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CFI Newsletter #1: Relooking India's Climate Goals
+ growing climate bonds, the struggles of DRE, subsiding renewable subsidies, and a finishing school for climate data analytics firms
Shravan: I’m writing this as Chennai, where I live, is in a week’s lull between a cyclone that has just passed and another that may develop. This almost never happened in the far past but it would be the second time in 5 years. I’ve probably heard people saying “Climate Change in action” in the past week more times than ever before.
Simmi: Extreme weather events like what we are seeing in Chennai only go to show the urgency that is needed for positive climate action. And because none of this climate action would happen without significant breakthroughs in the financing world, it seems apt timing to launch this newsletter and bring the challenges and triumphs of climate finance into focus each fortnight.
Climate Finance has a newsletter
Welcome to the Climate Finance Initiative Newsletter.
We set up the Climate Finance Initiative (CFI) to research, design and pilot the structures we need for an effective financing ecosystem for climate action in India. This newsletter offers you consistent and quick digests and insights around what is happening in climate finance, especially around private action. While CFI’s initial focus of work is India-centric, we will capture a global perspective of climate finance in this newsletter on a fortnightly basis.
It is not yet another newsletter as Climate Finance does not currently seem to have such a platform (but do point us to any that we have missed).
This initial newsletter has been sent to all those that have signed up directly, we have already spoken to, or have signed up to access our report on The State of Climate Finance in India: A Roadmap to 2030 for Private Action. If you find it useful or interesting, we highly appreciate you sharing the love among your network and people you feel would find this valuable.
Climate Finance Initiative has a report
Our starting point to collaborate and engage with the ecosystem is the report on The State of Climate Finance in India: A Roadmap to 2030 for Private Action: a packed 23-pager including a critique on India’s Climate targets, what our Climate Goals should actually be, how we should finance the USD $100 billion additionally needed to achieve them, and introducing new financing structures we need to mainstream different climate action areas. It is the first of more reports to inform you and engage with you on what can be done towards strengthening climate finance.
To those who have had a look at the report, we would love to reach out to understand your thoughts and viewpoints, so do expect a mail from us in the coming days.
Climate Finance by the Numbers
The cumulative issuance of climate / green bonds under the Climate Bonds Standard
This is an important milestone. The issuance of climate and green bonds have at times been problematic, with even coal plants getting in on the act - surely as contradictory as things can get. The Climate Bonds Initiative was set up to certify that only projects and activities that created climate or environmentally positive benefits would be able to issue such bonds. Issuing $50 billion since December 2019, in particular, shows the rapid acceptance of the Climate Bonds Initiative as the route for green bonds. India is growing into this market with $5.4 billion certified green bonds issued under the Climate Bonds Standards.
The success rate of financing attempts of entities in the Decentralized Renewable Energy (DRE) sector in India
This low rate of successful financing (which includes debt, equity, CSR, grant, and other sources) as given in the CLEAN Network’s State of the DRE Sector in India 2019/20 report highlights the incompatibility of existing financing structures for companies in the DRE space. Entrepreneurs have stated that a lack of adequate and proper financing channels as the main barriers to growth and market access; investors highlighted the lack of collateral among entrepreneurs and the seasonal nature of incomes. As a potentially $100 billion dollar market, this shows the need and opportunity for financing approaches to fit the nature of such sectors and the lifecycle of entities under them. This is something fundamental to what we are trying to create with CFI.
The reduction in renewables - renewable power and EV - subsidies in India from 2017 to 2019
In the same duration of 2017 to 2019, subsidies to the fossil fuel industry have grown by 46%. Although India has set ambitious goals for renewable energy, statistics like this tell a different story that makes you wonder about the effectiveness of such goals. In addition, total subsidies to coal, oil and gas are 7X the subsidies provided to renewable energy and electric vehicle sectors, showing the outsized level of the industry, and the support afforded to it. This is one trend we would want to see reversed if India is to carry through a serious commitment to phase out fossil fuels in favour of clean energy.
India is on course to exceed its Paris Agreement targets, but is it enough?
We are trying not to be your typical downer pulling negatives out of everything positive. Honest.
