ABSTRACT
At the federal level, public finance comprises around one-fourth of known climate finance in India. Although scarce, public finance can have an important multiplier effect on real economy actors. Over the last decade, the government of India has designed and implemented strategies that shift scarce public finance away from carbon-intensive energy sources, such as fossil fuels, towards clean energy, using a ‘remove’, ‘target’ and ‘shift’ approach – by calibrating policy levers such as prices, taxation and subsidies. Fossil fuel subsidies at the union level in India have reduced by 59% since 2014, whereas fossil fuel–linked revenue has increased, creating the fiscal space to support clean energy. Using the case study of the energy sector, this chapter aims to provide a theoretical framework for designing such fiscal shifts for governments. This framework can be relevant for state governments and local governments in India looking for similar economic diversification pathways but currently dependent extensively on devolved funds from the centre.
This chapter will also explore the evolving nature of fiscal federalism in the era of climate change as laid out by the XV Finance Commission of India by using specific examples of policy experiments being undertaken. The lessons and challenges drawn from these examples can provide critical insights to policymakers looking to reform subsidies and taxes for scaling clean energy deployment.
