- With limited access to multilateral climate funds and restrictive central policies, Kerala is exploring alternative, less bureaucratic avenues for climate finance, including partnerships with startups. It needs over ₹900 billion by 2030 for climate action.
- The state has been facing the impact of climate change in the form of floods, landslides, and heat waves. It has set ambitious goals of 100% renewable energy by 2040.
- Various arms of the state — from line departments to panchayats — are incorporating climate action into development plans, using multilateral loans, central schemes, and grassroots innovation.
With limited climate finance coming its way, Kerala is seeking less bureaucratic routes to raise funds, such as collaborating with climate tech startups. The state also plans to push for policy changes at the national level to make access to climate finance easier.
In recent years, hundreds have died in Kerala from floods, landslides, and heat waves, underlining the urgency for climate investment. Extreme rainfall killed 433 people in 2018 and 57 in 2021; in 2024, landslides in Wayanad alone claimed 359 lives. The state aims to fully shift to renewable energy by 2040 and be carbon neutral by 2050, but accessing finance remains a challenge.
The Kerala State Climate Change Adaptation Mission (KSCCAM), set up in 2023 to steer climate action, is preparing “a platter full of multiple projects that will be palatable to different funding sources,” says Chief Resilience Officer Shekar Kuriakose. Meanwhile, the state government and its line departments have been incorporating climate action as a component in their multilateral loan proposals, raising some funds. Local bodies, which often directly feel the impact of climate change, have also been finding creative ways to fund small projects.
However, the state is likely to fall short of its requirement of raising over ₹900 billion for climate action till 2030. According to the State Action Plan for Climate Change (2023-2030), Kerala needs ₹522.38 billion for mitigation activities such as reducing emissions, and ₹384.07 billion for adaptation in various sectors like farming, forest, health, and water resources. The action plan has identified climate vulnerabilities of each district and laid out priority interventions like land use zoning, shore and riverbank protection, rehabilitating vulnerable communities, etc.
Barriers to accessing climate finance
Kerala has never received multilateral climate finance, which is funding provided by international institutions, like the Green Climate Fund or World Bank, to support climate change mitigation and adaptation efforts. Though the state environment directorate submitted a proposal to the centre to facilitate loans from the Green Climate Fund (GCF) in 2017, the centre has yet to approve it, says Jude Emmanuel, the directorate’s nodal officer for climate change. The proposal was to fund climate resilience and mitigate climate change impacts in the Palakkad Gap, a mountain pass between Kerala and Tamil Nadu in the Western Ghats. GCF is the world’s largest climate fund, set up under the United Nations Framework Convention on Climate Change (UNFCCC).
Emmanuel says the process has been taxing. “The proposal has to address the central government’s priorities. The centre also places several conditions; for example, the loan amount we seek, as well as the beneficiary numbers, should be large. Also, the centre has now moved into Mission mode, under which it gets climate finance and distributes it to multiple states by itself,” he says. Other than getting the centre’s approval, another barrier is that climate finance is included under the state’s borrowing limit, which discourages states from applying for more of these. Borrowing limit of a state is the maximum amount the state can borrow in a financial year from various sources, such as the central government, financial institutions, and open market borrowings. The Union Finance Ministry sets annual borrowing limits for states and monitors their compliance. Kerala’s borrowing limit has fluctuated widely in recent years, and Kerala has an ongoing case in the Supreme Court against the limit.
So far, Kerala has received dedicated climate finance just once, through India’s National Adaptation Fund for Climate Change (NAFCC), says Emmanuel. This was for a ₹250 million integrated farming project under the state fisheries department. According to Emmanuel, there are two categories of climate finance for state governments – one directly from international climate funds to the state, and another is a climate fund from NAFCC to the state.
Exploring new ways to fund climate projects
Kuriakose of KSCCAM says the KSCCAM is now looking to circumvent bureaucratic processes in raising funds to accelerate climate action.
As a start, KSCCAM is considering partnerships with startups that were incubated under the state initiative Kerala Startup Mission (KSUM). KSCCAM has, so far, shortlisted around seven such startups, such as Zaara Biotech and Alcodex Technologies. Zaara Biotech, for example, integrates algal reactors indoors and outdoors to capture carbon, and also develops products such as cookies and poultry feed using the harvested algae.
“We are promoting these companies through various projects and have bought some of their products. We are trying to give them a kick-start so that they can get investments from various parts of the world. That money also comes to Kerala,” says Kuriakose. “For example, many public sector companies that are huge emitters and can’t transition quickly may invest in Zaara Biotech to offset their emissions. There are also startups working on better environmental monitoring, facilitating agriculture and animal husbandry, etc.”
The Mission is considering partnerships with companies or co-investing in carbon capture projects, says Kuriakose.
Najeeb bin Haneef, CEO of Zaara Biotech, says they will soon submit a proposal to KSCCAM to set up algal reactors for capturing carbon and making value-added products at a location in Kasargod district. “This will be under the Public-Private Engagement (PPE) model, using third party funds. Also, we have already submitted another proposal to the Mission to study the carbon production from different sectors, and various options to sequence it in the major cities of Kerala.”
