to export wheat and was thinking of saving the world from the global food crisis initiated by the Russia-Ukraine war. Later, driven by an intense heatwave it stopped export of wheat. This is what climate change has led to.

Temperature control

In the backdrop of all these multiple crises, poly-crises as some thinkers are calling it, remains the urgent imperative to reduce greenhouse gas emissions. To make sure that we don’t breach our collective responsibility that the world’s average temperature must not rise more than 1.5 degrees above pre-industrial level. This was agreed at the Paris Agreement. We know that the world is 1.2 degrees warmer than pre industrial level. Given the inertia of the system and warming potential of emitted gases, it is highly likely that the 1.5 degree breach could happen unless drastic cuts are not made. For some, now it’s just a matter of collectively coming together such that the overshoot is not too big.

Amidst all these hard truths, the 27th Conference of the Parties to the United Nations Framework Convention on Climate Change (COP27) began in Sharm el-Sheikh, Egypt, from November 6. All the main responses needed to cut emissions — climate finance, shunning coal dependency and enabling just energy transition, talking about a collective global goal of finance, enabling funding to adapt to climate change — will be discussed as world leaders gather. It’s worth noting that among the doom and gloom, the opportunities for clean energy transition remain the same, if anything only more imperative.

For India, the main focus this year at COP will be on enabling ‘climate finance’, where it will push for better financing options and opportunities for G20 countries. As India prepares to assume the presidency of the Group of 20, after the G-20 in Bali, Indonesia, it wants to take a lead and talk about climate justice; make a call for accelerated climate action only through enhanced climate finance support.

UNFCCC describes climate finance as, “local, national or transnational financing — drawn from public, private and alternative sources of financing — that seeks to support mitigation and adaptation actions that will address climate change.”

Climate finance is necessary for mitigation because large-scale investments are required to significantly reduce emissions. Climate finance is also equally important for adaptation, as significant financial resources are needed to adapt to the adverse effects and reduce the impacts of a changing climate.

Mitigation costs

Dhruba Purkayastha, Executive Director, Climate Policy Initiative, says that even though investments are cheaper in emerging economies, they are happening more in OECD economies. He explains that the cost of per unit CO2 mitigation in non-G7 countries is half of that in G7, however the capital is not going to emerging economies.

Investments are happening in G-7, simply because they are based on the principle of making returns and unless measures to reduce risk for international investors putting money in clean grid, clean energy or clean transportation projects are not set in place, investments will not flow where they must. He further explained that such risk mitigation will work by creating institutions which are not in the country, making a strong case for an independent supra-sovereign structure to mitigate risk of investments towards emission reduction across multiple developing and emerging economies.

Experts point out that collectively, there is far less than $100 billion per year globally which was the agreed goal, but the world needs around $5-7 trillion per year for mitigation. That’s six times the level we are operating in. The question: can the global financial system try and reach this level? Experts believe that it is feasible. Finance is a massive engine with around $225 trillion in credit. It’s a matter of setting systems which force the banks and institutional lenders to start to reallocate funds towards the direction that it needs to go. Political will is crucial.

Indian experts, like ex-negotiator RR Rashmi, call for ​​setting a principle of finance. Just like there is a principle for nationally determined contributions, he argues there must also be a principle for contribution, which right now doesn’t exist. The Indian government will make a strong case for the need to specify the quality, scope and scale of finance. Building transparency and ensuring progress on finance will be India’s emphasis both for COP27 and G20 to demand that the developed world steps up its commitment and meets a collective goal.

The tone India sets on finance for climate action will not only be crucial for the success of this COP and the G20 but it will also end up creating South-South reverberations as the next G20 is in Brazil.

The writer is Director, Climate Trends

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