Fiscal Federalism and Climate Change
Building the Institutional Framework in India
DOI:
https://doi.org/10.55763/ippr.2025.06.01.003Abstract
This paper examines India’s evolving climate change governance framework, emphasizing the role of its federal structure in shaping national and subnational climate action. Given India’s commitment to ambitious climate goals like achieving net-zero emissions by 2070 and aligning with the Paris Agreement, the study underscores the need for a cohesive, multi-level governance approach to effectively implement these targets. It critically assesses the current institutional landscape, identifying gaps in coordination and sectoral integration of climate action. India’s reliance on sector-specific laws and policies, coupled with the absence of overarching climate legislation, highlights the urgent need for a unified legal framework to mainstream climate considerations into governance. Drawing on international experience, it explores how fiscal federalism principles can strengthen India’s climate governance by empowering state governments and decentralizing climate action, while maintaining national coherence. The paper proposes strategies to optimize institutional support, enhance financial mechanisms, and foster cross-sectoral coordination. It outlines a roadmap for strengthening India's climate governance, focusing on establishing national climate laws, integrating climate change into fiscal and policy planning, and improving coordination between central and state authorities. By offering a pathway for scaling up climate action in India, the paper aims to ensure equity and sustainability in India’s transition to a low-carbon, resilient economy.
Keywords:
climate change governance, fiscal federalism, climate legislation, net zero, framework law, carbon pricingDownloads
References
Ahmad, Ehtisham, and Nicholas Stern. 2009. “Effective Carbon Taxes and Public Policy Options: Insights from India and Pakistan.” Working Paper 28.
Ahluwalia, M. S., and U. Patel. 2024. “Climate Change Policies for Developing Countries.” New Delhi: Center for Social and Economic Progress. https://csep.org/working-paper/climate-change-policy-for-developing-countries/.
Alm, James, and H. Spencer Banzhaf. 2012. “Designing Economic Instruments for the Environment in a Decentralized Fiscal System.” Journal of Economic Surveys, Vol. 26(2), p. 177‒202.
Asian Development Bank. 2024. Asia-Pacific Climate Report 2024: Catalyzing Finance and Policy Solutions. Manila, Philippines: ADB.Org.
Atteridge, A., M. K. Shrivastava, N. Pahuja, and H. Upadhyay. 2012. “Climate Policy in India: What Shapes International, National and State Policy?” Ambio, Vol. 41(Suppl. 1), p. 68–77. https://doi.org/10.1007/s13280-011-0242-5.
Aydin, Sakrak, Ozlem, Bryn Battersby, Fabien Gonguet, Claude Wendling, Jacques Charaoui, and Murray Petrie. 2022. “How to Make the Management of Public Finances Climate-Sensitive—'Green PFM.’” IMF How to Note 2022/006. International Monetary Fund.
Bhattacharya, Amar, Maksym Ivanyna, William Oman, and Nicholas Stern. 2021. “Climate Action to Unlock the Inclusive Growth Story of the 21st Century.” IMF Working Paper WP/21/147.
Busch, Jonah, Avani Kapur, and Anit Mukherjee. 2020. “Did India’s Ecological Fiscal Transfers Incentivize State Governments to Increase Their Forestry Budgets?” Environmental Research Communications, 2(031006). https://doi.org/10.1088/2515-7620/ab817c.
Busch, Jonah, and Anit Mukherjee. 2017. “Encouraging State Governments to Protect and Restore Forests Using Ecological Fiscal Transfers: India's Tax Revenue Distribution Reform.” https://doi.org/10.1111/conl.12416.
Canadian Climate Institute. 2023. “How Large-Emitter Trading Systems Work.” https://climateinstitute.ca/large-emitter-trading-systems-explained/.
Canada. 2023. “How Carbon Pricing Works.” Government of Canada. https://www.canada.ca/en/environment-climate-change/services/climate-change/pricing-pollution-how-it-will-work/putting-price-on-carbon-pollution.html.
Chen, Wenjie, Florence Jaumotte, and Karlygash Zhunussova. 2022. “A Comprehensive Package of Macroeconomic Policy Measures for Implementing China’s Climate Mitigation Strategy.” IMF Working Paper, Asia and Pacific Department.
Climate Action Tracker. 2023. “Tracking National Climate Commitments and Governance Ratings.” Retrieved from https://climateactiontracker.org/.
Comptroller and Auditor General of India (CAG). 2022. “Performance Audit on Climate Change Finance and Governance.” Government of India. https://cag.gov.in/uploads/PressRelease/PR-Climate-Change-Finance-2022.pdf.
Dubash, N. K. 2024. “Unpacking Climate Policy.” Science (6 June).
