Mainstreaming Climate Change Commitments through Finance Commissions

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 CAMPA—Compensatory Affore­station Fund Management and Planning Authority funds²—are 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