Carbon tax facts

India tries to change the game on climate change

The Indian government has made a notable and innovative claim of late, one which might upturn the standard assumptions by which climate-change negotiations are held. It has pointed out that India has moved from a carbon-subsidisation regime to the one where carbon spewing is taxed. This puts India among the very few countries that have included financial mechanisms like carbon tax in their strategies to deal with the threat of climate change. This shift has been brought about through recent government measures, such as decontrol of diesel prices and imposition of higher excise duty, and cess on petrol and diesel. These, as the government has correctly pointed out, amount to putting a price on emissions. Finance Minister Arun Jaitley maintained while presenting the Union Budget that the country's de facto carbon tax on most petroleum products compared favourably with international norms. According to the Economic Survey, the duties levied on petroleum products are equivalent to a carbon tax of $140 a tonne for petrol and $64 for diesel - substantially above the global initial carbon dioxide (CO2) emission taxation norm of $25 to $35 a tonne. When translated into emission reductions, this level of taxation is tantamount to a net curtailment of 11 million tonnes of CO2 discharge in a year, or 0.6 per cent of India's annual emissions.

The Budget suggests that a steep increase in the clean energy cess on coal could be another step in this direction. This is a good idea. And, in fact, this increase still leaves room for further rationalisation of coal prices, keeping in view the health costs and climate change implications of burning coal. The survey indicates that a tax of $15 a tonne - almost three times the suggested new clean energy cess on coal - is technically feasible. At that tax, power plants would continue to break even. This would translate into emission reductions to the tune of 458 million tonnes a year - more than the entire emission of France. Naturally, this increase in coal cost can only be carried out if there is political will. Afterwards, there may be many calls for an upward revision of power tariffs from the private sector. This would have obvious repercussions for economic development, and poor people's access to fuel and power. The government has to manage the situation and find an acceptable solution. It could do so effectively if the carbon tax on coal went hand-in-hand with well-judged measures and incentives to improve the efficiency of thermal power plants.

If the government negotiates smartly, the shift from a negative price to a positive price on carbon emissions, coupled with the scaling up of renewable energy targets to 170 gigawatts (Gw) - including 100 Gw of solar energy - by 2022, could have a significant bearing on India's credentials at global climate negotiations. It is not clear if this would help India reduce or dilute its targets on emission reduction, but it could at least enable it to come out with a blueprint of "intended nationally determined contributions" (INDCs) towards fighting global warming. All nations have to declare their INDCs by May to facilitate finalisation of a global agreement on climate change at Paris in December.

Most importantly, by claiming that India is already doing more than its fair share to combat climate change, New Delhi can play a constructive role in the global negotiations, thereby changing its image from a game spoiler to a facilitator. Besides, it can more forcefully put forward its plea for higher weighting to adaptation vis-à-vis mitigation in climate action to reduce developing countries' vulnerability to climate change. The same is true for rubbing in the need for adhering to the concept of common but differentiated responsibilities in mitigating climate change, as also for seeking liberal financial and technological assistance for the developing countries to cope with global warming.