India is taking varied efforts to curb pollution and achieve the Intended Nationally Determined Contributions (INDC) targets under the Paris climate deal.
In this regard, it is essential to understand the instrumental role that carbon tax could play.
How serious is the pollution impact?
Local pollutants, particularly particulate matter, cause many health-related problems.
These include issues associated with breathing, wheezing, asthma, and aggravation of existing respiratory and cardiac conditions.
It has been found recently that air pollution may lead to hypertension risk, particularly to women in India.
Further, life expectancy, due to this, has reduced by 2.6 years.
Worldwide, more deaths per year are linked to air contamination, particularly from the industrial and transport sectors.
The situation is getting worse, particularly in megacities, including Delhi.
What is India's emission scenario?
India is the world’s fourth-largest emitter of Greenhouse Gases (GHGs) though per capita emission is low due to a large population.
Rapid economic growth with little concern for the environment makes this a serious threat.
India’s total GHG emissions are more than 3,200 million metric tonnes, with an average growth of 6.3% in 2018.
This constitutes around 7% of the world’s total GHG emissions.
The energy sector has a major role in this and contributes 68.7% of total emissions.
Over a span of 24 years from 1990, this emission has increased by 180%.
The growing energy demand and consumption have led to an emergent need to put a price on emissions.
This would directly reduce the exploitation of natural resources and pollution.
How does carbon tax help here?
Carbon tax primarily discourages environment unfriendly production and consumer practices by making the 'polluting sources' costlier.
This works without any negative effect on overall employment and output levels.
Putting a price on carbon and taxing it directly is far better than the ‘cap and trade’ system.
This is because the carbon tax system has advantages due to its simplicity, affordability, transparency, revenue recycling and predictability of carbon prices.
It works on the principle of ‘the polluter pays’.
The principle has been adapted globally and many countries have successfully introduced a carbon tax.
[E.g. in Europe, Denmark, Finland, Germany, Ireland, Italy, Netherlands, Norway, Slovenia, Sweden, Switzerland, and the UK had already imposed carbon tax in the 1990s
Data shows that these countries generate revenue up to $1.7 billion annually from the tax.
Countries use the revenue generated from this on energy efficiency improvements, renewable energy support program and public expenditure.
The U.S., Canada, Singapore too has carbon tax systems in place.
Among developing countries, South Africa has planned to introduce the tax soon.]
What can India do?
Clearly, the carbon tax has three benefits of -
reducing emissions
stimulating innovations
raising government revenue
In all, carbon tax is the most basic economic instrument which can be used to price carbon and combat CO2 emissions, and correct negative externalities.
India should take up carbon tax as an effective policy instrument in reducing different local pollutants and achieving INDC targets.
The tax proceeds may be used to -
subsidise clean fuels and fuels used in the agriculture sector
promote electric vehicles through subsidy
improve public transport
build infrastructure
India has to become a pioneer among emerging economies and impose an explicit carbon tax, and let the polluters pay.
Source: Financial Express
Quick Facts
Cap and Trade System
Under the ‘cap and trade’ system, maximum emission limits are decided for the firms.
Firms are required to buy permits if they pollute more than the prescribed limit.
Similarly, firms can sell their permits to others if they pollute less than the limit.
