Property tax is also progressive in its incidence and therefore the urban poor would benefit the most. (Representative image)
Writing on LinkedIn recently, Prime Minister Narendra Modi said: “The 15th Finance Committee and several academics have stressed the critical importance of sound property taxation. The third reform required states to notify the floor rates of land tax and water and sanitation charges, in accordance with indicative values of stamp duties for real estate transactions and running costs respectively, in areas urban. This would provide better quality of services to the urban poor and the middle class, support better infrastructure and stimulate growth. Property tax is also progressive in its incidence and therefore the urban poor would benefit the most. This reform also benefits municipal staff who are often confronted with late payment of salaries. 11 states completed these reforms and obtained an additional loan of INR 15,957 crore. “
In an OpEd earlier this year, we explored how the financing of urban infrastructure could be made more viable and dynamic. In the article, three key aspects were highlighted: (1) the predictable income of local urban organizations (ULB), (2) capacity building and (3) creation of innovative products. The importance of property taxes in generating predictable income is well known. Most of the bonds issued by ULBs in India (amounting to approximately Rs 50 billion) are backed by the body’s property tax revenues in their escrow mechanisms.
Linking urban and green
In 2019, New York passed the Climate Mobilization Act. Local Law 97 of 2019 sets emission caps for buildings over 25,000 square feet from 2024, which will reduce carbon emissions by at least 40% by 2030 and by more than 80% by 2050 of the buildings concerned.
Vessels that fail to comply will be subject to fines set at $ 269 per tonne of emissions exceeding each building’s cap in any given year. About 50,000 buildings are expected to be affected by the law. This law is expected to reduce New York City’s carbon emissions by 6 million tonnes, create 26,700 green jobs and prevent 50 to 130 premature deaths each year.
Much of the change is expected to come from reducing energy use by improving heating and cooling systems and upgrading electrical appliances. Reducing emissions is also possible with rooftop solar installations. Different types of buildings (from parking lots to hospitals) will have a greenhouse gas target (kg / ft²) between 4.3 and 23.8 between 2024-29, which will decrease to between 1.1 and 11.9 by 2030-34. Other aspects like a $ 30 million refurbishment accelerator fund for free technical assistance, battery storage treatment, impact of a non-green grid, etc. are also detailed.
A corresponding local law 95 of 2019 also requires that energy grades be displayed on buildings larger than 25,000 square feet.
From carbon to investments
The price of carbon hard-coded in law ($ 269 per tonne) is significantly higher than the current cost of carbon traded (between $ 10 and $ 50 per tonne in all geographies). While some forecasts expect the carbon price to trend upward, especially as countries begin to approach their targets of peak emissions by 2030 and net zero by 2050, the price The high carbon content currently integrated provides a good reason for buildings to comply with the law.
In another OpEd, we highlighted three avenues for financing green investments: (1) countries, (2) companies and (3) carbon. New York is using the price of carbon to drive change. Depending on the reality, either the city would have reduced its emissions through social participation, or funds would be generated for the city to undertake offsetting activities to reduce emissions.
Such an income stream can be used to support sustainable bond financing: the payment on the bond can be structured in such a way that if the emission levels are low, the payment on the bond is low (this is what sustainable bond financiers demand); however, if the emission levels do not decrease as expected, the higher payment of the obligation can be funded through the collection of fines. A sustainable bond issue on the back of this law can allow cities to create immediate investments to improve the lives of its citizens and increase their productivity.
Building the model for India
The use of price as an incentive (or deterrent) has a strong economic justification. The law uses the terminology of fines for buildings; it could also have been labeled as a contribution of buildings to a “green fund”, if they are not able to “green” themselves. Such labeling or rationale for a policy can help create political alignment and social consensus.
New York plans to put in place a credible mechanism to collect fines for non-compliance with emissions requirements. This credibility of the application is essential to make the initiative real. Putting a high price on carbon will give rise to many experiments on the part of the inhabitants: there may be interesting lessons. Indian cities have struggled to collect property taxes, as documented in previous economic studies and as evidenced by the incentive program announced by the Prime Minister. This will require developing a credible capacity within the ULB to identify, measure, invoice and collect amounts.
India has allowed power companies to sell green electricity to citizens. Many urban customers are now receiving offers from their electricity suppliers to pay a small premium to have green electricity delivered. Combining this initiative with an incentive to move towards greening their society (and not just their homes) can help reduce the carbon content of the network and the city’s emissions.
A political push to make “smart cities” greener can create a win-win situation for citizens, cities and the world at large.
The author works with the National Investment and Infrastructure Fund. Views are personal
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