For clean air, India needs a policy leap 

For clean air, India needs a policy leap 

Context

The way to curb pollution is to tax carbon. Only then will households look for greener substitutes

Implication of air pollution

Author mentions about two studies that indicate the implications of air pollution

• Lancet study: A report of the Lancet Commission on pollution and health states that around 19 lakh people die prematurely every year from diseases caused by outdoor and indoor air pollution
• Indian Journal of Paediatrics study: A study by the Indian Journal of Paediatrics shows that the lungs of children who grow up in polluted environments like Delhi are 10% smaller compared to the lungs of children who grow up in the U.S.

This is nothing short of a public health emergency. What is needed, therefore, is a comprehensive policy to curb pollution. We need to act now

Carbon Dioxide emission: Heavy dependence on Coal

At the heart of the problem of pollution are carbon dioxide (CO2) emissions

• About 75% of all greenhouse gas emissions are CO2 emissions produced through burning fossil fuels — oil, coal and natural gas — to generate energy
• Increase in carbon emissions: Since the early 2000s, carbon emissions have increased because of high growth in the Indian economy
  • High level of carbon emissions by India: In 2014, India’s total carbon emissions were more than three times the levels in 1990, as per World Bank data. This is because of India’s heavy dependence on fossil fuels and a dramatically low level of energy efficiency

Author’s contention

Author states that taxing carbon is the only way by which we can persuade people to move away from fossil fuels and adopt greener forms of energy

Changing the energy mix

Revenue generated from the taxing carbon can be used for a systemic overhaul of the energy mix, which, to a large extent, would address the pressing problem of environmental degradation

How can the energy mix be remodelled? The Indian economy’s energy mix needs to be remodelled

• Investments in clean energy: through investments in clean renewable sources of energy like solar, wind, hydro, geothermal and low-emissions bioenergy, and
• Raising energy efficiency: By raising the level of energy efficiency through investments in building retrofits, grid upgrades, and industrial efficiency

GDP requirement for changing energy mix

Authors state that as per their studies, this energy mix overhaul requires an additional 1.5% of GDP (to the current annual level of 0.6%) annually over the next two decades

Revenue neutral

Assuming that the Indian economy grows at 6% per annum and the population is likely to rise from 1.3 billion to 1.5 billion over the next two decades, the per capita emissions will still fall as a result of this policy, from the International Energy Agency’s 2035 Current Policy Scenario of 3.1 metric tonnes to 1.5 metric tonnes — a 52% decline

• Since this expenditure is financed by the carbon tax revenue, it will be a revenue-neutral policy with no implications on the fiscal deficit

Problem with carbon tax: Regressive in nature

There is, however, a problem with carbon tax. It’s regressive in nature — it affects the poor more than the rich. Fortunately, there’s a way out. Economists in the West have argued for a ‘tax and dividend’ policy according to which the revenue thus generated is distributed equally across its citizens and as a result, the poor are more than compensated for the loss, since in absolute amounts the rich pay more carbon tax than the poor

Free electricity & travel passes

• Instead of a cash transfer, the other part of the carbon revenue can be used for an in-kindtransfer of free electricity to the population that contributes less carbon than the economy average, and universal travel passes to compensate for the rise in transport costs and to encourage the use of green public transport

Limits under free entitlement:

• The free entitlement of fuel and electricity for a household works out to 189 kWh per month based on our calculations from the National Sample Survey data. Anything above this limit will be charged in full to control misuse of this policy
• Travel passes with a pre-loaded balance amount of around ₹4,600 per household per annum, which can be used in any mode of public transport — private and government alike — will be available for every household.

How much level of carbon tax will be required?

The level of carbon tax required for this policy to come into effect is ₹2,818 per metric tonne of CO2

Impact of carbon tax

It will be levied upstream, namely, at ports, mine-heads, and so on. While the prices of almost all the commodities will rise, the highest rise in price will be in fuel and energy since the carbon content is the highest in this category

• Price rise: To give an idea about the pinch that will be felt, the average price of electricity will rise from its current value of ₹73 to ₹4.67 per kWh

Benefits of this policy

• Through this policy every household in India will have access to electricity, a feat that almost all the governments since Independence have dreamt of but have failed to deliver
• Employment: This policy not only curbs emissions but also delivers on providing more employment since the employment elasticity in greener forms of energy is higher than those in fossil fuel-based energy

Employment elasticity is a measure of the percentage change in employment associated with a 1 percentage point change in economic growth. The employment elasticity indicates the ability of an economy to generate employment opportunities for its population as per cent of its growth (development) process

• Induce people to shift to greener alternatives: Higher prices of commodities according to their carbon content will induce households, including the rich, to look for greener substitutes. They have the effect of enticing even the poor to move away from traditional forms of energy consumption because the price of energy will be zero for them (provided they consume less than the cut-off limit) as compared to a shadow positive price in terms of the time used for collection of wood or cow dung cakes
• Address issue of electricity theft: Availability of free energy also addresses the issue of stealing of electricity, since there will be no incentive left for those who steal. In India, even in 2014, the value of electricity stolen through corrupt means amounts to about 0.8% of GDP
• Health benefits: As a rough measure, a significant part of more than 3% of India’s GDP currently spent on pollution-induced diseases will surely come down