ISSN 2330-717X

A New Delineation Of Green Transition Through Green Finance: Expectation From COP27 – Analysis

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By Nilanjan Ghosh

The notion of a “green transition” has so far been delineated, in large parts of the world, through energy transition only. This implies fuel-mix change by shifting towards renewables from traditional fossil fuel use. Somehow, the underlying fact that energy transition alone will not resolve the problems of climate change lurks somewhere in the background of this dominant reductionist paradigm of green transition.

Humanity’s unbridled development ambitions and the inherent penchant for economic growth and urbanisation have been driving land-use change from the natural ecosystem (e.g. forests, grasslands, and coastal ecosystem) for creating physical infrastructure. This not only impedes the capacity of such natural ecosystems for additional carbon sequestration but also dents its capacity of stocking the carbon. Rather, with land-use change, the historically stocked carbon gets released, thereby, hampering a critical regulating service of the ecosystem. Policymaking machinery (mostly of the Global South) seems oblivious to the fact that such losses cannot be substituted merely through an energy transition. Rather, unrestrained land-use change that replaces natural capital with physical capital negates the positive impacts that would otherwise be obtained through movement to renewables.

Therefore, mitigation projects should not be looked at only through energy mix change. As such, one of the perennial problems of the global climate negotiations is the missing dimension of ecosystem services (i.e., services provided by nature free of cost to the human society). This has two connotations. Firstly, at the negotiation table, there is an ignorance of nature’s capacity to regulate the climate. Secondly, none of the negotiations acknowledge the important role that the ecosystem plays in human life. The importance of ecosystem services was highlighted by Pawan Sukhdev in 2009by interpreting the same as “GDP of the poor”. The paper revealed that 57 percent of the poor’s incomes in India is sourced from nature. Recent estimates of the ecosystem dependency ratio (ratio of monetary value of ecosystem services and the income of the community) revealed that in certain parts of South Asia, the ratio is greater than unity. This implies that the ecosystem-dependent poor community obtain more benefits from the natural ecosystem than from the economy. Therefore, the extensive land-use change causes losses to the ecosystem services, thereby, hampering the well-being of the poor. On the other hand, forces of global warming and climate change also impede these ecosystem services (e.g., saline water intrusion in coastal areas due to sea-level rise destroys the natural soil fertility).

In this context, there is another concern needs to be highlighted. In many parts of the Global South, mitigation activities will not help. They will need to adapt. However, while there is ample scope for funding mitigation projects, the opportunity for adaptation financing is limited. This has created an inherent funding bias in favour of mitigation activities. Therefore, the term ‘green financing’ has become closely associated with ‘green transition’, and is largely focused towards funding renewable energy projects. Adaptation, then, seems to be an activity that is a need for the Global South but is hardly acknowledged by the Global North.

This funding bias in favour of mitigation and against adaptation can also be attributed to other reasons. First, investment in mitigation projects (e.g., electric vehicles) yields perceptible economic returns in the short run. As an example, operations and maintenance costs may be lowered when investments occur in energy efficiency or in renewable energy projects. Such cost savings occur at the very private level. Second, investments in adaptation projects have a “public good” nature, and often with long gestation periods, whose returns are largely imperceptible. One such example can be “accommodative climate-resistant” infrastructures, where the benefits of the additional costs incurred will not be perceived if extreme events do not occur in the short run. The reason for adaptation projects like “strategic retreat” not finding enough traction lies with high gestation periods and imperceptible impacts. Thirdly, private sector funding is looking at rates of return that do not really often make financing “public goods” like adaptation projects viable investments. One of the reasons why in COP27, the voice of the Global South is now being heard in the direction of adaptation funding is because of the above-mentioned reasons.

A new delineation of green transition

Green transition cannot be looked at through the reductionist lens of energy transition only. Rather, it needs to be more holistic: It should be looked at as a transformation to a green economy that will entail a climate-resilient better life. What does that imply? This implies a holistic change from the macro level to the very individual level. At the 2021 UN Climate Change Conference (UNFCCC COP26), Indian Prime Minister Narendra Modi announced Mission LiFE, to align individual human behaviours with the global climate action narrative. This will entail a “healthy and sustainable way of living based on traditions and values of conservation and moderation, including through a mass movement”. This change, in the Indian context, is tantamount to the very new delineation of green transition. This implies a retraction from our business-as-usual consumerism of the modern society that is marked by high levels of consumption. On the other hand, consumption is slated to be the prime driver of Indian growth. Under such circumstances, for a growing nation also facing challenges of distribution and poverty, it becomes imperative that the transition needs to be financed in a proper way to overcome its developmental challenges.

Therefore, the important concern here is that we also need a more holistic notion of green finance to support the green transition. For the Global South, the green transition is in no way a costless affair, but is actually a very “costly” one, which can even cost their developmental needs. All these concerns should be placed adequately on the negotiation table, but with a re-delineated broadened vision of both green transition and green finance. Can this be an outcome of COP27 or will remain wishful thinking?

Observer Research Foundation

ORF was established on 5 September 1990 as a private, not for profit, ’think tank’ to influence public policy formulation. The Foundation brought together, for the first time, leading Indian economists and policymakers to present An Agenda for Economic Reforms in India. The idea was to help develop a consensus in favour of economic reforms.

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