[Answered] Discuss the need and effectiveness of a carbon tax is in tackling global warming. Do you think measures like carbon tax are regressive in nature?

Demand of the question
Introduction. Contextual Introduction.
Body. Need and effect of carbon tax. Is it regressive?
Conclusion. Way forward.

A carbon tax is a tax levied on the carbon content of fuels (transport & energy sector) and, like carbon emissions trading, is a form of carbon pricing. Research shows that carbon taxes effectively reduce greenhouse gas emissions. Economists generally argue that carbon taxes are the most efficient and effective way to curb climate change, with the least adverse effects on the economy.

Need of carbon tax:

  1. CO2 is a heat-trapping greenhouse gas which causes global warming, which damages the environment and human health. Since greenhouse gas emissions from the combustion of fossil fuels are closely related to the carbon content of the respective fuels, this negative externality can be compensated for by taxing the carbon content of fossil fuels at any point in the product cycle of the fuel.
  2. Carbon taxes offer a potentially cost-effective means of reducing greenhouse gas emissions.
  3. Air pollution is one of the biggest public concerns in world and India today.
  4. After economic reforms and carbon emissions have increased because of high growth in the Indian economy.
  5. The aim of carbon tax is to set a price on the carbon content of goods & services to discourage their use.
  6. Emissions can be curbed only if people move away from polluting fossil fuels and adopt greener forms of energy. To achieve this we need carbon tax.

Effectiveness of carbon tax:

  1. A part of the carbon revenue thus generated can be used for a systemic overhaul of the energy mix and in promotion of green energy.
  2. Energy mix needs to be remodelled through investments in clean renewable energy and low-emissions bioenergy.
  3. It raises the level of energy efficiency by investing in building retrofits, grid upgrades, and industrial efficiency using green technology.
  4. Energy requires an additional 1.5% of GDP annually over the next two decades. This amount can be obtained by the carbon tax, which will be a revenue-neutral policy with no Implications on the fiscal deficit.
  5. High price of the materials or energy source according to their carbon content will induce households, including the rich, to shift towards greener alternatives.
  6. It will provide more employment since the employment elasticity in greener forms of energy is higher than those in fossil fuel-based energy.
  7. A significant part of more than 3% of India’s GDP currently spent on pollution-induced diseases will come down.

Is Carbon tax as regressive?

Carbon tax is inherently regressive as it put burden on the poor. The poor in India contribute the least to climate change face the maximum brunt of carbon tax through rise in prices of various commodities and services e.g. transport. Thus implementation of carbon tax and utilizing the proceeds for pollution control and augmenting health budget is a rational way to help poor. By implementing it in conjunction with broader health and energy policy, it can help in redistribution and helping poor to ward off the negative impact of climate change. The carbon tax can be a Pigovian Tax which balances the marginal social costs such as disease etc. and additional emissions.

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. It is a way forward for sustainable greener and better future.

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