Experts around the world has reiterated and given push for ‘carbon tax’ in order to cope with the concern of climate change.
About Carbon Tax
• A carbon tax is a fee that a government imposes on a company that burns coal, oil, gasoline, and natural gas (fossil fuels).
• When these carbon-rich fuels are burned, they produce greenhouse gases.
• These gases, such as carbon dioxide and methane, create global warming by heating the atmosphere.
• The resultant climate disruption causes extreme weather such as heat waves, flooding, blizzards, and droughts.
• It is a Pigouvian tax since it returns the cost of global warming to their producers.
• The motive behind carbon tax is to boost lower-carbon behavior to limit GHGs emission and to attract investments into renewable energy and by making polluting production processes more expensive.
Advantages of Carbon Tax Disadvantages of Carbon Tax
• Carbon tax will motivate companies to switch to clean energy solutions. Such as solar energy, wind energy, and hydro-powered sources etc. • Higher energy prices due to imposition of carbon tax would raise costs for industry and households, resulting in lower profits, wages, and consumption.
• Additionally, reduced carbon consumption would lower the real costs of climate change and air pollution.
• It will raise revenue that can be spent on mitigation effects of pollution. • Poorer people will have to pay more or a greater share of their family budget on energy-related services and goods.
• Thus, it is not suited for low income countries and poor will be hit harder than high income families.
• It will compel polluters to pay the external cost of carbon emission. • The higher carbon tax can discourage industrial activity. And, thus it may lead to decrease in investment and economic growth.
• Administrative expenses would be challenge for carbon tax system.
• A carbon tax would encourage innovation in the alternative energy sector. It would motivate everyone to avoid the expenses of a carbon tax. For instance-Some people may walk to work or take their bicycles to avoid fuel costs. • The carbon tax creates an artificial economic market that isn’t always sustainable.
• The carbon tax can generate plenty of revenues for local governments. • Carbon tax would be borne by those who suffer from the effects, such as homeowners, farmers, and ultimately the government.
Concerns with Carbon tax
• Carbon tax will only penalize incremental carbon emissions rather those that have already been emitted into the atmosphere since the Industrial Revolution. A homogenous global carbon tax will, in effect, impose costs on developing countries rather than those that have been responsible for most of the existing stock of pollution.
• It is very difficult to evaluate the level of external cost and how much the tax should be. Thus, there is possibility of tax evasion. Higher taxes may encourage firms to hide carbon emissions.
• If demand is price inelastic, the tax may have to be very high to reduce demand significantly. In the short term, firms may not feel they have many alternatives. Though, over time, demand will become more elastic as more alternatives are generated.
• Consumers dislike new taxes and often don’t believe that they will be ‘revenue neutral’. A global carbon tax may curtail economic activity in the poor developing countries.
Carbon tax in India
• India shifted from a carbon subsidization regime to one of significant carbon taxation regime, from a negative price to an implicit positive price on carbon emissions.
• In order to promote clean environmental initiative, India levied clean energy cess on three categories namely coal, lignite and peat.
• Clean Energy Cess is a kind of carbon tax which was introduced with effect from 1st July, 2010. In many countries carbon taxes are levied also on other fossil fuels like petroleum, natural gas etc. However, in India this is applied only on coal and its variants - lignite and peat.
Climate change is undoubtedly one of the most serious challenges for the entire humanity, and poor countries areat risk. A carbon tax can eventually be an important part of any mitigation strategy—from new technologies to rethinking cities to lifestyle changes. Global cooperation is also needed, since climate change is essentially a global challenge.
Carbon tax is one of the potent options to nudge the adoption of green tech and, if used wisely, can generate significant results in a short span. A calibrated introduction of Carbon Tax with an effective energy transition measures would definitely pave way for sustainable energy solutions.