| Introduction: Introduction with recent context Body: Write both the sides of the argument for and against the carbon tax Conclusion: Why India cannot have high tax rate |
Carbon Tax refers to the tax levied on the carbon emissions in the process of production, import and transportation. It is a source of revenue for the government as well as an incentive to switch away from carbon-intensive fuels, like coal.
The global average price of carbon tax currently is $6/ton, which is a fraction of the harm caused from pollution. IMF proposes that price floors for a ton of carbon for the United States, China, and India be $75, $50 and $25 respectively. Such a high carbon tax may pave way for decarbonization in a short span of time. The benefits of decarbonization are:
- Extreme weather events are increasing for India. India ranks fifth in the global climate risk index 2020, and the climate change has led to direct economic losses worth trillions. Decarbonisation will reduce these losses for India.
- Fiscal gains from high carbon tax will be huge, and can generate 2% of GDP as revenue. This can be used to promote the use of renewable and environment-friendly solutions. So that the carbon footprint can be lowered further. For example California state uses the revenue generated by Carbon permits to subsidize electric vehicles.
- Carbon tax will also help India augment its effort toward carbon-neutral status by 2070. As a leader of the global south on climate action, high carbon tax will pace up decarbonization. India will be able to lead through example, bolstering its claim as a world leader.
These reasons make the strategy of decarbonisation through high carbon tax a winning developmental formula, so that economic prosperity follows smaller carbon footprint.
However, there are certain challenges that India might face, if it opts for a high carbon tax rate:
- The cumulative emissions determine the extent of temperature change. Historically, India has only contributed 4% to cumulative emissions. High carbon tax rate and consequent inflation will be a punishment, for a mistake that India never committed.
- High carbon tax rate will make the exports uncompetitive for global market, especially while competing with countries that have lower or nil carbon tax.
- High tax rate might lead to de-growth and de-industrialisation for India. However, due to the youth bulge, India needs employment and industrialisation.
Therefore, the concept of a high carbon tax for India, which has marginal contribution to cumulative emission, is not feasible. It is not a winning developmental formula, since it will dovetail inflation, uncompetitive exports and de-growth. If we opt for high tax and undifferentiated responsibility rhetoric, we shall be making the international inequality a reality for the fate of future generations to come.
