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Double dividend Hypothesis-ENVIRONMENT(8th April)

By April 8, 2022May 22nd, 2023Uncategorized

Double dividend Hypothesis

  • Environmental economists have hypothesised a possibility of earning a double dividend from the environmental taxation instruments or rather, a bonus for developmental goals from environmental conservation.
  • The hypothesis was first introduced by David Pearce in 1991. It claimed that environmental taxation, which has been growingly seen as an effective economic instrument to create incentives in favour of cleaner production and consumption, can improve environmental and economic conditions. This can be achieved by imposing an environmental tax and recycling revenues obtained to reduce other pre-existing taxes.


  • Petroleum prices in India recently touched the Rs 100 / litre mark, making mobility dearer. Significant portion of petrol prices are from heavy taxes levied by state and central governments.
  • In June 2020, the tax component on petrol and diesel was 69 per cent and 58 per cent respectively. This means, more than half the prices paid by the consumer is in terms of taxes.
  • During the 2021 hike in petrol prices, India’s oil minister Hardeep Singh Puri commented that levying such taxes helped the government fund social schemes, such as for providing free COVID-19 vaccines, meals and cooking gas to millions during the pandemic. In a way, these high amounts of taxes are a significant part of the welfare distribution.
  • High taxes on consumer petroleum products create the perfect condition for battery electric vehicles (BEV) and hybrid vehicles (referred to as EVs henceforth) push in India. Thus, this serves as the  first dividend by cutting carbon emissions from the transportation sector.
  • India’s 2030 EV vision includes replacing 30 per cent private cars, 70 per cent commercial vehicles, 40 per cent buses and 80 per cent two-wheelers. This amounts to introducing 102 million units of EVs on India’s roads.
  • The second dividend of this hypothesis is financially strengthening the EV ecosystem by leveraging the income from petroleum taxes for adoption of “green industry”. The EV sector is already getting great incubation support through subsidies.
  • EV sector will create around 10 million jobs in India by 2030 in domains such as designing, testing, manufacturing, charging infrastructure, sales, battery technology, management, among others.