Influencing Financial Flows
for a Sustainable Future
Directing Economies through Finance
Finance
is an important component of any economy. The direction of financial
flows enables an analysis of the kind of economic growth experienced by
a country and the expenditure and investment made in certain sectors
(proportionate to the priority sectors), and the skills required. So
far, the world has regarded economic growth as a prerequisite for
poverty reduction, human advancement, economic stability etc. However,
the kind of economic development processes that have been adopted have
exerted significant pressure on the environment, thus undermining the
capacity for future development to take place.
The global community has in the past decade
come to a global consensus that the current economic development
(overexploitation of natural resources, high dependence on fossil fuels,
increasing population etc.) have been the biggest cause of climate
change and environmental degradation. While these challenges of climate
change and environmental degradation might seem as isolated phenomena,
their impact on human life and livelihood irrespective of the stage of
economic development a nation is in, have been severe.
In order to meet these challenges, new
strategies will need to be adopted that lead to economic growth and
greater social equity both for the present and future generations, while
preserving the environment and responding to the increasing impacts of
climate change. In this case, one of the important mechanisms is the
appropriate flow of finances towards low-carbon and resource-efficient
economies.
For a transition to a greener economy,
finances are to be mobilised by smart public policy and innovative
financing mechanisms . A pertinent example is the scale of investment
made by developing countries against that of developed countries in the
renewable energy sector. According to the UNEP report titled, 'Global
Trends in Renewable Energy Investment 2016', developing world including
China, India and Brazil committed a total of USD 156 billion (up by 19%
in 2015) in new renewables capacity, compared to the developed world's
investment of USD 130 billion which was down 8% in 2015 . Experts around
the world have stated that such a leap in investment has been the result
of a conducive environment that governments have created for greening of
capital markets and encouraging market innovations that bolster national
initiatives to green economies.
While it is imperative that the global/
national markets see finance as a means to greater environmentally
sustainable and inclusive processes, it is the government agencies and
the effective voice of civil society that will guide and support this
transition to a greener and more inclusive economy.
Public Financing Instruments
In the role of driving the economy,
government functionaries play the role of providing subsidies and
taxation, commit to sustainable public procurement, help grow new
markets in environmental services, improve investor confidence and
support and guide private sector finance.
India has taken a number of actions that are
targeted towards curbing the use of fossil fuels and incentivising the
renewable energy sector through various fiscal measures. The fiscal
policies are now gradually shifting from a carbon subsidisation regime
to one of significant carbon taxation regime.
The figure above illustrates the rising
carbon tax equivalent to US$ 70 per tonne of CO2 (Unbranded Petrol) and
US$ 42 per tonne (Unbranded diesel) since October 2014. This has
resulted from change in the excise duties imposed on these petroleum
products. This has steeply risen the implicit carbon tax to what is now
considered reasonable at US$ 140 for petrol and US$ 64 for diesel (upto
January 2015).
Re-Financing through Government Programmes
Given India's growth trends both in terms of
its teeming population and the growing resource demands, India has over
the years acknowledged the need to take into account the opportunities
and challenges as well costs and benefits of green economy policies in
the context of sustainable development and poverty eradication. While
the first ten 5 year plans of the Indian Government had largely focused
on economic growth, from the Eleventh Five Year plan (2007-2012) onwards
the government has given greater emphasis on social policies of
sustainable development with the 12th five-year plan titled, 'Faster,
Sustainable and More Inclusive Growth'. In order to achieve this, the
government has adopted a series of methods of action that range from
environmental legislations like Biological Diversity Act, 2002; National
Rural Employment Guarantee Act, 2005; Energy Conservation Act, 2001 to
targeted initiatives like the National Action Plan on Climate Change (NAPCC)
under which lie 8 Missions that target various green economy policies.
The other initiatives include Smart Cities Mission, Skill Council for
Green Jobs, Swachh Bharat Mission etc.