A headline of the past couple of weeks has been that “India is on course to exceed its Paris agreement targets”. This is, of course, positive news, but there is a lot more behind the headlines, with which we should temper celebrations a little.
First, the targets set out are not very ambitious.
Reducing GHG emission intensity against GDP will not lead to a reduction of GHG emissions; we need climate action targets in areas beyond renewable power addition; and climate adaptation priorities are completely missing from targets - planting trees to create carbon sinks will not make our cities resilient against today’s extreme weather effects of climate change. We take a look at this in The State of Climate Finance in India report, and propose three other Climate Goals for India:
Aim for 100% renewable energy which is efficiently consumed
Aim for Sustainable Agriculture and Food Security
Aim to Build Resilient Cities
India has an aversion to setting targets on absolute emission reductions. The reason stated often is that bringing millions of people out of poverty requires economic growth which can be curtailed if GHG emissions of industries are capped. There is merit to this argument, but we cannot keep hiding behind it. What’s the value of increasing people’s livelihoods if their quality of life deteriorates and is comprised?
Setting net-zero and emission reduction targets are becoming the norm as we become aware of the need to act more. It is not just economic behemoths of China or the EU; even Indonesia - a similarly emerging economy with a large population and a fossil-fuel heavy grid mix - has set targets for reducing absolute emissions by 2030. India does not need a blanket reduction across all areas. Emission reductions targets can be sector-specific. With a 450 GW renewable energy commitment by 2030, which is a very commendable and ambitious target, you would think the energy sector in India might be able to show absolute reductions targets.
And yet perhaps not. India’s COVID-19 recovery plans are going to continue future investments in coal power. This is a curious step when you account for a phase-out policy being adopted to decommission older coal power plants, while utilization of coal plants has dropped to their lowest level in years, around 53% of capacity, in a non-COVID-19 affected 2019.
Every 5 years until 2030, countries have to resubmit their Nationally Determined Contributions (NDCs) towards the Paris Agreement - the efforts taken to reduce national emissions and adapt to the impacts of climate change. December 2020 is when the next NDCs are due to be submitted. India has not submitted its yet. While we are curious to see what the new efforts are, there is not likely to be much change which is quite not enough towards acting on climate change.
Green Bonds are not just for solar projects
India has been no laggard when it comes to green bond issuance. Starting with the first masala bond issuance in 2015, Indian issuers have closed green bonds of around $28 billion so far. There have been two categories of issuers raising funds via green bonds. The first set is financial institutions, the likes of SBI, IREDA, Yes Bank and Indian Railways Finance Corporation entering the space. The other type of issuers we have seen are project developers. However, in both cases, the green bonds in India are being almost entirely used to build solar capacity.
The Climate Bond Initiative recently published detailed findings on global green bonds which we thought it is worth looking into, to see what the rest of the world does with green bonds.
It goes to a lot more than solar.
We hope this sentiment carries on further among entrepreneurs in India. Areas from low carbon buildings, transport, water infrastructure - areas that are increasingly important for India - are wide open markets for tapping into the green bond market. Entrepreneurs and financial institutions, look further! There are investors and possibilities of funding in a very liquid market outside solar.
Engaging with CFI
We have been engaging in quite fascinating conversations that have helped us to understand the climate finance scenario more. In the course of these, we realised an absolutely key stakeholder to build the financing ecosystem that deserves their own focus - number crunching and data analytics solutions that improve the decision-making or information access to financing entities, helping them enter the more pioneering sections of climate action.
They also happen to be a category which, in their own honest words, struggle to access the financing and funding entities that they can augment - it is largely either a lack of understanding of positioning what they offer or access.
Towards this end, we are designing a finishing school-type program to work and support such solutions and companies to reach out and engage with financing and funding entities.
If you are interested, do reach out to us here:
That is that for Edition #1 of the Climate Finance Initiative Newsletter.
We hope you found it useful or interesting. If you did, do let us know. If you didn’t do let us know, as well. It is how we will get better.
And of course, we do appreciate you spreading the word about this newsletter:
Simmi Sareen and Shravan Shankar