Union Budget 2024: Finance Minister Nirmala Sitharaman, while presenting the Union Budget 2024-25 on Tuesday, announced that the government would formulate a 'climate finance taxonomy' to help India achieve climate commitments and green transition by improving the capital availability for climate adaption and mitigation.

What is a climate finance taxonomy?

A climate finance taxonomy is a kind of system that segregates parts of the economies that can marketed as sustainable investments. The move will work as a guiding tool for investors and banks to make impactful investments to tackle climate change.

Why is taxonomy important?

As global temperatures rise and the harmful effects of climate change become more severe, countries must transition to a zero-zero economy—a balance between the amount of greenhouse gases (GHGs) produced and the amount removed from the atmosphere.

Taxonomy can play a crucial role in this effort because it can help determine whether economic activities are aligned with credible, science-based paths to change. It can also encourage climate capital deployment and reduce the risk of greenwashing.

Does India have potential?

India's climate-smart investment potential from 2018 to 2030 is $3.1 trillion, according to a report by the International Finance Corporation (IFC). The largest area for investment is in the electric vehicle sector, at $667 billion, as India aims to electrify all its new vehicles by 2030. India's renewable energy sector also remains a good investment opportunity at $403.7 billion, the report added.

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Do other countries have taxonomy?

Many countries have either begun work on their taxonomy or have finalized one. South Africa, Thailand, South Korea, Canada, Colombia, Singapore, and Mexico are some of the countries that have developed taxonomy. The European Union has also completed this process.

Meanwhile, the Green and Renewable Energy Sector believes that the announcement made in budget 2024 for the sector would bring changes.

"To integrate more renewable energy into the grid, there is a focus in the union budget on long-duration discharge storage that is readily available in the country, specifically pumped hydro. Pumped hydro storage is the most cost-effective long-term storage option because of its longevity and extended discharge duration. “A policy for promoting pumped storage projects will be brought out for electricity storage . . .” is a welcome statement from the Finance Minister as it allows for the seamless integration of renewable energy into the grid and the effective management of the grid," said Ammu Susanna Jacob, Research Scientist in the Energy & Power team at CSTEP

"Following the announcement of the pumped hydro policy in April 2023, we have seen a surge in the number of pumped hydro projects being announced and progressing through various stages of development. When the new policy is in place, pumped storage plants will be poised to deliver even greater benefits, enhancing their capacity to support the grid and integrate renewable energy sources more effectively," he added.

The Finance Minister also announced to help households install solar under PM Surya Ghar Muft Bijli Yojana. Commenting on the announcement Abhishek Nath, Sector Head – Energy & Power at CSTEP said “The Union Budget talks about PM Surya Ghar Muft Bijli Yojana to promote rooftop solar in India. We at the Center for Study of Science, Technology, and Policy (CSTEP) have heavily invested our efforts in rooftop solar and look forward to supporting the Government of India on this. It is also heartening to note that the government proposes to develop an energy transition roadmap, which is a topic we are working on with 4 to 5 states. These announcements indicate more action on the ground to combat climate change and promote clean energy.”

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