Dubash, N. K. 2024. “Design National Framework Climate Laws to Enable Low-Carbon Resilient Transformation.” Science, 383(6684), 15 February.
Dubash, N. K. 2021. “Varieties of Climate Governance: The Emergence and Functioning of Climate Institutions.” Environmental Politics, Vol. 30(Suppl. 1).
Dubash, N. K. 2019. India in a Warming World: Integrating Climate Change and Development. New Delhi: Oxford University Press.
Dubash, N. K. 2013. “The Politics of Climate Change in India: Narratives of Equity and Cobenefits.” WIREs Wiley Interdisciplinary Reviews: Climate Change, Vol. 4(3), p. 191 201. https://doi.org/10.1002/wcc.210.
Dubash, N. K., and Aditya Valiathan Pillai. 2023. “Climate Governance and Federalism in India.” In Climate Governance and Federalism: A Forum of Federations Comparative Policy Analysis, edited by Fenna A, Jodoin S, Setzer J, p. 177‒97. Cambridge University Press.
Dubash, N. K., et al. 2021. “National Climate Institutions Complement Targets and Policies.” Science, 374(6568), p. 690 693.
Dubash, N. K., and Shibani Ghosh. 2019. “National Climate Policies and Institutions.” In India in a Warming World. Oxford University Press, p. 197‒220. https://doi.org/10.1093/oso/9780199498734.003.0010.
Dubash, N. K., and Anu Jogesh. 2014. From Margins to Mainstream? State Climate Change Planning in India as a ‘Door Opener’ to a Sustainable Future. Centre for Policy Research.
Dubash, N. K., M. Hagemann, N. Höhne, and P. Upadhyaya. 2013. “Developments in National Climate Change Mitigation Legislation and Strategy.” Climate Policy, Vol. 13, p. 649‒64. https://doi.org/10.1080/14693062.2013.845409.
Fay, Marianne, et al. 2015. “Decarbonizing Development: Three Steps to a Zero-Carbon Future.” World Bank, Washington, D.C.
Fifteenth Finance Commission. 2022. Strengthening India’s Forest Sector: Recommendations to the Fifteenth Finance Commission.
Georgieva, Kristalina, and Tobias Adrian. 2022. “Public Sector Must Play Major Role in Catalyzing Private Climate Finance.” IMF Blog, International Monetary Fund.
Government of India, Ministry of Environment, Forest and Climate Change (MoEFCC), 2023. India’s National Adaptation and Climate Resilience Strategy. https://moef.gov.in/.
Government of India, Ministry of Finance, 2022. Budgetary Framework for Green Investments and Climate Finance. https://www.finmin.nic.in/.
Government of India, Ministry of Power. 2022. Renewable Energy Targets and Policies Report. https://powermin.gov.in/.
Government of India, Economic Survey. 2021. “Sustainable Development and Climate Change,” Chapter 6, https://www.indiabudget.gov.in/economicsurvey/.
Grantham Research Institute. 2019. National Laws and Policies on Climate Change Adaptation: A Global Review. https://www.lse.ac.uk/granthaminstitute/wp-content/uploads/2019/12/National-laws-and-policies-on-climate-change-adaptation_A-global-review.pdf.
Hahn, Robert W., and Roger G. Noll. 1981. “Designing a Market for Tradable Emissions Permits.” Social Science Working Paper, No. 398. California Institute of Technology, Pasadena, CA.
International Renewable Energy Agency. 2023. “India’s Pathway to A Renewable Future: Green Hydrogen and Energy Storage.” https://www.irena.org/.
International Monetary Fund. 2022. Fiscal Monitor Report—From Pandemic to War. International Monetary Fund, Washington, D.C.
International Energy Agency. 2022. “India Energy Outlook 2022.” https://www.iea.org/reports/india-energy-outlook-2022.
Kaur, Amandeep, Mohanty, Ranjan Kumar, Chakraborty, Lekha, Rangan, Divy. 2021. “Ecological Fiscal Transfers and State-level Budgetary Spending in India: Analysing the Flypaper Effects in India.” No 332, NIPFP.
Kumar, Parul; Naik, Abhayraj. 2024. India’s New Constitutional Climate Right: Examining the Significance of M.K. Ranjitsinh and Others v. Union of India and Others for Climate Litigation in India. VerfBlog, 2024/4/25. https://verfassungsblog.de/indias-new-constitutional-climate-right/.
Mani,Muthukumara S.; Hussein,Zekarias; Gopalakrishnan,Badri Narayanan; Wadhwa,Deepika.
