Will Budget 2018 signal India’s commitment to fight climate change?
The budgetary outlays on renewable energy and environment have been lower than the amount raised through carbon taxes in recent years
Bengaluru: This year’s Economic Survey published by the finance ministry has a stark message: climate change can dent farm incomes by as much as 25% in rain-fed areas over the medium term. Given that roughly 50% of India’s workforce is employed in agriculture, this is a big risk factor.
Our ability to mitigate the impact of climate change depends partly on global action to fight climate change. But it also depends on what actions the government takes to fight climate change, and to invest in climate mitigation efforts.
India’s record so far has been a mixed one. Over the past few years, the government has been very successful in imposing new taxes ostensibly to protect the environment. But it has been lackadaisical in utilizing proceeds from such taxes for fighting climate change, an analysis of budget documents show. What makes matters worse is that the resources to fight climate change are under threat since most of these were in the form of fuel taxes. Given the rise in global oil prices and a possible political backlash against further rise in fuel prices, the headroom for the government to raise carbon taxes seems to have shrunk considerably.
Over the past few years, carbon taxes collected by the centre have seen a sharp increase. Such taxes, which penalize the use of fossil fuels and automobiles, are an effective weapon to fight climate change as the 2015-16 Economic Survey pointed out. Such taxes discourage carbon emissions even while raising revenues. The fall in global oil prices in mid-2014 allowed the government to raise carbon taxes such as “additional excise duty” on petrol and diesel, without a sharp rise in retail prices (see charts 1A and 1B).
The fact that petrol and diesel are disproportionately consumed by the relatively richer classes also arguably helped the government to paper over any opposition to levying new taxes (see chart 2).
As long as oil prices were low, consumers and voters were acquiescent. But the rise in prices threatens to undo those gains as it has made such additional duties and taxes extremely unpopular. After raising excise duty on petrol and diesel nine times since November 2014, the government was forced to cut back on such duties by Rs2 per litre in October last year. There is intense pressure on the finance ministry to cut such duties further.
The revenues raised so far through carbon taxes may thus have been a one-time bonanza for the government rather than a pivotal shift in energy-pricing policy. But even that windfall does not seem to have been well-utilized.
Government spending on environment and renewables has been consistently low, despite the twin bonanza of increased revenue from carbon taxes and reduced burden of petroleum-related subsidies. The actual spending of the renewable energy and environment ministries and that of the power ministry on energy conservation has been lower than budgeted over the past few years (see charts 3 and 4).
Moreover, funds earmarked for fighting climate change have often been unspent and are at the risk of being diverted for other purposes. Consider the example of cess on coal, which was introduced in 2010 by the United Progressive Alliance (UPA) government, amounting to Rs50 per tonne. Subsequently, the National Democratic Alliance (NDA) government raised it to Rs400 per tonne by 2016. However, only 34% of coal cess collections were transferred to the National Clean Energy and Environment Fund (NCEEF) between 2011-12 and 2017-18.
The standing committee on finance in 2014-15 had recommended transferring the unutilized funds for financing other unrelated schemes, as noted in a recent report by the Comptroller and Auditor General. The government reportedly plans to divert the unspent funds for GST compensation to states, said a Scroll report.
While there remains lack of clarity over the previously unspent funds, the government has already declared that future coal cess collections for the next five years will be channelled towards GST compensation for states and not towards NCEEF. This puts a question mark over the finances of the ministry of new and renewable energy (MNRE), as the ministry received 98% of its funds through the NCEEF over the past two years (see chart 5).
The government has also failed to efficiently utilize the penalties received from industrial projects for using forest land. The government is yet to formulate rules to systematically disburse the funds to states, a Lok Sabha response in December 2017 revealed. Consequently most of the funds are lying unspent.
India’s fight against climate change cannot be sustained unless there is a coherent framework to deal with this challenge backed by adequate resources. It is in India’s economic interest to take the threat of climate change more seriously, and it is in India’s strategic interest to take leadership on this issue on the global stage.