Carbon Tax

It is said that India has a de facto Carbon Tax. Critically examine how this tax is imposed, what are its objectives and if these objectives have been met. (200 Words)

Carbon tax refers to levying of such taxes on the use of carbon emitting fossil fuels which discourages their usage by increasing their cost-price. The De-Facto Carbon Tax referred in the Economic Survey are the high excise duties, clean energy cess being levied on petroleum products like Petrol, Diesel and Coal Usage. The basic objectives behind levying the carbon tax are:
  1. Promoting cleaner sources of energy by artificially inflating the price of fossil fuels to reduce consumption .
  2. Incentivizes researchers to create more fuel efficient technologies.
  3. Assigning economic value to carbon emissions will help in green accounting where adverse effect on environment is factored into balance sheets and creates awareness amongst public.
India’s ―De-Facto tax i.e. it isn’t explicitly stated to be Carbon Tax instead collected as Excise duties etc. Considering the same India has one of the highest Carbon Taxes– $140 per tonne of CO2 for petrol , $64 per tonne CO2 for Diesel though we lag on the tax levy on Coal usage.
The objective of discouraging and rationalizing fossil fuels consumption has been only partially successful. The basic shortcomings are:
  1. Unavailability of viable green technology or cleaner source of energy to substitute Fossil Fuels.
  2. Despite the Carbon-Tax fossil fuels remain cheaper than resources like-solar , wind energy
  3. Coal based Thermal Plants fuel India’s power requirement (almost 60 %) . Higher Cess could lead to spurt in Inflation through high energy prices.
When alternatives like Metro Trains and other efficient public transport have developed Carbon Tax will be more effective otherwise long term environmental concerns be sacrificed for short term gains and Carbon Tax ineffective.
“Recently it has been pointed out that India has moved from a carbon-subsidization regime to the one where carbon spewing is taxed i.e.. the shift from a negative price to a positive price on carbon emissions.” Elaborate and examine advantages and disadvantages of this shift in policy on climate change. (200 Words)
The shift to carbon taxation combined with India’s ambitious solar power program suggests that India can make substantial contributions to the forthcoming Paris negotiations on climate change the advantages of this move include:
  1. Help in Reduction of carbon emissions
  2. Enable India to come out with a blueprint of “Intended Nationally Determined Contributions” (INDCs) towards fighting global warming.
  3. India can play a constructive role in the global negotiations, thereby changing its image from a game spoiler to a facilitator
  4. It can more forcefully put forward its plea for higher weighting to adaptation vis-à-vis mitigation in climate action to reduce developing countries’ vulnerability to climate change.
  5. Push forward the need for adhering to the concept of CBDR in mitigating climate change
  6. India can seek liberal financial and technological assistance for the developing countries to cope with global warming
It will be important to maintain this “carbon tax” even when prices of petrol and diesel increase in the international market. But certain disadvantages/drawbacks can be seen:
  1. The prices of these fuels are lower today and, so the signal to change consumption is weak and inadequate.
  2. Will not lead to change in consumption behavior unless supplemented with robust public infrastructure
  3. Price of diesel remains lower than petrol, mainly because of differential levels of taxation. So it is not enough to make a dent
  4. It does not say that the excise duty collected on dirty fuel will be used to upgrade refinery technology
Though this can be seen as a progressive step, this tax must be used to help shift to less carbon-intensive ways of production. A strong political will and partisanship approach will be able to mitigate the effect of climate change due to carbon emissions

 

 

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