Fiscal Federalism and Climate Change

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.