Paris climate agreement and the global economy : winners and losers (English). Policy Research working paper|no. WPS 8392 Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/705871522683196873
Martinez-Vazquez, J. 2021. “Adapting Fiscal Decentralization Design to Combat Climate Change.” Climate Governance Papers, World Bank.
New Zealand Climate Change Commission. 2023. Five-Year Climate Budget Reports. https://www.climatecommission.govt.nz.
Rajaraman, Indira. 2017. “Continuity and Change in Indian Fiscal Federalism.” India Review, Vol. 16:1, p. 66‒84, DOI: 10.1080/14736489.2017.1279927.
Rajaraman, Indira, and Manish Gupta. 2022. “Fiscal Transfers for Forest Cover Aligning National and Subnational Objectives in a Federal Setting.” Economic and Political Weekly LVII(1), p. 50‒57.
Rao, M. Govinda. 2017. "The Effect of Intergovernmental Transfers on Public Services in India," Working Papers 17/218, National Institute of Public Finance and Policy.
Ring, Irene. 2002. “Ecological Public Functions and Fiscal Equalisation at the Local Level in Germany.” Ecological Economics, p. 415–27.
Singh, Anoop. 2023. “Environment Policy Needs Federalism to Play a Big Role.” Mint Premium. https://www.livemint.com/.
Singh, Anoop. 2023. “Let Us Deploy Fiscal Federalism Against Climate Change.” Mint Premium. September 6.
Singh, Vaibhav Pratap, and Gagan Sidhu. 2021. “Investment Sizing India’s 2070 Net-Zero Target,” Council on Energy, Environment and Water (CEEW). Issue Brief, November 2021.
Smoke, Paul J., and Mitchell Jarrod Cook. 2022. “Administrative Decentralization and Climate Change: Concepts, Experience, and Action” (English). Climate Governance Papers, World Bank Group, Washington, D.C. http://documents.worldbank.org/curated/en/099040001252284476/P1725690d761df0fa08f5e0c9bd504c19ae.
South Africa’s Just Energy Transition Partnership (JETP). 2021. International Climate Finance and Subnational Adaptation Strategies.
Sridhar, Anirudh, Navroz K. Dubash, and others. 2022. “Climate Governance Functions: Towards Context-specific Climate Laws.” World Resources Institute, 2022.
Stef, Nicolae, and Arvind Ashta. 2023. “Dynamics in Environmental Legislation, International Review of Law and Economics,” Vol. 76.
Stern, Nicholas. 2006. Stern Review: The Economics of Climate Change. Retrieved from http://mudancasclimaticas.cptec.inpe.br/~rmclima/pdfs/destaques/sternreview_report_complete.pdf.
TERI Report for the 15th Finance Commission. 2019. Strengthening India’s Forest Sector Recommendations to the Fifteenth Finance Commission. https://fincomindia.nic.in/asset/doc/commission-reports/15th-FC/reports/studies/Strengthening_India's_Forest_Sector.pdf.
Thomas, Vinod. 2023. Risk and Resilience in the Era of Climate Change. Singapore: Palgrave Macmillan.
United Nations Development Programme (UNDP). 2022. Building Climate Resilience in India: Community and Ecosystem-Based Approaches. https://www.undp.org/.
United Nations. 2021. Paris Agreement Progress Report. United Nations Framework Convention on Climate Change. https://unfccc.int/process-and-meetings/the-paris-agreement.
William Wills, Emilio Lebre La Rovere, Carolina Grottera, Giovanna Ferrazzo Naspolini, Gaëlle Le Treut, Frédéric Ghersi, Julien Lefèvre, and Carolina Burle Schmidt Dubeux. 2021. “Economic and Social Effectiveness of Carbon Pricing Schemes to Meet Brazilian NDC Targets.” Climate Policy, Vol. 22, Issue 1, p. 48‒63: https://doi.org/10.1080/14693062.2021.1981212.
World Bank. 2020. World Bank Reference Guide to Climate Change Framework Legislation. http://hdl.handle.net/10986/34972.
World Bank. 2015. “What Are Green Bonds?” http://documents1.worldbank.org/curated/en/400251468187810398/pdf/99662-REVISED-WB-Green-Bond-Box393208BPUBLIC.pdf.
Yilmaz, Serdar, and Farah Zahir. 2022. “Fiscal Tools for Subnational Ecosystem and Climate Action.” Decentralized Governance and Climate Change Conference.
Zhang, Tao. 2020. “Sustainable Transformation of Societies—A Green Consensus for Macro-Fiscal Policies?” IMF Blog. https://www.imf.org/en/News/Articles/2020/10/09/sp100920-sustainable-transformation-of-societies.
