Strategic Analysis of Most Energy and Emissions Intensive Sectors of India: Implications for Public Policy on Greenhouse Gas Emissions
18 Pages Posted: 26 Nov 2010
Date Written: November 21, 2010
For more than forty years, scientists have expressed concern about growing carbon concentrations in the atmosphere and resulting global climate change. Public concern has lagged behind the scientific evidence, and political leaders have been even slower to recognize the magnitude of the climate change crisis.
A carbon tax is an environmental tax that is levied on the carbon content of fuels. Carbon atoms are present in every fossil fuel (coal, petroleum, and natural gas) and are released as carbon dioxide (CO2) when they are burnt. The rate of global greenhouse gas emissions due to human activity grew by seventy percent between 1970 and 2004. With the rapid industrialization of China and India and inadequate efforts to control greenhouse gas emissions in China and India and in the rest of the world, carbon dioxide emissions are projected to grow by fifty-five percent globally between 2004 and 2030.
There are two market-based approaches - taxes and permit trading - send price signals that can reduce greenhouse gas emissions, so they share much in common, but policymakers around the world have been debating about which one to use or whether to combine the two.
The paper reviews the most energy and emissions intensive sectors in the Indian context (Power, Steel, Cement, Aluminum, Fertiliser, Paper and Pulp) under two scenarios:
1. Business As Usual (BAU) and 2. Low Carbon (LC); identifies mitigation strategies; analysis the advantages and disadvantages of taxation versus cap-and-trade instruments; highlight Carbon Tax Issues in the Cap-and-Trade Context; to review India’s climate change initiatives; analysis the implications of these for achieving India’s ambitious plans of greenhouse gas emissions.
The analysis brings to light that under BAU scenario, the emissions intensity of the GDP from these six sectors will reduce about 20 percent below 2008-09 levels by 2020-21. In an ambitious LC scenario, emissions intensity can reduce by 30 percent below 2008-09 levels by 2020-21. However, after 2020, the emissions intensity of the GDP reduces at a much lower rate. Environmental taxes and tax incentives are not a panacea to address the problem of global warming.
However, these are important policy instruments that should be considered along with other environmental measures in any strategy to reduce global warming. In addition to promoting economic efficiency and justice, environmental taxes can also play an educational and transformative role, encouraging environmental awareness and a shared sense of environmental responsibility.
These objectives can also justify environmental tax incentives, although these should properly be regarded as tax expenditures and subject to the same scrutiny as other public spending programs. Moreover, as a general rule, environmental taxes and tax incentives should be regarded as complementary to other environmental policies, interacting with environmental regulations, voluntary agreements, tradable permits, informational campaigns, direct subsidies, and the earmarking of revenues for environmental purposes.
The paper concludes that the challenge of reducing emissions intensity of GDP in India is essentially a post-2020 challenge. By 2020-21, the emissions intensity of its major emitting industries will be at par with global best practices or what can be practically achieved considering industry characteristics. Post-2020, new, high-cost and not-yet commercially available technologies will be required to significantly reduce emissions intensity.
Keywords: Climate Change, Greenhouse Gas emissions, Carbon Tax, Cap and Trade, environmental tax, carbon dioxide emissions
JEL Classification: Q4
Suggested Citation: Suggested Citation