The Department of Economic Affairs has released the Draft Framework on India’s Climate Finance Taxonomy. The Climate Finance Taxonomy will serve as a vital tool for identifying activities aligned with India’s climate action goals and its broader transition pathway.
India requires approximately USD 2.5 trillion (at 2014–15 prices) to meet its NDC targets by 2030. Funding is important to address the effects of climate change, build resilience, and support the country’s development goals. The Climate Finance Taxonomy has been developed to guide and increase the flow of financial resources toward climate-resilient technologies and activities. This initiative is crucial for achieving India’s ambitious target of Net Zero emissions by 2070. At the same time, it ensures that the nation’s energy future remains both reliable and affordable, supporting sustainable development while addressing climate challenges. Through this taxonomy, India seeks to build a robust financial ecosystem that fosters long-term resilience and innovation in the fight against climate change.
What are the objectives of the framework?
- The taxonomy will cover technologies, measures, projects and activities that are aligned to:
A. Mitigation: Focused on reducing emissions, boosting energy efficiency, and promoting non-fossil fuel energy sources. This objective aims to drive down India’s carbon footprint.
B. Adaptation: Targeting the enhancement of climate resilience through sustainable water management, ecosystem restoration, and climate-proofing infrastructure.
C. Transition Support: Supporting hard-to-abate sectors with innovation, research and development (R&D), and low-carbon technologies to accelerate their transition to cleaner alternatives.
2. Prevent greenwashing
3. Be Consistent with Viksit Bharat@2047
What are its guiding principles?
- Alignment with national priorities: Activities must align with India’s NDCs, Net Zero 2070 target, Viksit Bharat@2047 vision, and energy security goals.
- No Harm to other objectives: Measures should avoid undermining other climate or development objectives, incorporating safeguards where necessary.
- Contextual pathways: The taxonomy recognizes India-specific trajectories, enabling flexibility for sectors that may require phased or gradual compliance.
- Interoperability: While aligning with international standards where possible, the taxonomy remains rooted in India’s development context and climate goals.
- Support for transition activities: It promotes inclusive financing by recognizing transition efforts in hard-to-abate sectors, avoiding overly restrictive criteria.
- Promotion of indigenous technologies: Emphasizes support for homegrown innovations and R&D to build climate solutions tailored to India’s needs.
- Science-Based and transparent: Decisions must rely on clear, measurable criteria with transparent methodologies for mitigation and adaptation activities.
- Proportionality for MSMEs: Ensures simplified criteria and capacity-building support to enable MSME participation without disproportionate compliance burdens.
What is the approach to the classification of activities, projects and measures?
- Climate-Supportive:
A. These contribute to one or more objectives of the framework by avoiding GHG emissions, reducing emission intensity, deploying adaptation solutions to mitigate climate risks, or supporting R&D aligned with the framework’s objectives.
B. It is divided into Tier 1 activities, which involve direct and effective mitigation, and Tier 2 activities, which support the transition where Tier 1 solutions are not yet practical or fully developed.
2. Climate Transition: Includes activities, projects and measures for which there is no technologically and economically feasible low-emission alternative in India
These classifications provide clarity on how different types of projects will contribute to India’s climate goals.
What sectors will be considered?
- Power, Mobility, and Buildings – Targeted for both climate mitigation and adaptation co-benefits, recognizing their role in reducing emissions and enhancing resilience.
- Agriculture, Food, and Water Security – Focused on adaptation and resilience-building, given their vulnerability to climate impacts.
- Hard-to-Abate Sectors – Support for transition in sectors like iron and steel and cement, aligned with India’s national context and low-carbon development goals.
India’s Climate Finance Taxonomy marks a significant step toward aligning financial flows with the nation’s climate objectives and development priorities. The taxonomy not only supports the scale-up of climate-friendly technologies and adaptation measures but also ensures a just and inclusive transition for sectors that face structural and technological challenges. As the framework evolves through public consultation and sector-specific refinements, it is poised to become a foundational tool in mobilizing finance for India’s low-carbon, climate-resilient future.
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