Q. What do you mean by Carbon Tax? Do you think it is regressive in nature, that is, it affects the poor more than the rich? Comment.
A carbon tax is usually defined as a tax based on greenhouse gas emissions (GHG) generated from burning fuels. First introduced by Finland in 1990, the carbon tax has seen a growing interest in the recent years around the world. It is considered by some countries to be an effective, transparent and low cost means of inducing carbon abatement.
The burning of carbon-based fuels contributes to the greenhouse effect, by which global warming is alleged to inflict damage on human welfare. In the carbon tax framework, these emissions constitute a negative externality, a cost not taken into account by existing market prices. A carbon tax seeks to internalize that cost and, in so doing, nudge the market away from coal, oil, and natural gas.
CARBON TAX IN INDIA
India does not have a de jure Carbon tax, there has been de facto carbon tax. There are several examples – In 2010, the government had launched the National Clean Energy Fund (NCEF) whereby it imposed a clean energy cess on coal produced in India as well as imported coal at Rs.50 per tone, which is an example of de facto Carbon Tax. This cess has been raised to Rs. 400 per tonne.
Excise Duty on the petrol /diesel and a dedicated road and infrastructure cess.
This is also one kind of Carbon Tax whereby tax on fossil fuel is to be used to develop infrastructure.
IT IS REGRESSIVE
The coal cess that was introduced a few years ago is now at Rs 400 per tonne, almost onefifth the cost of mining coal which was like a 20% carbon tax. Due to the coal bidding scams and the coal cess, India might have become the most expensive place to produce coal-fired electricity which ultimately burdens the poor. Any rationalization of coal pricing must take account of the implications for power prices and hence access to energy for the poorest in India which is and must remain a fundamental objective of policy.
Also As per Economic Survey 2017, petrol excise has gone up by about 150% since July 2014, and diesel excise by an even higher percentage which makes India being the highest taxes imposed on petroleum products, levying more carbon tax will hurt the poor more than the rich.
Transportation holds the key to Indian Economy and imposing carbon tax can take a heavy toll on movement of products of almost all industries and this in turn will affect our economy, especially people in informal sector.
Reduces emissions Stimulates innovations Raises government revenue. In fact, a carbon tax is the most basic economic instrument which can be used to price carbon and combat CO2 emissions, and correct negative externalities. It works on the principle of ‘the polluter pays’. It helps discourage the use of fossil fuels and encourages the use of alternative cleaner renewable energy.
The principle has been adapted globally and many countries have successfully introduced a carbon tax.
Putting a price on carbon and taxing it directly is considered far better than deciding the limit of emissions through the ‘cap and trade’ system, under which 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. Obviously, the carbon tax system has advantages over the ‘cap and trade’ system due to its simplicity, affordability, revenue recycling and predictability of carbon prices. Further, the tax has price certainty, transparency and focuses on direct response as it checks unintended incidence of certain taxes on labour and capital, leading to employment generation, increased output and productivity.
It can be argued that a carbon tax can easily be an effective policy instrument in reducing different local pollutants and achieving INDC targets for India. Moreover, the tax can substitute the current Clean Environment Cess, which serves little to no purpose as the it is subsumed under GST. Tax proceeds may be used to – a) subsidies clean fuels and fuels used in the agriculture sector b) promote electric vehicles through subsidy c) improve public transport d) build infrastructure
Carbon tax will help in achievement of goals under Paris Agreement to strengthen the global response to the threat of climate change by keeping a global temperature rise this century well below 2 degrees celsius above pre-industrial levels.