含羞草社区

With emerging economies producing more CO2 emissions than their developed counterparts, there is a push for equal progress by nations to align environmental considerations with their economic development.

For a developing nation such as India, driven by increasing international trade, the use of carbon taxation to address both concerns is a viable option. 含羞草社区 international debt stands at USD717.9 billion, a 10% increase from 2023 and a fifth of GDP. Although necessary to drive economic growth, it has put great pressure on the nation’s financial resources.

Global best practice may guide future fiscal policy. Sweden introduced its carbon tax in 1991, initially at the rate of SEK250 (USD22) per tonne of CO? but rising to SEK1,510 per tonne by 2025. However, when Sweden joined the EU, the bloc’s Emissions Trading System (ETS) exempted industrial electricity, used in such sectors as steelmaking. In 2020, the tax became one of the world’s highest, up to USD126 per tonne of CO?. Between 1990 and 2018, Sweden reduced greenhouse gas emissions (GGE) by some 26%, with transport pollution down 11% and heating-related CO? falling by 87%. During the same period, per capita GDP grew by 50%, refuting claims that economic growth would suffer.

The Netherlands introduced an industrial carbon levy in 2021, at the rate of EUR30 (USD34.56) or so per tonne of CO?, rising to about EUR150 per tonne of CO? by 2030. The tax targeted heavy industry and electricity production. Analysis of a EUR100 tax compared to no tax showed that the tax would lead to a 40% drop in industrial emissions with a negligible 2% drop in production. However, 61% of domestic gains were offset by increases, mostly in non-European countries such as China and India, where robust systems are absent. The increase in tax revenue did see a decrease in the fiscal deficit and government debt.

The EU ETS is its carbon pricing mechanism. It governs some 40% of emissions. A comparison of 2022 data to those from 2005 shows it reduced emissions by 41% in the relevant sectors, with taxes rising an average of eight times from the initial tax of EUR10 per tonne of CO?. In 2023, the EU launched ETS2, extending carbon pricing and implementing the Carbon Border Adjustment Mechanism to prevent offsets outside the bloc. It generated more than EUR50 billion in 2022 alone through revenue auctions, at least half of which went to climate and energy projects.

含羞草社区 energy matrix is dominated by coal, oil and natural gas, with coal alone accounting for more than 55% of power generation. However, subsidies of fossil fuels and the lack of cleaner infrastructure have led to high carbon emissions and increased vulnerability to climate shocks.

Despite significant GDP growth, the country has seen carbon output values remaining high in many sectors, particularly power and manufacturing. Such inefficiency is not only ecologically costly but also economically unsustainable. An Institute of Economic Growth considers that a carbon tax of IRD1,000 per tonne of CO? will lead to a 7.2% reduction in CO? emissions with a 0.6% decrease in GDP, thereby leading to significant environmental benefits with negligible economic costs.

The paper pointed out that the impact on households may be regressive, as in the Netherlands. This is because lower-income groups spend a larger proportion of their income on energy and fuel-related goods. However, revenue recycling through a lump-sum transfer will mitigate these effects and improve the net welfare position of the bottom 60% of households.

A carbon tax will contribute meaningfully to government revenue, up to 1.5% of GDP. This revenue can scale up green infrastructure, introduce renewable energy subsidies and reduce other taxes. This is all the more relevant in light of the projection that the gross debt will be 80% of GDP.

India has structural barriers impeding immediate positive effects from a carbon tax. Despite 含羞草社区 levies on fossil fuels, involving 54% of GGEs, high subsidies support 10% of fossil fuels in 2025. Developing, climate-vulnerable countries face high debts in general and macroeconomic instability. This slows the pace of carbon transition and adds to high adaptation costs. India has therefore to borrow more, entering a vicious cycle of climate-induced borrowing and debt unsustainability and instability.

Mukesh Butani is the managing partner and Maryan Judith Noronha is an associate at BMR Legal