In a novel twist, underdeveloped nations are transcending climate adversity into fiscal advantages

In a bid to combat climate change, several initiatives are underway across the globe, particularly in developing economies. However, a significant gap persists in the funding and support of these projects, which often require integrated, governance-based solutions.

One such example is the Jharia Master Plan, a long-term hazard mitigation programme in a coal-dependent district in eastern India. Approved by India's cabinet in June 2023, the £511m (or $692m) plan aims to extinguish underground fires, stabilize land, and relocate at-risk communities. The plan includes measures for social infrastructure, resettlement, skills development, and land-use management.

However, the Jharia Master Plan is not formally designated as a climate finance project or linked to carbon markets. This omission, as in the case of underground fires in Jharia that release methane and carbon dioxide not accounted for in India's national emissions inventory, has fiscal and institutional consequences, preventing the intervention from accessing carbon markets and outcome-based financing.

To better accommodate and fund integrated, governance-based solutions for climate action in developing economies, climate finance frameworks can consider several strategies.

Enhancing Governance and Institutional Capacity

Strengthening Institutional Frameworks: Developing economies need robust institutional frameworks to manage and implement climate projects effectively. This includes establishing clear policies, regulations, and oversight mechanisms to ensure transparency and accountability.
Capacity Building: Capacity building programs can help enhance the skills and knowledge of local governments and stakeholders, enabling them to design and implement projects more effectively.

Leveraging Carbon Markets

Carbon Credits and Markets: Enhancing access to carbon markets can provide significant funding opportunities for climate projects. Tools like the Carbon Markets Access Toolkit can guide developing economies in engaging with carbon markets effectively.
Voluntary Carbon Markets: Encouraging participation in voluntary carbon markets can attract additional funding for projects that might not qualify for regulated carbon credits.

Incorporating Just Transition Principles

Just Transition Finance: Focusing on just transition principles ensures that climate projects are socially inclusive and sustainable. This involves integrating fairness and equity into project design and implementation to minimize negative impacts on local communities.
Investment Platforms: Developing investment platforms that facilitate just transition finance can help mobilize resources for climate projects that also address social and economic needs.

Aligning with National Development Plans

Nationally Determined Contributions (NDCs): Aligning climate finance with NDCs ensures that investments support national climate goals and strategies. Updated NDCs should quantify finance needs clearly to attract specific investments.
Public-Private Partnerships: Encouraging public-private partnerships can leverage private sector investment to support public climate initiatives, enhancing the impact of government-led projects like the Jharia Master Plan.

Addressing Technological Challenges

Technology Support: Providing technological assistance and financing for innovative climate solutions, such as coal gasification projects, can help overcome technical barriers and promote sustainable development.
Financial Support Schemes: Establishing financial support schemes for projects facing technological challenges can ensure their viability and success in the long term.

In Ethiopia, the national agricultural research system has developed rust-resistant wheat varieties that have delivered productivity gains of up to 40% in targeted areas. In Rwanda, a green bond issued by Prime Energy Plc in 2023 raised £5.5m on the Rwanda Stock Exchange for climate-aligned infrastructure. These examples demonstrate that integrated, governance-based solutions can lead to significant climate and development outcomes.

Countries such as South Africa, Colombia, and Mexico have introduced carbon pricing and environmental fiscal reforms that are now embedded within their national revenue systems. These initiatives show that climate action can be integrated into national economies, making it a sustainable and long-term solution.

Jharia's approach to emissions reduction and resilience demonstrates that it can be achieved through public administration, land governance, and institutional reform. By integrating these approaches, climate finance frameworks can more effectively fund and support integrated, governance-based solutions for climate action in developing economies.