What is Carbon Tax?

Carbon Tax

  • A carbon tax is a fee imposed on the burning of carbon-based fuels (coal, oil, gas).
  • It is a way to have users of carbon fuels pay for the climate damage caused by releasing carbon dioxide into the atmosphere. It works on the ‘the polluter pays’ principle.
  • After economic reforms and carbon emissions have increased because of high growth in the Indian economy.
  • The aim of carbon tax is to set a price on the carbon content of goods & services to discourage their use.
  • Carbon tax becomes a powerful financial hindrance that motivates switches to clean energy across the economy, simply by making it more economically fulfilling to move to non-carbon fuels and energy efficiency if it is set high enough.
  • 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.
  • India imposed a Carbon tax of Rs 50 per ton of coal produced and imported, in 2010.
    • In 2014, it was increased to Rs 100.
    • In 2015, it was further increased to Rs 200.
    • Currently, the carbon tax is Rs 400 per ton

What is the significance of taxing carbon?

  • Rising extreme events: Record heat waves in Delhi, floods in southwest China, and catastrophic forest fires in California this year are indicative of the existential danger from global warming.   Carbon dioxide, CO2, is a greenhouse gas, and there is scientific consent that greenhouse gases emitted from human activity are an important source of global warming.
  • Climate change induced disasters: India ranks fifth in the Global Climate Risk Index 2020. Between 1998 and 2017, disaster-hit countries reported $2.9 trillion in direct economic losses, with 77% resulting from climate change, according to a United Nations report.
  • Carbon dioxide is the major contributor to global warming: It was 414 parts per million in August 2020 because of past accumulation. One half of it comes from the three top carbon emitters. They need to drive de-carbonisation. India is the world’s fourth largest emitter of CO2 according to CICERO.
  • National interest: It is needed to take stronger action before 2030, leading to no net carbon increase by 2050. India has committed to 40% of electricity capacity being from non-fossil fuels by 2030, and lowering the ratio of emissions to GDP by one-third from 2005 levels.
    • India’s pledge under the Paris Agreement is to reduce the carbon intensity (see below) of its economy by 33-35% by 2030, compared to 2005 levels.
  • Cost effective: Carbon taxes offer a potentially cost-effective means of reducing greenhouse gas emissions.
  • To combat air pollution: Air pollution is one of the biggest public concerns in world and India today. For example (Of the most polluted cities in the world, 21 out of 30 were in India in 2019. The health impacts of pollution represent a heavy cost to the economy.)
    • Around 91% of the world’s population lives in places where air quality levels exceed WHO limits.
    • Ambient air pollution accounts for an estimated 4.2 million deaths per year due to stroke, heart disease, lung cancer, acute and chronic respiratory diseases.
  • 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.
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