The Case for Green Budgeting

A recent Supreme Court ruling is a landmark judgment recognising the right against the adverse effects of climate change. This provides an impetus for using green budgeting practices for national investment

By Ranjit Barthakur

The scorching heatwave across India is a stark reminder of the climate crisis looming large. India is at a crossroads regarding climate change. The Supreme Court’s recent order builds upon previous judgments that recognised the right to a clean environment. The Court’s emphasis on the link between climate change and human rights highlights the urgency of integrating climate mitigation and adaptation strategies across policy frameworks nationally for the future of the country, including using green budgeting practices for national investment.   

In 2023, the state of Assam, introduced its first green budget to scale investment cross-sectorally in greening the state economy, with 10% of total spending going directly towards green investments. This year’s budget ramps up investments in nature-based solutions for flood management in the state, EV installation and transportation and renewables, including mandatory installation of solar panels on rooftops of new buildings and rapid upscaling of conservation activities such as the Amrit Brikshya Andolan scheme launched last year to encourage citizens to plant commercial trees in their lands. Similar budgetary measures have been rolled out at a national level, with green investment growing to Rs 35,000 crore in the 2023 budget—India’s first green growth budget.

Green budgeting integrates environmental considerations into the heart of financial planning. It goes beyond mere environmental allocations and focuses on strategically mapping and tracking expenditures that contribute to a sustainable future. This empowers policymakers to make informed decisions, fostering innovation within existing programmes and schemes. 

The apex court’s ruling has significant implications for green budgeting across India, but especially in climate vulnerable regions such as Northeast India by recognising the right to a healthy environment as a fundamental right, strengthening the legal basis for green budgeting initiatives, as it empowers communities and environmental organisations to hold governments accountable for their environmental spending.

A robust green budget relies on accurate data on environmental spending within existing schemes. Implementing these processes also requires highly-skilled personnel who understand both environmental and economic principles. These budgets benefit greatly from a coordinated approach, which necessitates collaboration between the central government and state governments, including developing states and regions like the Northeast. Creating a unified framework for green budgeting across diverse state economies can be challenging, particularly in states with economies that are highly dependent on either fossil fuels as energy sources or as a key source of income.

The Supreme Court judgment rightly reflects on the need to balance environmental concerns, development concerns and climate concerns, while also recognizing that the three are not mutually incompatible.

The biggest challenge in adopting these measures is the country’s need and focus on socio-economic growth and development. In recent years, policy measures for growth have been criticized for its prioritization of economic growth over other concerns—including concerns of clean environment and climate change. At COP26 and COP27, India was one of the several countries that was scrutinised internationally for its role in removing language involving the phase out of fossil fuels such as coal from agreements. However, the increased spending on net zero commitments—while very important—has also had unintended consequences on ecosystems as a whole. 

The Supreme court ruling on the right to a healthy environment and to be free from the consequences of climate change is part of a case in which environmentalists petitioned the Court to shift all overhead transmission lines for solar plants underground where they affected the habitats of the critically endangered Great Indian Bustard. In response, the centre’s Ministry of New and Renewable Energy argued that such a move would drastically increase the cost of delivering solar energy and make it commercially unviable.

Striking a balance between promoting climate-friendly industries, creating jobs and biodiversity concerns requires better and more advanced tools for green budgeting than the current investment paradigm. International recognition is growing for the critical role that biodiversity plays in managing the climate crisis, reflected in official agreements signed at both COP26 and COP28. Globally, the tide is turning towards valuing nature. India is now one of 90 countries to sign up to the UN’s SEEA to value nature in policymaking. Valuation tells us not only what we lose, but what we stand to gain if we invest effectively in nature.

In 2020, the landmark study, The Economics of Biodiversity by Sir Partha Dasgupta, commissioned by the UK Treasury, systematically outlined how nature needs to be included in policy and economic decision-making at the national and international levels. The Dasgupta Review advances a sophisticated economic case for understanding natural ecosystems through the lens of demand-supply economics: its ecosystems services are being consumed faster than its supply is being regenerated. 

To regenerate this supply, the report recommends including nature in national accounting and budgeting systems and the adoption of policies that increase financial investment in nature-based solutions, incentivise nature-regenerative businesses and penalise practices that destroy ecosystems. This includes the ecosystems services provided by wildlife: often critical to keeping terrestrial carbon-storing ecosystems like grasslands, wetlands and forests alive and thriving. 

With the introduction of the Kunming-Montreal Biodiversity Framework to protect 30% of all ecosystems by 2030 and as climate frameworks move towards integrating biodiversity goals, India must pay attention and actively work towards valuing its biodiversity and ecosystems services and the hidden value they generate in real economic terms.

Green budgeting, coupled with ecosystem valuation, emerges as a potent solution. Ecosystem valuation assigns economic value to the services rendered by intact or restored ecosystems. Forests, for instance, not only provide us with timber, but also purify our air and regulate water flow. By assigning a monetary value to these services, we can integrate their significance into budgetary decisions. This approach fosters a nature-positive economy, one that thrives in harmony with the natural world. 

The current GDP-centric model overlooks the vital contribution of nature. North­east India, with its rich biodiversity, is a prime example with over 60% of the workforce relying on agriculture, directly dependent on healthy ecosystems. Degrading these ecosystems not only erodes economic potential, but also weakens our resilience against climate change.

Natural assets must be carefully and robustly defined into natural asset classes to reflect the value they imbue across the value chain—for example, medicinal, household and living, food and fodder, biodiversity, etc. This includes the ecosystems services that remain invisible or undervalued in the economy, e.g. water replenishment, soil nutrient cycling, pollination or carbon sequestration; services which enable continuity in agricultural and manufacturing/industrial processes. This total valuation must be added to national accounts, as a repository of standing assets generating and earning value for the economy, even when they are not being mobilized into commodities.

The exercise of natural capital valuation is not just about developing an alternative model of economic growth, but also building inclusive societies. Natural capital valuation provides the scope for building useful information meant for informed economic choices. It also offers a pathway for greater social equity for communities that manage or live adjacent to these ecosystems, by channelling earnings on those values directly to those communities—as carbon-based funds are increasingly aiming to do for forest-fringe communities. Effective valuation and stewardship open up new vistas for investing in communities using nature-debt, to create access to universal basic assets such as education and healthcare. However, leveraging natural debt must be accompanied by proper checks and balances to ensure the sustainability and survival of natural assets, as well as access and rights of forest and indigenous communities.

For biodiversity-rich regions like Northeast India which boast rainforests to wetlands, valuing these ecosystems using methodologies like market valuation and cultural significance can generate significant revenue streams. These funds can then be channelled back into green initiatives, creating a self-sustaining model which ensures both environmental and climate resilience that benefits communities across the board. To effectively steward these natural assets, creating ecological budgets and integrating them into financial accounts at both the state and national levels is critical. Integrating environmental factors into the fiscal structure of an economy, especially the annual national budget, will allow the government to track natural capital expenditure—and invest for its regeneration. By addressing data limitations, building capacity, fostering inter-state and trans-boundary cooperation and by integrating natural capital valuation for environmentally holistic decision-making, green budgeting can be a powerful tool towards building a climate resilient economy. 

As the world embraces a sustainable future, India with its rich ecological wealth can be a global leader in recognizing that climate resilience cannot be divided from biodiversity. By embracing green budgeting and ecosystem valuation, India has the potential to become a pioneer in building a nature-positive economy, one that values both prosperity, resilience and environmental well-being. 

—The writer is Founder, Balipara Foundation