Moving from a ‘Fair share’ to a ‘Critical Share’ Paradigm of Climate Expenditure

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This year as part of the COP negotiations, we heard a lot about climate justice, equity, and a fair share of both carbon space and climate finance targets (i.e. annual $100 billion). In an interesting piece of research Colenbrander, et.al (2021) suggest three metrics to assess each developed country’s fair share of the climate finance goal i.e. gross national income, cumulative carbon dioxide emissions, and population. While even the idea that an annual figure of $100 billion is sufficient for achieving desired climate outcomes is a discussion for another day, the paper is interesting with its non-messy way of ascribing a fair share of climate financing responsibilities.

This leads one to think if a similarly simple set of rules could be used in the subnational context as well while devolving climate financing targets. It is a well-known fact that India has a three-tier system of governance which includes national, state and local level governments. Additionally, subjects on which laws can be enacted and action be taken by any of these tiers are covered as part of the Union, State, and Concurrent lists in the 7th schedule of the Indian constitution. However, a lesser-known fact is that environment by itself is not covered in any of the schedules. There are related subjects such as forests (Concurrent List) and water and sanitation (State List) that do find a mention, but not this subject as a whole. So, in the future when climate legislation is thought of, at which level should laws be enacted or policies be made? Additionally, with climate impacts assuming catastrophic proportions, how should financial burdens and management responsibilities be assigned? One could glean from the above that a contribution would be required from all levels of the government. However, disparities with respect to developmental needs aka the ’common but differentiated responsibilities’ argument would need to be considered at the sub-national government level as well. What we, therefore, need to move towards is a ‘critical share’ argument for climate finance at a sub-national level.

Devolution of climate targets at a sub-national level is not a topic India is unaware of. To cite an example, the devolution of India’s national solar rooftop targets (40 GWp) at a state level was done way back in 2015. While the division was largely done based on state-wise power consumption, the feasibility of projects was dictated by both availability of roof space and the existing renewable energy potential in the state.

However, unlike mitigation, devolving adaptation-related targets and that too finance-related, are an entirely different kettle of fish. The UNFCCC defines adaptation as “Human-driven adjustments in ecological, social or economic systems or policy processes, in response to actual or expected climate stimuli and their effects or impacts…Various types of adaptation can be distinguished, including anticipatory and reactive adaptation, private and public adaptation, and autonomous and planned adaptation”. The different types of planned and unplanned “adjustments” make quantification of adaptation requirements very difficult. Additionally, the inter-relationships between developmental expenditure and expenditures contributing to climate resiliency make the distinction between the two extremely fuzzy. In a related piece of research that ICRIER contributed to, it was found that India spends annually  1.9 percent of GDP from the central coffers on adaptation. The results were derived through a painstaking exercise that mapped expenditure budgets of over 46 Ministries/Departments to estimate the total ‘Actual 2017-18’ spending from the Union Budget 2019-20 on resilience. However, this research piece stopped just short of doing a similar mapping across all the states to understand current expenditure patterns better.

However, even if this exercise was indeed extended at the state-level, it would have merely provided a baseline for current expenditures. It would not have been enough to understand the future targets and financing needs at state and local levels. The latter would require a deeper understanding of funding needs to both, adapt to planned and be resilient to unplanned climate impacts. In such a context, cues could be taken from the Devolution Formula arrived at by various Finance Commissions for apportioning state shares in the central pool of funds. The Finance Commission devolution formula not only looks into the disparity of incomes between states but also takes into account the needs and developmental prerogative of each state. A similar exercise could be thought of for states that recognized their developmental imperatives, but at the same time looked at funds needed for ameliorating climate damage risks and adaptation requirements for gradual onset impacts. This would be the ideal way to derive ‘critical share’ of climate finance discussed earlier.

A question that might be raised here is that should the entire money needed for adaptation only come from the government? It is indeed true that adaptation related action has largely been spearheaded by national governments, with some contribution by bilateral and multilateral agencies. However, more needs to be done. A report by Alcayna, 2020 found very clearly that climate finance is not going to the countries and people that need it the most. The report found that between 2010 to 2017, only a quarter of bilateral financing and less than half of major multilateral financing has targeted the most climate vulnerable countries with climate change adaptation. Thus, given that adaptation sectors are not profitable enough to attract private funds looking for another avenue for investment, government-led expenditure would continue to dominate the financial flows. However, it can be argued here that target setting by governments would help related sectors plan better with surety of funding sources and for the governments themselves to earmark requisite funds that could be devoted for this purpose. This may have an impact of ‘crowding-in’ private Environment Social Governance (ESG) funding, climate philanthropies as well as Corporate Social Responsibility (CSR) funding.

India, like many other developing countries, is currently preparing its Adaptation Communication. It is envisaged that the document would provide details on adaptation targets, adaptation interventions planned as well as adaptation investments required. While the strategies, like prior UNFCCC submissions, most likely will be at a sectoral level; it might be good to understand what part of these funds would be domestically or internationally sourced. The former would open up avenues for conducting a calculation on how revenues need to be raised and later devolved at both a central and state level. Earmarking of funds at multiple levels would make the case for adaptation financing stronger in the longer term. There are gains from being “predictable” in this case.

(Views expressed are the author’s own and don’t necessarily reflect those of ICRIER)

Published by Amrita Goldar

Dr. Amrita Goldar is a Fellow at ICRIER and has more than 10 years of experience working on projects related to energy, environment and climate change for both government and non-governmental clients. Within ICRIER, she has worked on and led projects related to G-20 negotiations, municipal bonds for financing urban solar rooftop projects, climate change impacts on urban economic competitiveness, cost-benefit analysis of urban local public health interventions, MSMEs and sustainability standards, techno-economic analysis of various renewable energy technologies for telecom towers, and impacts of rationalizing fossil fuel subsidies in India. Her ongoing projects include estimating the financial requirements for meeting India’s NDC commitments, analyzing the impact of waste management on tourism revenues for Himalayan states using CGE model, and studying the impact of renewable policies on jobs created in the economy and industrial competitiveness. She also manages a team of 5-6 researchers working on the theme of ‘climate change and sustainable development’.

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