Time to put a price on carbon emissions

Contact Counsellor

Last Updated05/04/2023

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.
But the consequence of this approach has been the relentless emission of carbon, causing runaway climate change.

It is time, starting with the biggest economies of the G-20, to agree on valuing nature, including by pricing carbon effluents.
India can take the lead, as president of the G-20 this year, in carbon pricing, which will open unexpected avenues of decarbonisation.
Three ways of pricing carbon are
- Imposing a carbon tax domestically, as in Korea and Singapore;
- An emissions trading system (ETS), as in the European Union (EU) and China;
- Import tariff on the carbon content, as the EU is proposing.
Some 46 countries price carbon, although covering only 30% of global greenhouse gas (GHG) emissions, and at an average price of only $6 a ton of carbon, a fraction of the estimated harm from the pollution.
The IMF (International Monetary Fund) has proposed price floors of $75, $50, and $25 a ton of carbon for the United States, China, and India, respectively.
It believes this could help achieve a 23% reduction in global emissions by 2030.

Carbon pricing, by signalling a price for cleaner air, makes investment in renewable energy such as solar and wind, which has huge prospects in India, more attractive.
Among the three ways of pricing, India could find a carbon tax appealing as it can directly discourage fossil fuels, while raising revenues which can be invested in cleaner sources of energy or used to protect vulnerable consumers.
It could replace the more inefficient scheme of petroleum taxes which are not directly aimed at emissions.
In most countries, including India, fiscal policy has set in place the basic structures needed to implement a carbon tax.

Any type of carbon pricing faces stiff political opposition.
When a new, conservative government took office, Australia repealed the 2012 tax just two years after it was instituted.
Recent months have revealed the political pressures on decarbonisation: soaring energy prices led the EU to sell millions of emission permits, causing a 10% drop in carbon prices.
Communicating the idea of wins at the societal level, even in the presence of some individual producers’ losses, is vital.

As carbon pricing gains acceptance, the first movers will be the most competitive.
India, as president at the G-20 summit this September, can play a lead role by tabling global carbon pricing in the existential fight against climate change.