Agricultural Sector: The agricultural
sector plays a vital role in India's economy, with approximately 58% of
the rural households depending on agriculture as their principle means
of livelihood. Agriculture and allied sectors (including agriculture,
livestock, forestry and fishery) contributed to 15.35% of the Gross
Value Added (GVA) during 2015-16 at 2011-12 prices (IBEF, 2016). While
this sector is one of the largest contributors to the country's GDP, it
is highly vulnerable to the risks associated with climate change and the
decline in quality of land and water availability and quality due to
over-exploitation and other mal practices of modern agriculture. In the
recent past, the Government of India has recognised that sustainable
agricultural growth is necessary to ensure food security and poverty
eradication. It has thus planned several steps for the sustainable
development of agriculture. The National Mission for Sustainable
Agriculture addresses issues regarding sustainable agriculture in the
context of risks associated with climate change by devising appropriate
adaptation and mitigation strategies for food security, equitable access
to food resources, enhancing livelihood opportunities and contributing
to economic stability. Steps have also been taken to improve soil
fertility on a sustainable basis through the Soil Health Card Scheme and
to provide continued support to the Mahatma Gandhi National Rural
Employment Guarantee Act (MGNREGA) that ensures the development of
sustainable livelihoods and farmer welfare.
Renewable Energy Sector: According to
the Planning Commissions Interim report of the Expert Group on Low
Carbon Strategies for Inclusive Growth (April, 2014), India's per capita
energy consumption, in terms of kilogram of oil equivalent (kgoe), 2008
was only 0.53, compared with the world average of 1.8. Given that
India's primary energy requirements are going to increase considerably,
India will require to address this challenge through ensuring
sustainable modern energy access for all, in particular for the poor in
a reliable, affordable, economically viable and socially and
environmentally acceptable manner. In this regard, the Jawaharlal Nehru
National Solar Mission was established to promote ecologically
sustainable growth while addressing India's energy security challenge.
It has been estimated that India's 100GW solar target is likely to
create 1 million jobs by 2022 (NRDC & CEEW, 2015). In order to achieve
this the government has been working towards setting up both robust
regulatory and market based mechanisms to ensure use of solar power in
the overall energy mix. Under the National Tariff Policy, 2006, State
electricity regulators are mandated to fix a percentage for the purchase
of solar power, so as to make it as competitive as coal-based power.
Solar specific Renewable Energy Certificate (REC) mechanisms have been
set up to allow utilities and solar power generation companies to buy
and sell certificates to meet their solar power purchase obligations.
Forest Sector: The objective of the
National Mission for a Green India is to ensure increased forest/tree
cover and quality, improve ecosystem services and increased forest-based
livelihood income. It further aims to ensure carbon sequestration of
50-60 million tonnes by the year 2020 through conservation and
sustainable use of forest resources.
Green Accounting: Further,
recognising the importance of Environment Statistics as a means to
measuring green GDP, the Central Statistical Organisation has issued
eleven issues of publications titled, 'Compendium of Environment
Statistics' (1997-2011) presenting available data relating to the
environment of the country. The compendium is aimed at helping the
'Expert Group on Green National Accounting' (August 2011) to develop a
frame work for 'Green National Accounts' for India and to identify the
data requirements for the implementation of the recommended framework.
It must be noted that while the Indian
Government has taken considerable steps towards raising green finance
through the National Adaptation Fund, budgetary allocations for the
missions and tax disincentives like the Clean Environment Cess and the
Infrastructure Cess, there continues to be little financial flow from
the private sector, barring a few examples like Green Bonds developed by
Yes Bank and Exim Bank that enable funding for renewable energy
projects. Thus while India transitions to a greener economy, the role of
Indian banks and financial institutions for facilitating this transition
will be critical. ■
Pratibha Ruth Caleb
pcaleb@devalt.org
References:
Frankfurt School-UNEP Centre, 2016. Global Trends in Renewable Energy
Investment 2016, s.l.: Frankfurt School of Finance & Management gGmbH.
Ministry of Finance, 2016. Economic Survey 2015-16, s.l.: National
Informations Centre, Government of India.
UNEP, 2012. Green Economy-Finance, s.l.: United Nations Environment
Programme.
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