• April 5, 2023

Charge for carbon emissions.

GS 2 Government Policies & Interventions GS 3 Conservation

In Context

• As this year’s G-20 president, India may take the lead on carbon price, which will create unanticipated channels for decarbonization.

About Carbon pricing:

Meaning

• Carbon pricing captures the external costs of greenhouse gas (GHG) emissions—the costs of emissions that the public pays for, such as crop damage, health care costs from heat waves and droughts, and loss of property from flooding and sea level rise—and ties them to their sources through a price, typically in the form of a price on the carbon dioxide (CO2) emitted.
• A carbon price helps shift the responsibility for the damage caused by greenhouse gas emissions back to those who are responsible and can avoid it.

Three ways of pricing carbon are

• The implementation of a domestic carbon tax, as in Korea and Singapore;
• The use of an emissions trading system (ETS), as in the European Union (EU) and China; and
• The imposition of a carbon content-based import tariff, as proposed by the EU.

IMF’s suggestion

• Some 46 countries price carbon, although covering only 30% of global greenhouse gas (GHG) emissions, and at an average price of only $6 a ton of carbon, a fraction of the estimated harm from the pollution.
• The International Monetary Fund has suggested carbon pricing floors of $75 per tonne for the United States, $50 per tonne for China, and $25 per tonne for India.
• This might assist achieve a 23% decrease in global emissions by 2030, according to the organisation.

Benefits

• In the EU, British Columbia, Canada, and Sweden, the economic benefits of carbon pricing in terms of prevented damages (plus income generation) surpassed the costs it imposed on individual industries. Carbon pricing, by signalling a premium for cleaner air, makes renewable energy investments such as solar and wind, which have enormous potential in India, more attractive.

Carbon pricing for India:

Carbon tax

• Of the three methods of pricing, a carbon tax may appeal to India since it can directly discourage the use of fossil fuels while increasing income that can be invested in cleaner energy sources or used to protect disadvantaged customers.
• It might replace the wasteful structure of non-emissions-targeted petroleum taxes.
• Saudi Arabia and Russia have the lowest petrol prices (including taxes and subsidies), China and India have the middle range, while Germany and France have the highest petrol prices.

How?

• In the majority of nations, including India, fiscal policy has established the fundamental mechanisms required to impose a carbon price.
• For instance, they can be incorporated into road-fuel taxes, which are imposed in the majority of jurisdictions, and extended to industry and agriculture.
• Authorities must determine the tax rate, which ranges from $2.65 per tonne of CO2 in Japan to $165 per tonne in Denmark for 2030.
• India might begin with the IMF’s $25 per tonne estimate.

Challenges

• The primary impediment is the industrial enterprises’ concern about losing their competitive edge to exporters from nations with a lower carbon price. So, it would make sense for all high-, middle-, and low-income nations to set the same rate within each group.

Significance:

Notable climate effects: 

• A sufficiently high carbon price in China, the United States, India, Russia, and Japan (representing more than 60 percent of global effluents) combined with complementary efforts might have a significant impact on global effluents and warming.

Decarbonisation as a formula:

• It could also pave the way to seeing decarbonisation as a winning development formula.

For India:

• As carbon pricing gains acceptance, the first movers will be the most competitive.
• India, as president at the G-20 summit, can play a lead role by tabling global carbon pricing in the existential fight against climate change.

Suggestions:

Allowing companies ‘high-quality international carbon credits’

• It may also make sense to allow corporations to offset a portion of their taxable emissions with high-quality foreign carbon credits.

Global examples

• The European Union excludes transportation, where higher costs would have been passed on directly to consumers, Singapore provides vouchers to consumers affected by utility price increases, and California uses proceeds from the sale of carbon permits to partially subsidise the purchase of electric vehicles.
• Some make a case for exempting “emission intensive trade exposed” enterprises from the carbon tax, but output-based rebates would be superior ways of doing the same.

Awareness

• It is essential to communicate the concept of society victories notwithstanding the losses of certain individual producers.

Way ahead

• India is now making progress towards its goal of 45 percent carbon intensity reduction by 2030. This objective is included in India’s revised Nationally Determined Contributions (NDC).
• India must serve as a model by balancing energy use and climate objectives.