Finance Ministry Unveils Draft Framework for India’s Climate Finance Taxonomy

 The Department of Economic Affairs (DEA), under the Ministry of Finance, has released a draft framework for developing India’s Climate Finance Taxonomy. Announced on Wednesday for public feedback, the draft outlines the goals, principles, and approach that will guide the creation of this critical financial tool, according to an official statement.




The framework lays out the methodology for identifying and classifying activities, projects, and measures that contribute to India’s climate commitments, while also supporting the country’s vision of achieving Viksit Bharat by 2047. The DEA has invited public comments on the draft until June 25, after which the final framework will be formalized.

The purpose of India’s Climate Finance Taxonomy is to channel more resources toward climate-friendly technologies and activities, helping the nation move toward its ambitious goal of reaching net zero emissions by 2070, while ensuring long-term access to affordable and reliable energy. “The taxonomy will serve as a tool to pinpoint activities that align with the country’s climate goals and transition pathways,” the release emphasized.

India’s climate ambitions, as reflected in its Nationally Determined Contributions (NDCs) and net-zero pledge, require significant financing—about $2.5 trillion (at 2014-15 prices) to meet NDC targets by 2030. Additionally, according to NITI Aayog, the energy transition alone will need an estimated $250 billion per year until 2047.

Beyond mitigation, adaptation finance is essential for tackling climate impacts, enhancing resilience, and advancing India’s development goals. The draft notes that implementing adaptation measures across agriculture, forestry, fisheries, infrastructure, water resources, and ecosystems would require around $206 billion (2014-15 prices) between 2015 and 2030.

Currently, India’s per capita energy consumption is about one-fifth that of developed countries, but it must rise considerably during the Amrit Kaal phase of rapid growth. “Estimates suggest that to become a developed country with a Human Development Index (HDI) of 0.9, India’s minimum per capita final energy requirement should range between 45.7 to 75 gigajoules per year, compared to just 16.7 gigajoules per capita in FY23,” the draft highlights.

Recognizing the massive financial needs to support India’s climate ambitions, the Union Budget 2024-25 announced the development of a Climate Finance Taxonomy aimed at boosting capital availability for both climate adaptation and mitigation.

Phased Development Approach

Given the complexity of the task and in keeping with international best practices, the framework proposes a two-phase approach.

  • Phase one will establish the core framework and methodology.

  • Phase two will focus on classifying specific activities, projects, and measures that are climate-supportive or aid in the transition of particular sectors and industries.

This phased rollout is designed to offer clarity and transparency to investors while ensuring the taxonomy remains aligned with India’s development and climate goals. “Recognizing the evolving nature of the economy, the taxonomy will be a living document, updated periodically to reflect new insights and changes,” the draft notes.

Taxonomy Objectives and Coverage

Broadly, the taxonomy aims to identify activities that align with India’s climate action goals and transition pathways. Its objective is to drive more resources into climate-positive technologies and projects, helping the country meet its net zero target by 2070 while maintaining long-term access to reliable, affordable energy.

Specifically, the taxonomy will cover:

  • Mitigation: Measures that improve energy efficiency, lower emission intensity, or avoid greenhouse gas emissions.

  • Adaptation: Actions that boost resilience, such as sustainable water management, ecosystem protection, and restoration.

  • Hard-to-abate sectors: Transition strategies and innovations for sectors like cement, iron, and steel, where decarbonization is particularly challenging.

Design Principles

The draft outlines both qualitative and quantitative components for the taxonomy.

  • Qualitative aspects: Define guiding principles for green activities, aligned with India’s NDCs and Sustainable Development Goals (SDGs).

  • Quantitative aspects: Include measurable benchmarks like GHG intensity reduction thresholds and sustainability performance indicators.

“A hybrid approach combining qualitative principles with quantitative metrics ensures the taxonomy is inclusive, adaptable to India’s diverse industrial landscape, and responsive to evolving regulatory and policy dynamics, while promoting a science-based transition,” the draft explains.

Initial Sector Focus

For the first phase, the framework will focus on sectors such as:

  • Power, mobility, and buildings (for climate mitigation and adaptation co-benefits)

  • Agriculture, food, and water security (for adaptation and resilience)

  • Hard-to-abate sectors (like iron & steel and cement) for enabling low-carbon pathways.

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