India's Climate Finance Taxonomy: A Guide

India’s Climate Finance Taxonomy

What is it?

India will soon release a climate finance taxonomy to define which projects and sectors qualify as climate finance. It will identify investments that:

• Support mitigation (reduce emissions)
• Promote adaptation (increase climate resilience)
• Enable decarbonisation of hard-to-abate sectors

This taxonomy aligns with the Paris Agreement and India’s Net Zero 2070 goal.

Why is it being done?

• Mobilise capital for clean, green, and resilient projects
• Ensure transparency and prevent greenwashing
• Support Viksit Bharat 2047 by guiding investments into sustainable infrastructure
• Attract global and domestic climate finance

Examples of Eligible Projects

• A wind energy project in Gujarat recognised as climate-finance-eligible
• A coastal embankment project protecting villages from rising sea levels (adaptation finance)

How will it work?

• Two-stage rollout:
  1. Foundational taxonomy: basic definitions and classifications
  2. Sector-specific annexures: detailed technical guidelines
• Hybrid classification:
  • Recognises projects serving both mitigation and adaptation goals
  • Encourages co-benefit projects

Hybrid Example

Urban rainwater harvesting systems in a smart city: mitigates water stress (adaptation) and reduces pumping-related emissions (mitigation).

Eligible Activities

• Green hydrogen in steel plants
• Solar cold storage for farmers
• Micro-irrigation for drought-prone regions

Which Projects Won’t Qualify?

The taxonomy will exclude activities that:

• Continue to rely on fossil fuels without emission controls
• Have minimal climate benefit or cause environmental harm
• Are cosmetic changes labelled as “green” without measurable impact

Examples of Non-Eligible Activities

• Expanding thermal power plants without carbon capture
• Diesel-based generators for rural power
• Planting water-intensive trees in dry regions
• Marketing campaigns with no actual emissions reduction