Bengaluru: “We need to focus on the realities of today’s world, a world which is not equal; some countries are responsible for climate change, while others are sufferers. Those responsible should be obligated to make up for it, those with the capacity to help should do it, and the sufferers should be compensated. In all this, everyone needs to work together. Delayed action will cost us more, with emissions going up, losses ballooning and sufferings increasing”, explained Suresh P Prabhu, Member of Parliament, Former Union Minister and India’s Sherpa to G7 and G20, in his special address on ‘India’s Perspectives on Paris Agreement on Climate Change’.

Mr Prabhu was speaking at the international virtual conference on ‘Resource Mobilization Challenges and the Climate Finance Architecture in the Aftermath of Covid 19’, held on February 10 (Wednesday), 2021, from 08.15 pm. Professor A Damodaran of the Economics & Social Sciences area of IIMB led the conference. IIM Bangalore has been pioneering studies on environmental financing, climate financing and biodiversity financing since 2008.

Mr Suresh Prabhu spoke of the need to implement key elements of the Paris Accord. “We must take stock of the long journey that UNHCC has made over the last few decades,” he said, urging that the right lessons be learnt from Kyoto as well. He went on to say that measures need to be taken in whatever manner possible, the Paris Accord being one such example. Emissions have to be curbed, adaptation to climate change has become essential, along with mitigation. In fact, a balance between adaptation and mitigation would be crucial, he recommended.

In the context of Covid, he said, that has led to economic poverty, but people can be driven to poverty due to climate change also. Hence, we need to integrate policies for climate change with economic policies. Financing has to be given priority, both from public as well as private sources. Deployment and development of technology like Artificial Intelligence will play a key role. But there should be an ethical protocol of technology to avoid unknown problems. “The Paris Accord is probably our last chance. Hence, I welcome the US to come back. They have the intent and the ability to tackle the issue.”

Discussing how we can move forward with the Paris Accord, he said we must forget all discord and work on the accord in the larger interests of the whole world. “Global cooperation is necessary and therefore I welcome the idea of heterogeneous instruments to achieve this as the world is not equal. The planet is one, no one has immunity from these issues, so we need to address the challenges together.”

A panel of other policy makers, experts and financiers specialized in climate finance drawn from international and national settings participated in the conference.

The webinar broadly discussed the following issues: the crisis of Climate Financing in a COVID 19 world; relooking Climate Finance strategy for resource mobilization to implement National Determined Contributions (NDCs); new norms of project financing to accelerate early-stage financing of new enterprises, and in the light of the pandemic and efforts in the realm of digital currencies, if we need to revisit the conventional financial architecture of Climate Financing for fulfilling the goals of Article 9 of the Paris Agreement.

Need for new architecture

Prof. Damodaran, in his overview, explained the logical structure of the webinar, against the backdrop of Covid 19, the advent of the Biden Presidency and the Glasgow Climate Summit later this year.

In his presentation on ‘Relooking Climate Finance Strategy for Resource Mobilization’, Prof. Damodaran spoke about the need to try new financing models that go beyond the trust funds approach and social costs reflecting carbon markets. He discussed market and non-market sources of financing, and listed the vehicles of financing (public financing, private companies and trust funds) but said resource mobilization has to go beyond these sources and vehicles. “Donors would want to know how the projects have performed. The new climate finance architecture at the global level should address concerns at the local level.”

In his talk on ‘Implications of Article 6 of the Paris Agreement on Climate Change’, Prof Robert N Stavins, A.J. Meyer Professor of Energy & Economic Development, John F. Kennedy School of Government, Harvard University, after elaborating on the balances ensured by Article 6 of the Paris Agreement, talked about the importance of both top-down and bottom-up approaches to significantly ensure the baseline emission situation or Business as Usual situation.

Sustainable growth

A talk on ‘Implications of EU Green Deal on Article 6 of the Paris Agreement’ was delivered by Zsolt Lengyel, Secretary, Institute of European Energy and Climate Policy, The Netherlands. He spoke on carbon neutrality and the European move to sustainability. “The Green Deal states that economic growth is not a goal in itself. It needs to mean sustainable economic growth, improved energy security, increased resilience, and mainstreaming climate action. Climate and digital transformation are keys to such sustainable growth. India has come a long way in demonstrating commitment to climate by taking measures such as electrification of transport and clean energy transition from coal to green power,” he said. “Globally, pandemic recovery and climate change issues should be combined.” From what he has seen so far in his EU work in India, Zsolt said India and EU are natural partners due to India’s size, skill and potential. “There is considerable scope for government-to-government cooperation. Technology transfer should not be a limiting factor,” he added.

