Zarmina Khan
The world’s economic growth is bringing positive changes alongside a deteriorating environment and disturbing natural resources. Fiscal distribution alters as the environmental conditions and economy of a country change.
Green Economic Development is a kind of development that adopts those strategies that take an account decreasing the environmental risks, lowering carbon emissions, and reducing the pollution and environmental scarcity.
There is a need for an inclusive green economy. Green fiscal policies play a vital role in combating challenges and they also support sustainable development goals. Aligning government expenditure with environmental goals, financial reforms, increasing revenues, and allowing the financial space for green investment could help boost green fiscal development.
Karl Burkat describes a green economy based on the six sectors.
- Green Building
- Renewable energy
- Sustainable transport
- Water management
- Land management
- Waste management
There are different Green Fiscal tools that could be used to increase green fiscal and economic development.
- Emission Trading System
- Environmental charges, and subsidies which also include energy taxes and subsidies.
- Fiscal strategies and ameliorations to increase public revenues.
- Encouragement of sustainable finance by the creation of a common classification system, which is equipped with environmentally sustainable tasks.
- Calibrating government spending with environmental goals and raising the public expenditure or mainstreaming the climate in public finance plan.
- Introducing the law formulation on soil, energy, pollution etc. to offer the impetus for green finance investment.
Due to today’s climate conditions of the world, green finance tools’ significance has been raised because they promote eco-friendly investment and encourage sustainable economic development. Green finance fosters the use of renewable energy resources and focuses on the reduction of CO2 emissions. Moreover, it helps promote low-carbon economic development.
Carbon taxes could be taken as a crucial tool to boost the transition to low low-carbon economy. Green finance could be described as the financing of investments that provide environmental benefits through new fiscal tools and new strategies and plans like green bonds, green central banking, community-based green funds, carbon market apparatuses, fintech, green banks.
ESG (Environmental, Social, and Governance) is an analytical framework that benefits stakeholders to have a better understanding of how an organization administers tasks, manages the threats and opportunities around the sustainability problems, and determines that ESG experts are working on net zero and Carbon neutrality goals.
Green marketing is a pathway, through which customers channel their options in buying green products. Any business investment in the green market helps it to have numerous advantages like business will be at a good place in increasing environmentally aware market place. Measuring greenhouse gas emissions is a crucial practice in ESG but there are others as well for example waste management, energy, and water consumption.
Ewa Dziwok and Johannes Jäger discussed the different forms of green finance.
- Neo-liberal green finance
- Reformist green finance
- Progressive green finance
Neo-Liberal Green Finance Approach:
The Laissez-faire Neo-Liberal green finance approach focuses on the corporation’s individual behavior for example the Corporate Social Responsibility (CSR) aspects and fiscal investment plans following ESG (Environmental, Social, and Governance) are productive in tackling the environmental issues. Fiscal investor’s actions play a key role in managing the problem of the environment and banking supervisory institutions. Moreover, it has been claimed by Laissez-faire Neo-Liberal experts that there is a lack of environmental policies and there is no coherent climate policy present. There is limited public fiscal expenditure on green investment.
The standard Neo-Liberal green finance approach encompasses that environmental issues are caused due to externalities which can be internalized through taxes and subsidies. It promotes the indirect subsidization of the private sector by reduction of taxes or tax credits to ensure environment-friendly production. It encourages private green investment through guaranteed private debt socialization and green subsidies.
Market Making Neo-Liberal Green Finance supports policies that make and enforce market regulations. These policies include rules for property rights and also standards like Green Taxonomies. The standardization measures are intended to enhance the transparency and aid the formulation and functioning of market and fiscal instruments, it will help to create market function more productively for environmental goals—moreover, official taxonomies defining green activities and environmental risks.
Reformist Green Finance Approach:
Tax-based reformist public green finance put emphasis on command and control policies in green finance. Tax-based reformist public green finance approach introduces taxes on environmental problematic activities. Its emphasis on taking the allocational implications of taxes and wealth and income taxes as key tools for uplifting funds for public investment in green tasks. Financial resources are a crucial precondition for public possession and public provision of infrastructure in energy and transport of department. It supports green public investment and especially focuses on resolving environmental issues.
Command and Control policies in green finance introduce the change in the context within which productive economy and economic activities take place, expecting that private finance would respond accordingly. This approach’s central point is binding regulations for the finance department, which impose and prohibit specific fiscal tasks. For example, forbid the usage of toxic substances, implement technological standards for discharge. It promotes regulations that promote environmental investment and expenditure.
Progressive Green Finance Approach:
Individual rights and caps and global financial transfers based on a solidarity approach encourage that finance should support and promote global sustainable welfare. At the global level, the access to natural resources must be guaranteed. A decommodified provision of crucial goods is proposed. To avoid negative consequences like biodiversity loss or global warming, it is recommended to limit the overutilization of natural resources by the small share of the rich class. A systematic level of rearrangement of production is required like enforcement of a globally sustainable agriculture. The definition of these individual rights and caps and the specific methods of rearranging global production must be subject to a democratic decision-making process.
The transformative global monetary and financial architecture approach emphasizes on the enforcement of global governance structures to transform the economic system. It put emphasis on the power of central banking. The international dimension of money is crucial. The global fiscal architecture must encourage the goal of sustainable welfare and limit the private capital flows where it is required. There is a need for the creation of international measures of redistribution to ensure sufficient access to natural resources for all. New global fiscal architecture based upon the solidarity rule will help avoid international debt and economic dependence.
Economic Progress, Conserve natural resources and environmental stewardship are important factors of the green economy. Local government must focus on public goods in the fiscal expenditure affairs. A change in the state’s expenditure towards public goods will be beneficial to boost green economic growth. By reforming the government expenditure structure, and enhancing human capital and technology-intensive industries, a green economy could be created.
The writer is Research Associate at the School for Law and Development.
