Govt Issues Draft Framework for Climate Finance Taxonomy

The Finance Ministry has released a draft framework for India’s Climate Finance Taxonomy to facilitate greater resource flow to climate-friendly technologies and activities enabling India to achieve the vision of being Net Zero by 2070 while ensuring long-term access to reliable and affordable energy.

May 08, 2025. By Mrinmoy Dey

Following up on the 2024–25 Union Budget announcement, the Finance Ministry has released a draft framework for India’s Climate Finance Taxonomy aimed at increasing capital flow toward climate adaptation and mitigation.

The taxonomy is intended to help identify activities aligned with India’s climate commitments and green transition goals, including the long-term target of achieving net zero emissions by 2070.

“The draft framework will be the basis for developing sectoral annexures. The sectoral annexes will outline the measures, activities, and projects considered climate-supportive, and those identified for promoting the transition,” noted the ministry in a statement.

The objective of the framework is to facilitate greater resource flow to climate-friendly technologies and activities, enabling achievement of the country’s vision to be Net Zero by 2070 while also ensuring long-term access to reliable and affordable energy. The taxonomy should also prevent greenwashing.

It will focus on three key areas: mitigation, adaptation and support transition of hard-to-abate sectors.

Mitigation will include improvements in energy efficiency or reduction in emission intensity, and avoidance of GHG emissions including through the expansion of non-fossil fuel energy, etc.

Adaptation will include action that enhances resilience, including sustainable water management, ecosystem protection and restoration, and geography-specific adaptation measures to lower the negative impacts of climate change.

Transition activities in line with the specific pathway for hard-to-abate industries, innovation and R&D facilitate low carbon pathways considering the available technology, its access and viability.

“A hybrid approach that combines qualitative principles with quantitative metrics ensures that the taxonomy remains inclusive, addressing India's diverse industrial structure and responding to new targets, regulatory changes, and policy dynamics while promoting a science-based trajectory for climate transition,” mentioned the draft.

It further added that India’s taxonomy on climate finance will be a living document. It will be periodically reviewed to capture the evolving requirements and to progressively cover sectors, projects and activities reflecting the dynamic landscape of investments for climate finance.
The implementation of the hybrid approach will be in a phased manner, starting with qualitative criteria to provide a broad framework that aligns with national priorities, such as inclusive growth, Net Zero goal by 2070, and sector-specific low-carbon pathways.

The draft details the methodology for classifying activities, projects, and measures that contribute to India's climate commitments, while also taking into account goals associated with achieving Viksit Bharat by 2047.

For the power sector, the draft prioritises investments in solar, wind, and hydro generation, transmission infrastructure, and grid modernisation. “As India moves toward its Net Zero goals, balancing power generation from diverse sources—renewables, thermal, nuclear, and hybrid systems—will be crucial for sustaining economic momentum. This mix includes renewables such as solar, wind, and bioenergy, alongside advanced technologies like nuclear, green hydrogen, and storage solutions,” it noted.

In the mobility sector, the focus will be on accelerating the transition to electric vehicles (EV). “Going forward, while fossil fuels will continue to play an essential role in India’s transport sector in the short to medium term, there is a need for promoting the technologies and measures that are less carbon-intensive and to facilitate the flow of investment to aid the transition,” noted the draft.

The climate finance taxonomy aims to direct investment towards the hard-to-abate sectors to support the development of indigenous low-emission production technologies, large-scale deployment of mature climate technologies, and the building of domestic expertise for a gradual transition to low-emission pathways. The focus will initially be on the Iron and Steel and Cement industries, with provisions for periodic review to accommodate evolving requirements and progressively include other hard-to-abate sectors such as fertilisers, aluminium, and more.

The Ministry has also sought public consultations and the comments can be sent by June 25, 2025.

Download the attached file

Tags:

Policies & Regulations

Climate finance taxonomy

Draft framework of climate finance taxonomy

Ministry of finance

Green Taxonomy

Viksit Bharat by 2047

Net Zero by 2070

Investment in low-carbon technologies

EV transition

renewable energy transition