ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Mainstreaming Climate Change Commitments through Finance Commissions

This analysis suggests that climate change criterion in the intergovernmental fiscal transfer mechanism in India is a significant step to incentivise the conservation of forests. However, the macropolicy channel of this link is through the public expenditure priorities related to climate change commitments by the state governments.


Thanks are due to Divy Rangan for research support.

Within fiscal federalism frameworks, there is an increasing recognition of the need to integrate climate change commitments into intergovernmental fiscal transfers. The rationale for facilitating such fiscal decentralisation in climate change commitments, through conditional or unconditional fiscal transfers, is to compensate for the cost disabilities of the subnational governments for revenue foregone and other opportunity costs of the protected areas. The principle of subsidiarity is crucial here, which demands that the responsibility for providing a particular service should be assigned to the smallest jurisdiction whose geographical scope encompasses the relevant benefits and costs associated with the provision of services (Oates 1998).

In Brazil and Portugal, such fiscal transfers are conditional in nature, which incentivises decentralised conservation efforts of environment (Droste 2017a, 2017b), while in India, climate change criterion is incorporated in formula-based unconditional tax transfers (Kaur and Chakraborty 2019; Kaur et al 2021). However, the amount allocated by the Twelfth and Thirteenth Finance Commissions for forest conservation were in the form of conditional grants`1,000 crore and `5,000 crore, respectively, for the forestry sector.1 In addition to these intergovernmental fiscal transfers, the CAMPACompensatory Afforestation Fund Management and Planning Authority funds2are also there with the objective to enhance forest cover to maximise carbon sequestration. The conditional grants and CAMPA funds were not significant to make a just transition towards a sustainable climate-resilent economy.3

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Published On : 20th Jan, 2024

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