Climate Change Governance in India: Building the Institutional Framework

Executive Summary

The paper provides a comprehensive overview of India’s evolving framework for climate change governance, assessing India’s federal structure and proposing strategies for enhancing institutional support and coordination for climate action. As India has committed to ambitious international goals, this study outlines the need for a robust domestic framework to achieve these commitments. While India’s climate commitments are in line with international targets, addressing localised vulnerabilities remains a challenge. Adaptation strategies should include state-specific climate initiatives tailored to the unique vulnerabilities of each region. For example, instituting climate-adaptation scorecards can aid in tracking state-level progress on climate action while ensuring that fiscal mechanisms prioritise high-risk regions such as flood-prone Assam or drought-affected Maharashtra. The framework must empower subnational governments to adapt to regional climate risks, foster resilience, and ensure accountability through measurable indicators such as climate-adaptation scorecards and appropriate fiscal mechanisms.

India’s Global Climate Commitments and Domestic Challenges

India has pledged to reduce emissions intensity by 45% from 2005 levels, achieve 500 GW of renewable capacity by 2030, and rely on renewables for 50% of energy needs. However, India’s centralised federal structure presents unique challenges, with the union government controlling significant resources, while states handle critical areas like water, agriculture, and electricity distribution.

Despite existing institutions like the Ministry of Environment, Forest and Climate Change (MoEFCC) and the Prime Minister’s Council on Climate Change (PMCCC) being designated as key drivers of national climate policy, their functioning has faced challenges.

The MoEFCC, while leading India’s climate negotiations and overseeing the National Action Plan on Climate Change (NAPCC), has experienced limited inter-ministerial coordination and engagement with states.

Similarly, the PMCCC, which was intended to serve as a high-level coordinating body, has seen irregular meetings and has not used its mandate to address the complex demands of climate governance.

The Apex Committee for the Implementation of the Paris Agreement (AIPA) is relatively new and plays a more specific role—focusing on implementing India’s Nationally Determined Contributions (NDCs) under the Paris Agreement. While it coordinates across ministries at the national level, AIPA does not currently have a strong framework for state-level coordination, a key gap in India’s federal structure for climate governance.

In addition, the lack of formal climate legislation and reliance on sector-specific laws, such as the Electricity Act of 2003, underscores the need for a cohesive legal framework to integrate climate goals across sectors and enhance the effectiveness of existing institutions (Dubash & Pillai, 2023).

Proposed Institutional Framework for India

Drawing on lessons from international models and recommendations from experts, the paper explores how India can apply fiscal federalism principles to empower states while maintaining national coherence.

Key proposals include:

• National Climate Law: To bolster climate action, the paper recommends a national climate law establishing clear roles across union, state, and local levels.
• Institutionalised Coordination: A central coordinating institution, either through a better-mandated existing institution (such as the PMCCC) or by forming a permanent intergovernmental council, is urgently needed to align climate action across different levels of government, address cross-state challenges, and facilitate cooperative governance.
• Decentralised Implementation: Empowering states to tailor climate policies to local conditions while aligning with national goals. Decentralisation is particularly effective for adaptation measures, as states and subnational entities are better positioned to address localised climate impacts. However, centralised regulation is essential for mitigation efforts to prevent free-ridership and ensure coherence in achieving national and global emissions reduction targets.
• Climate Finance Allocation: Establishing a dedicated Climate Fund to support state-led projects, with performance-based incentives for achieving emissions targets and investments in green innovation (Yilmaz & Zahir, 2022).
• Role of the Finance Commission: To become a key player in climate policy implementation and act as a bridge between policy and funding gaps, India’s Finance Commission could expand its mandate to integrate environmental considerations into fiscal policy more comprehensively. Performance-based grants should reward states and localities for measurable climate outcomes, such as renewable energy installation or emissions reduction.
• Carbon Pricing Framework: Adopting a dual structure that combines an Output-Based Pricing System (OBPS) for industries with flexible, consumer- facing carbon pricing. As highlighted by international best practices, trade auctions using absolute emissions pricing rather than intensity- based benchmarks provide clearer financial incentives for reductions and robust market signals for industries. This approach promotes emissions intensity reduction without overly burdening firms while allowing states to innovate within a unified national policy.
• Transparency and Accountability: Requiring state-level reporting and independent audits, such as those led by the Comptroller and Auditor General (CAG), to track and verify climate spending and ensure transparency. In addition, an integrated climate expenditure dashboard should provide real-time insights into the usage of climate funds and their effectiveness, improving accountability and transparency.
• Public Participation: Strengthening grassroots engagement in climate planning, learning from successful state-level initiatives like Tamil Nadu’s renewable energy leadership and Assam’s flood management strategies.

Building Green Public Financial Management (PFM)

To integrate climate goals within India’s fiscal strategy, the paper recommends adopting green PFM practices, which include:

• Climate-Responsive Budgeting: Expanding climate tagging and expenditure reviews to align resources with mitigation and adaptation goals.
• Tracking and Monitoring Green Expenditures: Leveraging tools to track environmental spending efficiently, inspired by models from Denmark and France.
• Embedding Climate Risk into Public Investments: Incorporating climate adaptation and mitigation criteria into public investment management, as seen in Peru and Brazil.

India has already made significant progress in this area:

• Green Budgets: States like Odisha and Assam have pioneered climate-responsive budgeting practices, directing resources towards disaster management and green infrastructure.
• Capacity Building: The International Centre for Environment Audit and Sustainable Development iCED in Jaipur has become a regional hub for building audit capacity on climate-related expenditures, under the leadership of the CAG.

These successes provide a strong foundation for scaling green PFM practices nationwide.

Framework

For India to achieve its ambitious climate goals, a comprehensive legal and institutional framework is essential. This paper offers a roadmap to integrate climate action across the three tiers of government. Any potential framework must also empower states and foster transparent governance. A decentralised yet unified approach, supported by a national climate law, with formal mechanisms of coordination, carefully designed incentives, a carbon pricing system (including absolute pricing in trade auctions), and the necessary transparency and accountability across the tiers of government will strengthen India’s capacity to respond to climate challenges while also ensuring sustainable development. By building on state-level progress and integrating green PFM practices, India can create precisely such a cohesive and effective climate governance structure.