Feasibility of a Carbon Consumption Tax for sustainable development – A case study of India

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A B S T R A C T Global climate change is a major issue confronting policymakers worldwide, and there is widespread scientific acceptance of the reality of climate change and its adverse consequences In terms of economic analysis, greenhouse gas emissions (GHG), which cause planetary climate changes, represent both an environmental externality and the overuse of a common property resource. The paper is premised around the hypothesis that tax policy can be used to address climate concerns by making less Green House Gas intensive purchases and investments more financially attractive. However, in the absence of an international framework capping GHG emissions, countries adopting mitigation policies incur costs that would not exist under global cooperation such as the loss of competitiveness and emissions leakage. A consumption tax based on the carbon footprint of a product levied on all products at the point of purchase by the final end-user, regardless of where the goods are produced using a Credit-method would be capable of addressing these concerns of emissions leakage and loss of competitiveness, while being WTO compliant. The author intends to test the feasibility and effectiveness of such a carbon consumption tax in the Indian Context. The author shall test the feasibility of levy of such a consumption tax in the context of India and evaluate the effectiveness in mitigating climate change and catering to the goal of sustainable development.

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Feasibility of a Carbon Consumption Tax for sustainable development – A case study of India *Dr. Singh KanwalDeepinder Pal1 1University School of Law and Legal Studies, Guru Gobind Singh Indraprastha University New Delhi, India E mail: kdps@ipu.ac.in A B S T R A C T Global climate change is a major issue confronting policymakers worldwide, and there is widespread scientific acceptance of the reality of climate change and its adverse consequences In terms of economic analysis, greenhouse gas emissions (GHG), which cause planetary climate changes, represent both an environmental externality and the overuse of a common property resource. The paper is premised around the hypothesis that tax policy can be used to address climate concerns by making less Green House Gas intensive purchases and investments more financially attractive. However, in the absence of an international framework capping GHG emissions, countries adopting mitigation policies incur costs that would not exist under global cooperation such as the loss of competitiveness and emissions leakage. A consumption tax based on the carbon footprint of a product levied on all products at the point of purchase by the final end-user, regardless of where the goods are produced using a Credit-method would be capable of addressing these concerns of emissions leakage and loss of competitiveness, while being WTO compliant. The author intends to test the feasibility and effectiveness of such a carbon consumption tax in the Indian Context. The author shall test the feasibility of levy of such a consumption tax in the context of India and evaluate the effectiveness in mitigating climate change and catering to the goal of sustainable development. CONTEMPORARY URBAN AFFAIRS (2017) 1(3), 18-23. https://doi.org/10.25034/ijcua.2018.3674 www.ijcua.com Copyright © 2017 Contemporary Urban Affairs. All rights reserved. 1. Introduction Climate change is a major environmental issue that is affecting the policy decisions worldwide. The world is aware of this grim reality and adverse consequences of global warming (Harris,et al., 2015) Greenhouse gas emissions (GHG), cause climate changes, and are adversely affecting economies also. This is because of overuse of a common property resource. (Harris, et al., 2015). The paper is premised around the hypothesis that tax policy can be used to address climate concerns by making less GHG intensive purchases and investments financially attractive. (Moarif, and Rastogi, 2012). However, in the absence of an international framework capping GHG emissions, countries adopting mitigation policies incur costs that would not exist under global cooperation such as the loss of competitiveness and emissions leakage. A consumption tax based on the carbon footprint of a product levied on all products at the point of purchase by the final end-user, regardless of where the goods are produced would be capable of addressing these concerns of emissions leakage and loss of competitiveness, while also being WTO compliant. The paper intends to test the feasibility and effectiveness of such a carbon consumption tax in the Indian context. The author shall test the feasibility of levy of such a consumption tax in the context of India and evaluate the effectiveness in mitigating climate change and catering to the goal of sustainable development. A carbon tax is a levy imposed on fossil fuels and other primary products based on the amount of GHG they emit. To explain it with an example, carbon tax places a fee on coal, proportionate to the amount of carbon dioxide (CO2) released when coal is burned. This tax can also be seen as a cost for emitting GHGs into the atmosphere. The environmental friendly people can also use it as a financial incentive for reducing GHG emissions. A carbon tax policy can also be designed to include tax credits for activities that reduce GHGs in the atmosphere. A carbon tax can also be seen as explicit carbon pricing because it is a tax linked to the level of carbon dioxide (CO2) emissions. This can be used as an economic instrument and can contribute to aneffective reduction in emissions. The carbon tax is a price on each tonne of GHG emitted, and therefore the price signal causes a response in an entire economy. The emitters feel that it would be economically beneficial to shift to less GHG method production and this feeling of profitability results in reduced emissions. Carbon taxes can be introduced independently or alongside other carbon pricing instrument, like an energy tax. Introduction of a direct carbon tax is a new concept, but its acceptability is coming at a fast pace. (Congressional Budget Office Policy Options for Reducing CO2 Emissions, 2012.) . A carbontax can also be seen as an alternative or a supplement to a cap-and-trade program. A carbon tax and a cap-and-trade program are both market-based and have a concept of financial incentive to reduce GHG emissions. The main difference between the two concepts is on the establishment of price and reduction of emissions. A carbon tax imposes a direct levy called the “carbon price” on activity based on the amount of GHGs they emit. It puts no restriction on GHG emissions. On the other hand, thecap-and-trade program sets a limit, or “cap,” on emissions, but the price for emission is determined by the demand and supply. Current climatic conditions force a relook on existing policy efforts related to global warming issues. The main premise of this paper is a plan that provides clean environment by the introduction of a small carbon tax or a GHG tax. The proceeds of this tax could be used to support research efforts on energy sources, energy use, and reduction of emission. The scenario prevailing in different countries is examined along with theposition in India. The evidence shows that carbon taxes may be an interesting policy option and that their main negative impacts may be compensated through the design of the tax and the proper use of the generated revenues. 2. International Legal Scenario Kyoto Protocol was earlier considered to be the strongest international agreement on the topic of climate change wherein 182nations had committed to minimizing GHGs. Critics of the Kyoto Protocol felt that it was premised on setting national emissions targets and did not deal with the actual problem of global warming caused by emissions. It also created "common but differentiated responsibilities." It put little to no responsibility for developing nations to check emissions. Unchecked growth of emissions in the developing world was having a larger impact on the environment. It was beginning to overcome the developed world, the best example being India and China. Countries like Canada and Russia feel that it was not a way forward, and declined to take on additional obligations. Dealing with these issues is expensive and inconvenient, and it carries high monetary and sociological costs. Cost of environmental degradation already has a negative effect on the economy. There is a need for international coordination on environmental issues as much as international coordination is required in trade liberalization. Carbon taxes are seen as a cost-effective instrument for reducing emissions. However, in practice, only a few countries have implemented taxes based on the carbon content of energy products. Some countries that have imposed carbon taxes are discussed subsequently. The methodology adopted by them in discussed briefly so as to weigh it in relation to the Indian scenario.

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