Carbon Pricing in India
By now it’s an undisputed fact that humans have irreversibly changed the ecological systems of the Earth for the worse. We’re all hurtling towards a future with increased average temperatures, frequent severe weather events, lower crop yields, and higher sea levels. If you’re still skeptical about whether this is actually a global phenomenon and not just a fad that we have imported from the west, check out these very exhaustive explainers by NASA and The World Bank.
Climate change has come about mostly because of the emission of Greenhouse Gases (GHGs) like Carbon Dioxide (CO2), Methane (CH4), Chlorofluorocarbons (CFCs), etc. These gases trap the incoming radiation from the sun like in a greenhouse (hence the name) and make the earth warmer than usual. Therefore, controlling the emission of these gasses, and primarily CO2, is at the heart of the solution to save humanity from impending doom (to put it lightly).
The Economics Of Pollution
Why do people pollute? They pollute because it’s beneficial for them to do so. When you have a used wrapper, it’s convenient for you to dispose of it on the side of the road instead of holding on to it till you find a dustbin. There is no one to slap a fine, at least in India. So unless you have a moral imperative to do the right thing, you won’t think twice about it.
The same happens with carbon emissions. Polluters don’t get charged for the harmful gasses they emit. Every input and output in a production process is charged, except pollution. This helps polluters get away with causing damage to the society at large without ever compensating them in monetary terms. Since pollution has no economic cost polluters don’t have an incentive to reduce their emissions. This is the Social Cost of Carbon (SCC) and is one topic that has been the subject of intense dispute worldwide. Economists stipulate that if we have an accurate number for the SCC that stems from this market failure (polluting without paying) and implement it across all sectors, we’ll eventually reach a market equilibrium where we get the maximum productivity in the market with the least pollution possible.
SCC In India
The SCC for India is the highest and stands at ₹6000 ($86 ) per tonne of CO2 emission. This means that India would stand to lose ₹ 6000 for each tonne of CO2 emitted. These emissions are costing us $210 billion every year which is around 8% of our GDP. India will suffer the highest economic damages because of climate change after the US.
Clean Energy Cess
India imposed a Clean Energy Cess on extraction and import of coal in 2010 and set up the National Clean Energy Fund (NCEF) to use the funds hence raised. The prerogative of the NCEF was to invest in research and development (R&D) of clean energy sources. The funds raised from the cess were also used for the Ganga Rejuvenation Project in 2015. The cess currently stands at ₹400 per tonne which is woefully short of the ₹6000 we need to ensure a good future for our country.
Only ₹21 crores of the ₹86 crore collected from 2011-18 were transferred to the NCEF. Furthermore, from the funds transferred, ₹16 crores were used to fund clean energy projects. And if this laxity on the part of the government wasn’t enough, GST has rendered the fund completely ineffective.
GST
When GST was implemented, the Clean Energy Cess was abolished and a GST Compensation Cess was put in its place at the same rate, ₹400. So, now instead of the ad hoc carbon tax funding clean energy projects, it’s being used to plug shortfalls in the tax collection by the Center. The Center also attempted to divert the funds already collected from the Cess to compensate states for the shortfall in tax collection by states following GST. A Parliamentary Panel objected to the move and also expressed concern that despite a significant collection of funds, it wasn’t utilised, signaling poor implementation by the concerned agencies.
Ahead of the PM’s address at the United Nations’ Climate Action Summit in New York on September 23, we should question this government’s commitment towards stemming climate change. The current administration has fast-tracked environmental clearances and attempted to influence the appointment of the judges in the National Green Tribunal (NGT). Hopefully, the Modi cabinet averaging around 60 years of age will realise the importance of having a world to live in versus a five trillion economy by 2020.
Note: The author is part of the current batch of the Writer’s Training Program.