This was followed by a talk on ‘Cross Country Experiences with NDCs’ by Dr Robert Stowe, Executive Director of the Harvard Environmental Economics Program, Harvard University. He explained that Article 4.9 of the Paris Agreement encourages countries/parties to make each of their successive NDCs more ambitious to reduce greenhouse gases. “Seventy-two countries have already submitted their second NDCs. The Paris Agreement has near universal agreement compared to the Kyoto Protocol. But it is important to note that this level of participation which is a great achievement is indeed achieved with regard to the ambiguity of the content of the NDCs. National governments are free to design NDCs according to their capabilities, aspirations and interests. Domestic measures will go a long way in curbing emissions. We, as human beings, cannot focus on challenges alone as potential damages are huge. We need to focus on what we can do and a lot of it is embodied in the Paris Agreement,” he added.

Onno Van Den Heuvel, Global Manager, the UNDP Biodiversity Finance Initiative, spoke about ‘Cross-Cutting Potential’. He discussed Cross-Convention Impacts of the Paris Agreement and Biodiversity Finance Plans, including the plan designed for India after stocktaking. “We help calculate how much finance a country needs to meet its biodiversity goals,” he said, giving examples of BIOFIN’s work in Guatemala, Zambia, Kazakhstan, Sri Lanka and Philippines. Sharing BIOFIN’s vision along with its activities, he said: “We have to see how strong action on climate change can impact biodiversity. There are potential negative impacts from the installation of windmills or hydel power projects. We need to strike a balance using technology and innovation, to mitigate the negatives.” It was pointed out during the conversation that Biodiversity is a core part of the European Green Deal and it will also support a green recovery following the Covid-19 pandemic.

Project financing and the way forward

The conference also saw discussions around ‘Are new norms of project financing necessary to accelerate early-stage financing of new enterprises called for?’

Pawan Agrawal, CFO, Azure Power, New Delhi, with experience in solar power installations, explained that while global capital has been increasing, there is a challenge when it comes to financing the building of green projects. Explaining what happens at the project financing end, he said: “Things have come a long way in the last 10 years but banks in India still want all projects – highway, solar, infra – to finish their documentation/groundwork before the contract is signed or loan is advanced. This one-size-fits-all approach is not correct.” However, he added that India offers phenomenal opportunities for this sector, and that global capital is pouring in supporting capacity building.

Aarti Ramachandran, Director (Research & Engagements), FAIRR.org, UK, spoke of the role of equity markets in funding environment projects. “There is a lack of understanding about global food systems and the way it relates to global greenhouse emissions. There is a tremendous opportunity to effect change in specific sectors like livestock farming, prevent conversion of mangroves into shrimp farms (in Asia and specifically India) and bring down unsustainable farming practices relating to animal protein,” she said, setting the context for project financing. Emphasizing the need for innovative funding models, Aarti said: “The Netherlands, for instance, is making financing available for farmers who want to transition to different livelihoods, and Singapore is making huge investments in alternative protein.”

She added that this sector has a lot of risks and needs a shift in norms of project financing. “Financing needs to help projects like soil health, better animal security practices, and use of antibiotics in animal feed needs to be curbed as it might result in a superbug which is resistant to antibiotics. Financing towards new technology is essential.” Explaining the EU’s ‘Farm to Fork’ strategy and the EU Taxonomy, she said scrutiny of supply chains for animal husbandry should be a key focus.”

The plenary, that followed the presentations at the workshop on resource mobilization, ‘Do we revisit the conventional financial architecture of climate financing for fulfilling the goals of Article 9 of the Paris Agreement?’, examined whether there is a need for a new finance architecture with Zsolt arguing for greening the financial system to make it sustainable, Dr. Robert Stowe calling for rapid technology transfer and Onno pointing out that fintech could play a big role in this new architecture.   

Prof. Damodaran concluded by saying that we need a different approach towards climate finance architecture based on the flow of finance to de-bottleneck critical financing projects. He also pointed out that greenwashing needs to be done away with.