Time to put a price on carbon emissions

Source- The post is based on the article “Time to put a price on carbon emissions” published in “The Hindu” on 4th April 2023.

Syllabus: GS3- Environment

Relevance– Issues related to climate change

News– The article explains the pricing carbon strategy to fight climate change.

What are the different ways of pricing carbon?

The establishment of a carbon tax domestically. Examples are Korea and Singapore.

The use of an emissions trading system. It is prevalent in the European Union and China.

The application of an import tariff on the carbon content. The EU is proposing it.

Why has the carbon tax not been successful in fighting climate change?

Around 46 countries price carbon at an average price of only $6 a ton of carbon. It covers only 30% of global greenhouse gas emissions, and a fraction of the estimated harm from the pollution.

The IMF has proposed price floors of $75, $50, and $25 a ton of carbon for the United States, China, and India, respectively. It believes this could help achieve a 23% reduction in global emissions by 2030.

What are the benefits of carbon pricing?

The economy­wide benefits of carbon pricing generally are more than the cost it imposed on individual industries in the EU, British Columbia, Canada, and Sweden.

Carbon pricing makes investment in renewable energy such as solar and wind more attractive.

What is the scenario of implementation of carbon tax in India?

Carbon tax is a good option for India. It can directly discourage fossil fuels. It will lead to generation of more revenue which can be invested in cleaner sources of energy.

It can replace the petroleum taxes which are not directly aimed at emissions.

In India, fiscal policy has established the basic structures needed to implement a carbon tax. For example, they can be integrated into road fuel taxes. India could start with the IMF figure of $25 a ton.

What are challenges in implementation of carbon tax and how to manage them?

Industrial firms can lose their competitive advantage to exporters from countries with a lower carbon price.

Therefore, Companies can be allowed to use high-quality international carbon credits to offset up to a certain percentage of their taxable emissions. The EU excludes transport. Singapore provides vouchers for consumers hit by the utility price rise.

Enterprises that emit high emissions can be exempted from the carbon tax. But output ­based exemptions will be the right strategy for doing the same.

Carbon pricing will face political opposition. Australia repealed the 2012 carbon tax just two years after it was instituted.

Recent months have revealed the political pressures on decarbonization in the EU. It had to sell millions of emission permits, causing a 10% drop in carbon prices.

Therefore, communicating the idea of its advantages at the societal level will be important. It will manage the political opposition.

What is the way forward for a carbon tax to fight climate change?

A high enough carbon tax across China, the U.S, India, Russia, and Japan alone could have a notable effect on global warming. it will lead to the establishment of decarbonization as a winning development formula.

India, as president at the G­20 summit this September, can play a lead role by advocating global carbon pricing in the fight against climate change.