Let us deploy fiscal federalism against climate change

Source: The post is based on the article “Let us deploy fiscal federalism against climate change” published in Live Mint on 7^th September 2023.

Syllabus: GS 3 – Environment – Climate Change

News: The current climate governance in India is highly centralized, with the central government taking the lead in key areas. Centre is responsible for shaping state-level climate policies via initiatives like the National Action Plan on Climate Change (NAPCC).

Although states have created their own plans (SAPCCs), they lack coordination, face funding constraints, and do not align with the Centre’s net-zero goal. Thus, there’s a need to strengthen fiscal federalism for climate change.

What can be done to enhance fiscal federalism for climate change?

Define Activities and Map Climate Finance Channels: India should expand its efforts to map the programs being carried out in different states along with the funding sources, building upon the initiatives by Niti Aayog to map programs that have connections to climate change.

Enhance Fund Allocation: A significant portion of funds should be allocated to states using fiscal federal mechanisms that are designated for climate-related initiatives and renewable energy projects.

Strengthen State Capacity: There is a need to strengthen institutional mechanisms for planning, executing, and overseeing various initiatives.

Currently, these mechanisms fall under the centralized administration of the National Mission on Strategic Knowledge for Climate Change.

Incentivize Climate Action: India can provide performance-based rewards to states that make significant progress towards climate goals. States that reduce emissions or increase renewable energy generation could be made eligible for additional grants.

Harmonize Policy: India should unify state-level climate policies and regulations to create a stable environment for businesses and investors. Central government can facilitate coordination and knowledge sharing among states to promote best practices.

Boost Data Gathering and Monitoring Systems: States should establish robust data systems for fiscal federalism to effectively address climate change.

This includes improving climate data quality, implementing monitoring frameworks, and fostering transparency. Standardized data collection and reporting formats can facilitate comparisons and informed decision-making.

Encourage Public-Private Partnerships: India can attract private investment in climate action by providing fiscal incentives, innovative financing models, and risk-sharing arrangements.

Partnerships between the government, private sector, and civil society can also help to mobilize resources and accelerate projects.

Enlarge the Finance Commission’s (FC) role: India’s fiscal federalism, managed by the FC, allocates finances between the central and state governments.

While the FC addresses disaster management and considers forest cover in its horizontal distribution formula, this measure falls short in addressing ecological challenges.

Hence, the upcoming 16th Finance Commission may develop a net-zero plan with medium-term funding structures for subnational levels. Future Commissions should also address this issue comprehensively, ensuring fairness among states.