De facto carbon tax: Is India?s ‘green’ path too steep?

By Meghaa Gangahar

2017 marks twenty years since the signing of a legendary international green treaty—the Kyoto Protocol. The treaty was the first universal acknowledgement of the man-made threat that the greenhouse gases posed to the world. Since then, the digital age that has taken over the world has accelerated the transmission of information and thus, awareness. As environmental awareness grew, so did the green sentiment among the population.

The governments around the world took to measures to appease this growing concern through a variety of initiatives. Two of the main fiscal directions that these initiatives took were: taxing of emissions; and increase in the spending on renewable energy.

India’s per capita energy emissions is about half the world average | Photo Courtesy: ibtimes

Energy or environment?

[su_pullquote align=”right”]The taxing of emissions discourages the consumption of fossil fuels by making the process more costly.[/su_pullquote]

India is a developing country with increasingly vast energy needs. Its per capita consumption of energy is about half of the world’s average; however, its aggregate emission of greenhouse gases is the third largest in the world. The taxing of emissions discourages the consumption of fossil fuels by making the process more costly. This creates a conflict while choosing between fuelling development and saving the environment.

[su_pullquote]As a consequence, India’s competitiveness suffers as it faces imports from China and other trading competitors.[/su_pullquote]

As a green initiative, India imposed a nationwide carbon tax in 2010 on coal, lignite and peat. The tax known as Clean Environment Cess was introduced at a value of ?50 per tonne, but ascended the ladder to ?400 per tonne in 2016. Though the union budget for 2017-18 has retained it at ?400 per tonne, this value still measures up to about 20 per cent of the cost of coal mining. This has curbed industrial efforts to utilise the potential of one of world’s largest endowments of coal in a country. As a consequence, India’s competitiveness suffers as it faces imports from China and other trading competitors.

Furthermore, the excise taxes on petrol and diesel have escalated by over 150 percent since 2014. Along with these, the cess comes under the umbrella of a de facto carbon tax. If consolidated, this de facto carbon tax would amount to a whopping $12 per tonne. For a developing country like India, such a large de facto carbon tax is sure to impede energy production to fulfil the demand.

The cost of paving a greener road

Instead of the entire amount of cess collected (?54,336.17 crore, projected up to 31 March 2017), less than half (?25,810.46 crore) was transferred to the National Clean Energy Fund (NCEF). The burden of expensive fossil fuels would not be so heavy if the energy channel were to be rerouted to renewables. India already has one of the biggest renewable expansion plans with a system of renewable purchase obligations (RPOs) on all electricity distribution companies. However, the limited solar capacity along with its immobility across states has pushed up the RPO burden and hence, energy costs.

The Modi government has always flashed the banner of ‘going green’ with its overly ambitious goals for renewable energy.

However, this year’s budget contradicts this claim. The budget did not extend to address financial risk in the renewable sector, but further halved the support to Solar Energy Corporation of India, as well as the funding for research and development. This could gravely hamper the progress made in the ongoing integration of the renewable sector. Even though the allocation to the Ministry of New and Renewable Energy (MNRE) rose slightly to ?5,473 crore, this feeble increase is no reason to rejoice.

Featured Image Source: National Geographic News
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