Context: During recently concluded COP 27 of UNFCCC which was held in Sharm el-Sheikh, Egypt, climate finance was a critical issue discussed comprehensively.
According to the World Bank, India bears losses worth $9.8 billion each year as a result of extreme events, with floods alone accounting for 50 per cent of the damages.
In 2020, floods led to damages equivalent to 0.15 percent of the country’s GDP in addition to thousands of lives being lost or impacted.
About Water Credit:
Water credits are one of the financing mechanisms to drive collective action toward common climate adaptation goals.
Water credits represent a fixed quantum of water that is conserved or generated and can be transacted between water deficit and water surplus entities within a sub-basin.
The concept of water credits is similar to carbon credits; however, unlike the atmosphere, the spatial limit for the transaction should remain within the same hydrological unit — that is, a river basin or watershed.
g., multiple industries can offset their impact by buying water credits from municipalities that are fund-crunched to finance large-scale floodwater harvesting or wastewater treatment projects that conserve freshwater resources at a city level and promote wastewater reuse.
Usage of Water Credit:
The UN GEMS/ Water Program uses a similar concept called the ‘Green Water Credits’. It is implementing this in countries like China, Kenya and Morocco.
This project incentivizes upstream farmers to undertake green water management practices to reduce runoffs, boost groundwater recharge and curb sedimentation in reservoirs.
Downstream, the public and private beneficiaries have created an investment fund to address the gap between the farmers’ initial investment and the realization of benefits by the end-users downstream.
The UN is expected to expand this model to other countries as well, with the aid of IFAD/ International Fund for Agricultural Development and other institutions.
Benefits of Water Credit:
The concept could help boost the ‘value’ of water in the public eyes. By attaching a monetary value to the resource, people could be encouraged to use it in a more economical manner.
It is considered as an effective way to discourage water pollution on one hand and encourage maximum sustainable utilization of water on the other hand.
Such a model could expand the existing recycling system. The discarded metals, plastics, phosphates and other materials would be diverted into recycling units instead of water bodies.
Challenges of Water Credit:
Commodification of water is a controversial issue. If water is turned into a tradable commodity, dilemma would arise about pricing in relation to quality.
Richer entities would simply buy the water credits and continue to pollute, while claiming to be environmentally responsible. This preference for the status quo to maintain productivity, rather than go for sustainability, is a phenomenon being seen in the carbon credit system too.
Any credit system faces the risk of oligopolye., the market falls under the control of a few institutions, leading to limited competition. If such a situation arises, the rich players could buy up the credits from the economically weaker entities and start to control the market.
About 27th Conference of Parties (COP27):
The 2022 United Nations Climate Change Conference, also known as COP27, is the 27th United Nations Climate Change conference.
It is being held in Sharm el-Sheikh, Egypt from November 6 to November 18, 2022.
COP27 will bring governments together to accelerate global efforts to confront the climate crisis.
It is an important meeting because the latest science shows that climate change is moving much faster than we are, pushing ecosystems and communities to their limits.
The Conference of Parties comes under the United Nations Climate Change Framework Convention (UNFCCC) which was formed in 1994.
The UNFCCC was established to work towards the “stabilisation of greenhouse gas concentrations in the atmosphere.”
Issues of Finance for Climate Adaptation:
Lack of Support
International support for climate adaptation is skewed towards mitigation projects.
The modalities of financing mechanisms have seen a shift from grants to loans.
Local Nature of CSR Initiatives.
Often actions under CSR are directed by context-based targets that represent the most critical challenges of the environment where businesses are embedded.
Therefore, the nature of the initiatives mostly remains local.
Suggestive measures:
It is necessary to find alternative means of leveraging local financing opportunities to build resilience.
From the private sector, CSR allocations can be reimagined as adaptation finance.
Channelling CSR funds more effectively towards climate adaptation may provide a new source of climate finance.
CSR funds potentially represent the third largest pool of climate finance after government spending and multilateral financing.
There is a potential to address climate adaptation but it will require industries to pool finances. The industrial sector is the second highest user of freshwater in the country.
For developing countries to enhance their ambition, developed countries must provide enhanced support.
Need for nature-based solutions to link actions on mitigation and adaptation in terms of planning, financing, and implementation, which would provide co-benefits.
It is required urgent efforts to increase the financing and implementation of actions designed to adapt to the growing impacts of climate change,
There should be collective effort around making adaptation projects investible.
The world needs innovation in adaptation finance to realize a more sustainable future. Water credits may prove to be one among the many effective mechanisms to achieve water resilience. However, its adoption must be informed by thorough understanding of the ground conditions and international experience with the model.
The Climate Group is an international non-profit organisation that drives climate action by building large networks and runs them.
The International Energy Agency in partnership with the Climate Group launched a global initiative “EP100”.
EP100 brings together leading companies committed to driving innovation in energy efficiency and increasing competitiveness while delivering on emission reduction goals.
Some Indian companies are members of EP100.
The International Energy Agency is the Secretariat to the “Under2 Coalition”.
