India revising its climate finance playbook with US pulling out of Paris agreement

India is revising its climate finance playbook following the US withdrawal from the Paris Agreement earlier this year, a senior government official said, with a focus on tapping other multilateral and bilateral agreements besides the private sector.

The development comes at a time when global sustainability and climate change efforts have been dented by the 20 January US decision to pull out of the Paris climate change accord.

Some of the key funding avenues the Centre would be looking at include Indo-German bilateral partnership, Green Climate Fund (GCF), Global Environment Facility (GEF), multilateral development banks (MDBs) such as Asian Development Bank (ADB) and the International Bank for Reconstruction and Development (IBRD).

Strategic collaboration between such institutions and Indian financial entities would be crucial in facilitating access to finance for climate action.

“With the US pulling out, the burden is coming on EU (European Union), and EU wants every developing country to take a lot of ambitious climate actions. In case of India, nothing great was coming through multilateral channels but largely it is through the domestic resources,” stated the government official.

The US withdrawal has opened up a significant gap in global climate action. At COP29, the US pledged a significant amount to the new $300 billion climate finance goal. Last month the US also withdrew from the board of the recently created Loss and Damage Fund which is meant to provide financial support to countries ravaged by climate change disasters.

As of February last year, India had received $1.16 billion for climate projects through the financial mechanism of the United Nations Framework Convention on Climate Change (UNFCCC). This amount includes $803.9 million from the Green Climate Fund, $346.52 million from the Global Environment Facility (for climate change focal area), and $16.86 million from the Adaptation Fund, according to a written reply in the Rajya Sabha by environment minister Bhupender Yadav.

However, most of India’s climate actions have been financed through domestic resources. The government’s 2024-25 Economic Survey report, tabled in Parliament in January this year stated that given the backdrop of dwindling global financial commitments to support climate action in developing countries, India must prioritize building resilience to safeguard the benefits of its rapid economic growth against climate-induced setbacks.

Inadequate funding

India’s fourth biennial update report submitted to UNFCCC in December 2024, states that the fund size of the GCF has been highly inadequate, and not proportional to the requirements of developing countries. The current size of the portfolio is around $16 billion, which is a fraction of the actual requirement of the developing nations. Although there has been an increase in the contribution pledge in GCF-2 compared with GCF-1, the size remains an issue for the effective implementation of climate actions.

However, financing by operating entities such as GCF requires high co-financing by the concerned developing country, which implies that this co-financing component has to be generated by the developing country concerned, often from public funding.

“We are looking at raise more green funds through bilateral channels such as Indo-German partnership and multi-lateral channels. Largely, we know that we have to find resources through domestic resource mobilization,” the official added.

The government is also looking at concessional financing as it has the power of leveraging and mobilizing a lot of resources, which means it can use those money for increasing the size of the blended finance – using concessional resources for leveraging a much bigger kitty. Besides green funds, the government is trying to set up some funds, pooling various funds.

In the case of MDBs, the majority of projects are financed through non-concessional market loans which are further vulnerable to exchange rate risks.

Amit Anand, CEO, of Carbon Check said: “The pullout of the US should not have a major bearing on India’s green financing. The US was not part of the (earlier) Kyoto Protocol. Similarly, multilaterals like World Bank have largely worked on pilot projects in India, rather than having large scale projects in the green space. And if the financing through the carbon markets is looked at, there are entities which are already present in the voluntary trading space which would continue to be part of it. So, a major impact is not seen on India.” Established in 2012, Carbon Check is a Delhi-based organization which offers services to do third-party verification for greenhouse gas emissions reported for the mandatory reporting requirement by businesses.

India’s attempts to address climate change through mitigation and adaptation are primarily financed by government budget allocations, along with a combination of market mechanisms, fiscal instruments, and policy interventions.

For example, with the aim of mobilizing resources for green public infrastructure projects, the Reserve Bank of India issued Sovereign Green Bonds (SGrBs). In the first half of 2024-25, the government raised 10-year SGrBs worth ₹1,697.40 crore. According to RBI, climate adaptation measures will require an expenditure of about Rs. 85.6 trillion by 2030.