Business Standard

India's carbon tax already much above global expectations

Tax on most fossil fuels already high; more tax can be imposed on coal

BS Reporters New Delhi
The Economic Survey advocates India, which imposes a higher carbon tax on most of fossil fuels, could do more in the case of coal.

It has played a line, not often taken by the government before - the high that the excise duty on petrol and diesel is an implicit carbon tax, India imposes on its consumption of fuels that cause greenhouse gas emissions leading to global warming.
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The report says, "India has moved from a carbon subsidisation regime to one of significant carbon taxation regimes - from a negative price to a positive price on carbon emissions."

Since October 2014, the report's authors say, the government has "increased the carbon tax by nearly $60 per tonne of carbon dioxide in case of petrol and nearly $42 per tonne in the case of diesel".

Under the new global climate change agreement, there are pressures on developing countries to do more to reduce their emissions. By one or the other mechanism, the attempt expected is to put a price on the carbon content released on burning fossil fuels such as petrol, diesel and coal. This pricing ensures reduced use of the fuel and shifting industry and different economic sectors to produce goods either more efficiently or shift to cleaner fuels by making the latter more competitive.

Suggesting India is already doing more than its fair share to fight climate change by taxing fossil fuel consumption, it notes, "In absolute terms the implicit carbon tax is substantially above what is now considered a reasonable initial tax on carbon dioxide emissions of $25-35 per tonne." But the report notes that this is not the case with the coal cess of Rs 100 per tonne.

In the case of coal, the chief economic advisor of the National Democratic Alliance (NDA) government and his team suggest, if one was to account for health costs and climate change costs of burning the black gold, a tax of $15 per tonne would still ensure that large scale coal power plants continue to break even and yet bring down India's emissions by 358 million tonnes a year - more than the entire emissions of France. But the report warns this is a hypothetical exercise, "since the reduction in profits of power plants would lead to calls for rationalising power tariffs which would he highly disruptive". In other words, the price of power for consumers would have to go up substantially.

The report puts the caveat that while taking these decisions, the government needs to remember that increase in power prices would have an impact on the access to energy for the poorest, "which must remain a fundamental objective of policy".

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First Published: Feb 28 2015 | 12:48 AM IST

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