While Mission is considering these proposals, the final decision on the modalities of engaging with the startups will be taken after discussions with the government.
The Mission also aims to attract Corporate Social Responsibility (CSR) and carbon offsetting funds. “For example, now projects such as active conversion of a monoculture plantation to a multi-cropped area can be used for carbon trading,” says Kuriakose.
The state can approach Indian companies for such investment under the Energy Conservation (Amendment) Act, 2022. But the centre’s current policy prevents states from directly trading carbon with foreign companies, a rule which Kuriakose says severely constrains Kerala.
“We can only get so much investment from Indian companies. We know there are companies outside India that are interested, but we can’t directly approach them,” he says. “Climate grants or loans go to the Government of India, which then determines where the money is to be invested. But every sub-sovereign has its own capacity and large networks around the world, especially Kerala. It’s a huge market out there, and we aren’t tapping into it.”
The Mission plans to push for changes in the centre’s policy over time, to allow states to accept climate investments and grants directly from foreign companies as long as the money is not illegal, the official says.
It also plans to push for excluding climate finance (through entities like GCF) from the state’s borrowing limit. Kuriakose says, “In the new climate regime, we need more funds to make infrastructure or social systems resilient to climate change. This was not considered when borrowing limits were set for states earlier. Including climate finance under the state’s borrowing limit will affect its other priorities.”
The Mission is exploring other options, like green bonds, too. It does seek direct funds from the centre as well, but doesn’t expect large amounts. “We are not looking at tapping funds only from government sources because these will be stretched towards routine development and maintenance,” Kuriakose says.
Climate components in loans for line departments
Emmanuel of the environment directorate says that most of Kerala’s line departments now include a climate component in their multilateral loan proposals. This is because climate disasters impact these sectors, and also because adding a climate component gives more weightage to their proposals, he says.
The state agriculture department, for example, has just started receiving funds from the World Bank for its Kerala Climate Resilient Agri-Value Chain Modernisation (KERA) project. Of the ₹23.65 billion worth of projects, a third (₹8 billion) is for climate resilience and the rest is for agribusinesses and jobs, says Jacob Joy, assistant director at the department. He adds that the project came about after the frequent climate disasters led to severe impacts on the farming sector, followed by demands for climate action in the sector.
The project has to achieve specific climate targets in the next five years – nearly halving emissions from paddy farming and getting at least 40,000 farmers to adopt climate-smart agriculture practices like alternative wetting and drying.
Other than line departments seeking funds, the state’s Kerala Infrastructure Investment Fund Board (KIIFB) had issued green bonds in 2023. However, the Board has been able to issue bonds worth ₹3 billion only against its target of ₹10 billion. “We are using this money to construct 15 green buildings in the public sector, mainly government hospitals. SEBI strictly monitors the fund’s use and its environmental benefits. We plan to issue more green bonds once our credit rating improves and the coupon (interest) rates reduce,” says a KIIFB officer on condition of anonymity as he is not authorised to speak to the media.
Emmanuel says the directorate is now setting up a dashboard to collate information on the funds that various state agencies and departments are raising for climate action. While the State Action Plan for Climate Change prepared by the directorate envisages funding requirements of over ₹900 billion up till 2030, the KSCCAM’s target is only ₹225 billion for the same period. This is because KSCCAM has selected only a section of the projects within the State Action Plan and some projects outside of it.
Even if various agencies bring in funds, “there will be a shortage, especially for mitigation,” says Emmanuel.
Local governments implement projects without dedicated funding
Though Kerala’s local self-governments (LSGs) have no dedicated funding for climate projects, many are taking the initiative to zero in on projects and funding sources. Some local bodies are using funding channels not envisioned in the State Action Plan, such as Trivandrum Corporation’s initiative to buy e-buses using Smart City funds.
Generally, most local bodies are funding climate projects using development funds from the state government as well as funds under the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), says T N Seema, who heads the state government’s Haritha Keralam Mission. The Mission supports local bodies in implementing programmes in waste management, water, and biodiversity conservation.
Under its most recent project, ‘Net Zero Carbon Kerala with People’s Participation’, the Mission has onboarded 152 panchayats that are being trained to assess and offset the carbon emissions within their jurisdiction.
“Panchayats are doing activities that are much larger in scope than what they have funding for,” says Seema. Hence, the Mission connects local bodies with government agencies that can channel funds. For example, it has linked panchayats with the state’s Agency for New and Renewable Energy Research and Technology (ANERT) for funds under the Centre’s KUSUM scheme to set up solar pumps for quarry water irrigation. Panchayats also get small levels of CSR funding for activities like water conservation, adds Seema.
Despite multiple efforts, the state has a long way to go before it can put together enough funds for critical climate projects.
Read more: India’s central bank recommends pooling viable projects to attract climate finance
Banner image: A deserted and inundated metro station in Kochi during the 2018 Kerala floods. Image by Dil Shad Roshan via Wikimedia Commons (CC BY-SA 4.0).
Credits
