New Delhi: The effect of global warming and climate change are well emphasized in global narratives and India can neither remain unaffected nor be a mute spectator. Per capita carbon emissions between developed and developing countries like India is still unfavorably biased at 3.26:1 (world bank sample), however we are all are in this together now. Taxes, are fiscal tools to garner revenue and also direct public policy initiatives. Putting a price on carbon is widely seen as the most cost-effective and flexible way to achieve emission reduction. Globally there is consensus that Carbon Pricing, would facilitate compatible emission pathways, increase investment and innovation in clean technology, promote achievement of the Sustainable Development Goals through channelled financing, generate revenue for aiding vulnerable communities, managing the economic impacts of a low-carbon economy, create environmental, health, economic, and social co-benefits, ranging from public health benefits coming from reduced air pollution to green job creation.

Carbon taxes or pricing excessive usage of carbon, are a charge for non-conformity with accepted goals for de-carbonisation. This can be achieved through two main options. First, an Emission trading system (ETS) that fixes a ceiling on the total level of greenhouse gas emissions and allows those industries with low emissions to sell their extra allowances (Carbon credits) to larger emitters, thereby creating a marketplace for greenhouse gas emissions. Most of European Union member countries follow ETS while some members like Sweden impose a carbon tax. In 2020, emissions from sectors covered by the system is estimated to be 21 per cent lower than in 2005. Secondly, a Carbon Tax Charge (CTC) that sets a price on carbon by defining a tax rate on greenhouse gas emissions or more commonly on the carbon content of fossil fuels. Unlike the ETS system, Carbon Tax pre-defines the price of carbon pollution, thereby pushing businesses towards clean energy. Canada imposes a carbon tax at a rate of $20 per tonne of CO2 emissions in 2019 which is rising to $50 per tonne. This is estimated to significantly reduce greenhouse gas pollution by between 80 and 90 million tonnes by 2022.

In a country like India, the impact of introducing carbon taxes, can be viewed from multiple dimensions:

Impact on Revenue: Taxing fossil fuels is one of the larger contributors to exchequers globally and India is no exception. A shift to clean energy would mean significant loss of revenue for Governments. A report estimated that a carbon tax @ $ 35 per tonne of CO2 emissions levied by India in phases from 2017 to 2030 can yield more than 2% of GDP, thereby compensating the loss from taxing fossil fuels (Rs 5.5 lakh crore for FY20).

Impact on Innovation: Carbon taxes accelerate the development of innovative business models around clean energy like solar powered automobiles, solar drones, zero energy buildings, super grids, utility scale battery production etc. Multiple startups have already raised hundreds of millions of dollars in venture investments.

Impact on investment and employment: Given the scale and magnitude of change desired, the scale of investment needed is substantial. Successive Governments have consistently pursued a stable renewable energy policy with strong results. FDI inflow in the Indian non-conventional energy sector stood at US$ 9.22 billion between April 2000 and March 2020 (DPIIT). More than US$ 42 billion has been invested in Indias renewable energy sector since 2014 and India ranks 3 rd globally in the EY Renewable Energy Country Attractive Index 2019. Investments in excess of $500 billion are required over the next decade to meet our energy targets. Utility-scale renewables sector have already created 100,000 jobs (2020), and the current targets are likely to generate another 1.3 million direct jobs.

Impact on health care infrastructure: India is also exploring the case for ensuring universal rural healthcare through a sustainable energy path: a CEEW study (June, 2020) has shown that primary healthcare centres in Chhattisgarh with battery supported solar PV systems (costing just Rs 28/ person) have better outcomes, especially in maternal and neonatal cases, due to power supply for medical equipment and storage of drugs. Expanding the application across a fractured health care system can have far reaching benefits at affordable costs.

Impact on pollution: Pollution is bad for both health and economy. India losses a significant $150 bn pa owing to just air pollution (Green peace 2020). Studies by acclaimed institutions have established that the use of solar and wind energy reduce pollution levels by as much 80-97%. India's total renewable capacity was around 35.7% (Sep 19) of the total installed generation capacity consequent to which CO2 emissions fell by around 1% in FY 20. India aims to have 275 GW (by 2027) from renewable/clean energy, and has pledged a 33-35% reduction in the emissions intensity of its economy by 2030, compared to 2005 levels. This is expected to have far-reaching impact across sectors like health care, urbanisation, transportation, power etc.

Carbon tax is one of the potent options to nudge the adoption of green tech and, if used wisely, can generate significant results in a short span. A calibrated introduction of Carbon Tax with an effective market for ETS, would go a long way in making the transition financially viable and widen the participation of stakeholders. Policy makers are constantly challenged with the need to balance the push for renewables with economic practicality. India as a nation has been extremely responsible and committed in this initiative and the results are compelling. We wish and hope this thrust continues.

[This piece was authored by Divakar Vijayasarathy, Founder and Managing Partner, DVS Advisors LLP]

[Disclaimer: The views expressed are solely of the author and ETEnergyworld.com does not necessarily subscribe to it. ETEnergyworld.com shall not be responsible for any damage caused to any person/organisation directly or indirectly]

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OPINION: Carbon tax and its impact on India - ETEnergyworld.com