Early action needed to enable a just transition in Indian coal-producing states
Odisha, Jharkhand and Chhattisgarh must plan for falling fossil fuel revenues over time to support a just transition to a low-carbon economy.
Key Takeaways:
As India transitions to a low-carbon economy, coal-producing states like Odisha, Jharkhand and Chhattisgarh will need to navigate the challenge of declining fossil fuel revenues while increasing expenditure on economic diversification and social protection programs to ensure a just transition for coal workers and communities.
These states lag on infrastructure and human capital development compared to other states, highlighting the need for increased public expenditure in these areas and building resilience to the impacts of climate change.
Early action on three fronts can help create fiscal space for the critical public expenditure needed to support a just transition. These are: mobilisation of new sources of public revenue; building state capacity in leveraging green financing instruments; and developing a just transition expenditure framework to prioritise spending.
India’s coal-producing states need to take early action to address potential fiscal pressures resulting from declining fossil fuel revenues over time coupled with an increased need for spending to ensure a just transition to net zero emissions, according to a new briefing note by the Institute for Energy Economics and Financial Analysis (IEEFA).
“As the transition to clean energy accelerates, India’s coal-producing states will be disproportionately affected by falling fossil fuel revenues. Simultaneously, they will face additional demands for expenditure to help prepare workers and communities for a low-carbon future. This situation will severely impact the fiscal health of these states,” says the note’s co-author Gaurav Upadhyay, Energy Finance Specialist, IEEFA.
“We stress the importance of urgent economic diversification to reduce fossil-fuel dependence and lay the groundwork for the public investment needed to meet the costs of delivering a just transition.”
The note analyses the fiscal implications of a just transition in Odisha, Jharkhand and Chhattisgarh. Together, these three states comprise 69% of India’s coal reserves and 63% of coal production and account for the majority of direct employment in coal production and its associated supply chain.
It finds that Jharkhand and Chhattisgarh are highly dependent on fossil fuel income, with about 30% and 21% of their own revenues, respectively, derived from coal and petroleum. At 12%, Odisha’s own revenues are much less dependent on fossil fuels.
The authors focus on the states’ own revenues rather than income from central taxes and grants because own revenues are intricately linked to a state’s individual economic performance.
Coal makes up 16% of Jharkhand’s and 8% of Chhattisgarh’s own revenues, but only 3% of Odisha’s own revenues.
“The potential loss of nearly one-third of Jharkhand’s and just over one-fifth of Chhattisgarh’s own revenues in the transition away from fossil fuels could significantly impact state revenues,” says co-author Varun Agarwal, Program Manager - Climate, WRI India.
“In addition to this risk to public revenue, the three states will face the need to increase spending on infrastructure development, economic diversification and social protection programs to support the transition of workers and communities to a low carbon economy.”
All three states, particularly Jharkhand, lag on most economic and social development indicators compared to other Indian states, according to the note.
To help the states create fiscal space for a just transition away from coal, the authors suggest stepping up efforts to mobilise additional public revenue, building capacity to leverage new financing instruments, and developing a just transition expenditure framework.
Read the report: Navigating the fiscal implications of a just energy transition: The case of three coal-producing states in India
Media contact: Prionka Jha ([email protected])
Author contacts: Gaurav Upadhyay ([email protected]); Varun Agarwal ([email protected])
About IEEFA: The Institute for Energy Economics and Financial Analysis (IEEFA) examines issues related to energy markets, trends, and policies. The Institute’s mission is to accelerate the transition to a diverse, sustainable and profitable energy economy. (ieefa.org)
