Time to put a price on carbon emissions

ARTICLE HIGHLIGHTS

• In the absence of a price for the use of natural resources such as air and forests, environmental destruction has been part of every country’s recipe for boosting GDP growth

INSIGHTS ON THE ISSUE

Context

Carbon Footprint:

• It denotes the impact of different human activities on the quantum of carbon dioxide produced as a result of burning fossil fuels.
• The usual measurement of Carbon Footprint is made in tons of CO2, which is released every year
  • It is supplemented by several other gasses such as nitrous oxide, methane and other greenhouse gases.
• Carbon Footprint is a broad measure, and it can be applied to the activities of an individual, a family, an organization or even an entire country.

Carbon Pricing:

• It is an instrument that captures the external costs of greenhouse gas (GHG) emissions
  • The costs of emissions that the public pays for, such as
    • damage to crops
    • health care costs from heat waves and droughts
    • loss of property from flooding and sea level rise
    • Ties them to their sources through a price, usually in the form of a price on the carbon dioxide (CO2) emitted.
  • A price on carbon helps shift the burden for the damage from GHG emissions back to those who are responsible for it and who can avoid it.

Ways of pricing

• The establishment of a carbon tax domestically, as in Korea and Singapore
• The use of an emissions trading system (ETS), as in the European Union (EU) and China
• The application of an import tariff on the carbon content, as the EU is proposing.
• Some 46 countries price carbon covering only 30% of global greenhouse gas (GHG) emissions
  • The average price of only $6 a ton of carbon, a fraction of the estimated harm from the pollution.
• The International Monetary Fund has proposed price floors of $75, $50, and $25 a ton of carbon for the United States, China, and India,
  • This could help achieve a 23% reduction in global emissions by 2030.

The economy-wide benefits of carbon pricing:

• Damages avoided (plus revenue generation) generally outweighed the cost it imposed on individual industries in the EU, British Columbia, Canada, and Sweden.
• It makes investment in renewable energy such as solar and wind, which has huge prospects in India, more attractive.

Carbon Pricing and India:

• India could find a carbon tax appealing as it can directly discourage fossil fuels
  • Raising revenues which can be invested in cleaner sources of energy or used to protect vulnerable consumers.
• India can replace the more inefficient scheme of petroleum taxes which are not directly aimed at emissions.
  • Saudi Arabia and Russia are at the low end of gasoline prices (including taxes and subsidies)
  • China and India in the mid-range
  • Germany and France at the high end.
• India, fiscal policy has set in place the basic structures needed to implement a carbon tax.
  • This can be woven into road-fuel taxes, which are established in most places, and extended to industry and agriculture.
• Policymakers have to choose the tax rate, which varies widely from Japan’s $65(two point six five)a ton of CO2 to Denmark’s $165 a ton set for 2030.
  • India could start with the IMF figure of $25 a ton.

The main obstacle:

• Argument by industrial firms about losing their competitive advantage to exporters from countries with a lower carbon price.

Global steps:

• The EU excludes transport, where higher costs would have been passed on to consumers directly
• Singapore provides vouchers for consumers hit by utility price rise
• California uses proceeds from the sales of carbon permits partly to subsidize purchases of electric cars.

Globally discouraging steps:

• Australia repealed the 2012 tax just two years after it was instituted due to political pressures on decarbonisation
• European Union: soaring energy prices led the EU to sell millions of emission permits, causing a 10% drop in carbon prices.

Carbon Budget:

• A carbon budget is a cumulative amount of carbon dioxide (CO2) emissions permitted over a period of time to keep within a certain temperature threshold.
• It is the maximum amount of carbon dioxide (CO2) that can be emitted while still having a chance to limit warming to 5°C or 2°C.
• Estimation: They can be estimated accurately from climate models.
• They are the most useful for policy as they couple the climate to the economy consistent with the science of both.
• The IPCC(2018): It estimated the budget for a 50% chance of avoiding more than 5°C of warming to be 2,890 billion tonnes of carbon dioxide (now, it is less than 400bn tonnes).

Way Forward

• India can take the lead, as president of the G-20 this year, in carbon pricing, which will open unexpected avenues of decarbonisation.
• Allow companies to use high-quality international carbon credits to offset up to a certain percentage of their taxable emissions.
• Sweden handled political constraints by presenting the carbon tax as part of a bigger fiscal package that lowers other taxes and includes new social safety nets.
• Communicating the idea of wins at the societal level, even in the presence of some individual producers’ losses, is vital.
• A high carbon tax across China, the U.S., India, Russia, and Japan alone (more than 60% of global effluents), with complementary actions, could have a notable effect on global effluents and warming
  • It could also pave the way to seeing decarbonisation as a winning development formula.
• As carbon pricing gains acceptance, the first movers will be the most competitive.
• India, as president at the G-20 summit can play a lead role by tabling global carbon pricing in the existential fight against climate change.

QUESTION FOR PRACTICE

Describe the major outcomes of the 26th session of the Conference of the Parties (COP) to the United Nations Framework Convention on Climate Change (UNFCCC). What are the commitments made by the India conference? (UPSC 2021) (200 WORDS, 10 MARKS)

Source: The Hindu

• Prelims: Current events of international importance, carbon tax, G20, emissions trading system (ETS), COP, G20 etc
• Mains GS Paper II: Bilateral, regional and global grouping and agreements involving India or affecting India’s interests, Important international institutions et