The Ministry of Finance’s Department of Economic Affairs (DEA) has rolled out a draft framework for developing India’s Climate Finance Taxonomy, opening it up for public feedback. This draft lays out the vision, guiding principles, and approach that will shape the taxonomy, according to an official release shared on Wednesday.
The draft outlines a detailed methodology for classifying activities, projects, and initiatives that support India’s climate goals, including those linked to the broader ambition of achieving ‘Viksit Bharat’ by 2047. Public comments on the framework are invited until June 25, after which the final framework will be formalized.
India’s climate finance taxonomy is designed to channel more capital towards climate-friendly technologies and initiatives, helping the nation meet its pledge to reach net zero emissions by 2070 while ensuring reliable, affordable energy for its citizens. “This taxonomy will act as a critical tool to identify actions aligned with the country’s climate targets and its transition roadmap,” the release emphasized.
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The draft highlights that India’s climate ambitions are anchored in its Nationally Determined Contributions (NDCs) and the net zero commitment. Meeting the NDC targets alone will require an estimated $2.5 trillion (2014-15 prices) by 2030. According to NITI Aayog, India’s energy transition will demand about $250 billion annually through to 2047.
Adaptation finance is equally crucial — around $206 billion (2014-15 prices) is estimated as necessary between 2015 and 2030 to implement adaptation measures across key sectors like agriculture, forestry, fisheries, infrastructure, water resources, and ecosystems.
Currently, India’s per capita energy consumption stands at just one-fifth of that seen in developed countries, and it will need to rise sharply during the Amrit Kaal (an era of rapid economic growth). The draft notes that for India to reach developed-nation status, with a Human Development Index (HDI) of 0.9, the minimum per capita energy requirement must increase to 45.7–75 gigajoules per year — compared to 16.7 gigajoules per capita in FY23.
Recognizing the enormous financial demands of India’s climate ambitions, the Union Budget 2024-25 had announced the development of a dedicated climate finance taxonomy to boost the availability of capital for both climate adaptation and mitigation efforts.
Phased Approach to Building the Taxonomy
Given the complexity of this task, the draft proposes a two-phase process aligned with global practices.
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Phase 1 will focus on laying down the foundational framework and approach.
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Phase 2 will classify specific activities, projects, and measures that support climate goals or help in sectoral transitions.
This phased approach aims to provide clarity and transparency for investors while ensuring the taxonomy aligns with India’s long-term development and climate objectives. Notably, the draft describes the taxonomy as a “living document” — one that will evolve over time to reflect the changing nature of the economy and climate action priorities.
Core Objectives and Design Elements
At its core, the climate finance taxonomy aims to identify and promote activities consistent with India’s climate pathway. The main objective is to facilitate increased capital flow into climate-positive technologies and initiatives, helping the nation stay on track for its Net Zero by 2070 vision while maintaining access to affordable and reliable energy.
Specifically, the taxonomy will cover:
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Mitigation: Actions improving energy efficiency, cutting emission intensity, or avoiding greenhouse gas (GHG) emissions.
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Adaptation: Measures enhancing resilience, such as sustainable water management and ecosystem protection.
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Transition Support: Efforts to help hard-to-abate sectors adopt low-carbon pathways, including innovation and R&D.
The draft explains that the taxonomy will combine qualitative principles — aligned with India’s NDCs and Sustainable Development Goals (SDGs) — with quantitative metrics like GHG intensity thresholds and sustainability performance indicators. This hybrid approach aims to ensure inclusivity, transparency, and responsiveness to evolving targets, regulations, and industry dynamics.
Sector Focus
Initially, the taxonomy will focus on several key sectors:
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Power, mobility, and buildings (for climate mitigation and adaptation co-benefits)
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Agriculture, food, and water security (for climate adaptation and resilience)
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Hard-to-abate industries, especially iron & steel and cement, for sector-specific transition planning
By systematically classifying activities into climate-supportive (emission-reducing or adaptation-focused) and climate-transition categories, the taxonomy aims to steer investments and policies toward impactful, science-backed climate action.