‘In most countries, including India, fiscal policy has set up the necessary infrastructure to implement a carbon tax’ | Photo credit: Getty Images/iStockphoto
In the absence of a price for the use of natural resources such as air and forests, environmental destruction has been part of every country’s recipe for boosting GDP growth. But the result of this approach has been the continued emission of carbon, causing runaway climate change. The time has come, starting with the largest G-20 economies, to agree on a valuation of nature, including pricing carbon emissions. India as chair of the G-20 this year could play a leading role in carbon pricing, which would open up unprecedented avenues for decarbonisation.
pricing methods
There are three ways of pricing carbon: the establishment of a carbon tax domestically, as in Korea and Singapore; use of an emissions trading system (ETS), as in the European Union (EU) and China; and imposing an import duty on carbon content, as the European Union is proposing. Some 46 countries impose a carbon price, however, covering only 30% of global greenhouse gas (GHG) emissions, and at an average price of only $6 per ton of carbon, a fraction of the estimated losses from pollution. The International Monetary Fund has proposed a minimum carbon price of $75, $50, and $25 per ton of carbon for the United States, China, and India, respectively. It believes this could help reduce global emissions by 23% by 2030.
The economy-wide benefits of carbon pricing in terms of losses saved (as well as revenue generated) generally outweigh the costs imposed on individual industries in the European Union, British Columbia, Canada and Sweden. A key dynamic is that carbon pricing, by signaling a price for clean air, makes investments in renewable energy such as solar and wind, which have huge potential in India, more attractive.
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impact on india
Of the three pricing methods, India may find a carbon tax attractive because it can directly discourage fossil fuels, while raising revenue that could be invested in cleaner sources of energy or for low-cost consumers. can be used for protection. It could replace a more inefficient scheme of petroleum taxes that are not directly aimed at emissions. Well, Saudi Arabia and Russia are at the low end of gasoline prices (including taxes and subsidies), China and India in the middle range, and Germany and France at the high end. In most countries, including India, fiscal policy has set the infrastructure needed to implement a carbon tax. For example, they can be woven into road-fuel taxes, which are in place in most places, and extended to industry and agriculture. Policymakers must choose the tax rate, which varies widely from Japan’s $2.65 per tonne of CO2 to Denmark’s $165 per tonne set by 2030.
India can start with the IMF figure of $25 per tonne. The main deterrent is the argument of industrial firms about exporters from countries with a low carbon price losing their competitive advantage. Therefore, it would be reasonable to set the same rate within each bracket for all high-, middle- and low-income countries.
It might also make sense to allow companies to use high-quality international carbon credits to offset up to a certain percentage of their taxable emissions. The European Union excludes transport, where higher costs would be passed directly to consumers, Singapore offers vouchers for consumers affected by utility price increases, and California uses proceeds from the sale of carbon permits to partially subsidize the purchase of electric cars. does to give. Some make a case for exempting “emissions intensive business exposed” enterprises from the carbon tax, but output-based exemptions would be better ways of doing this.
communication is important
All that said, carbon pricing of any kind faces stiff political opposition. When a new, Conservative government took office, Australia repealed the 2012 tax just two years after it was installed. Political pressures on decarbonisation have been revealed in recent months: rising energy prices have prompted the EU to sell millions of emission permits, reducing carbon prices by 10%. Sweden may have handled some of these political hurdles as well by introducing the carbon tax as part of a larger fiscal package that reduced other taxes and included new social safety nets. It is important to communicate the idea of victory on a societal level, even in the presence of losses for some individual producers.
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Substantially high carbon taxes (more than 60% of global waste) in China, the US, India, Russia and Japan alone, along with complementary actions, could have a noticeable impact on global pollution and warming. It could also pave the way for decarbonisation to be seen as a winning growth formula. As carbon pricing gains acceptance, the first movers will be the most competitive. India, as chair at the G-20 summit this September, can play a major role in the existential fight against climate change by introducing global carbon pricing.
Vinod Thomas is the author of a new book, ‘Risk and Resilience in the Era of Climate Change’. This article works with the Center for Social and Economic Progress