WALK THE TALK ON CAR­BON TAX, MR FI­NANCE MIN­IS­TER

Down to Earth - - EDITOR’S PAGE -

BUD­GET 2015, pre­sented by Fi­nance Min­is­ter Arun Jait­ley, has a first. In it, In­dia has ac­cepted that it has a de-facto car­bon tax—on petroleum prod­ucts and dirty coal. Ar­guably, the only big green ini­tia­tive of this bud­get is the in­crease of cess on coal—from ` 100 per tonne to ` 200 per tonne. But the ques­tion is: is this car­bon tax, im­posed on the car­bon con­tent of fuel, do­ing what it should—re­duce green­house gas emis­sions that are re­spon­si­ble for cli­mate change? In other words, is there a de­sign be­hind the car­bon tax to en­sure we move be­yond pol­lut­ing fos­sil fu­els?

The bud­get fol­lows from the Eco­nomic Sur­vey, which states that high price on diesel and petrol are im­por­tant price sig­nals to limit con­sump­tion and, hence, CO2 emis­sions. In 2014, tak­ing ad­van­tage of the global fall in fuel prices, sub­sidy or un­der-re­cov­ery has gone and the gov­ern­ment has in­creased ex­cise duty on both petrol and diesel. So even though fuel is cheaper, the tax com­po­nent is higher.The Eco­nomic Sur­vey es­ti­mates that based on emis­sion fac­tors, cur­rently, In­dia im­poses an im­plicit car­bon tax of US $140 per tonne of CO2 on petrol and US $64 on diesel. This is sub­stan­tial.

The Eco­nomic Sur­vey also es­ti­mates that the cess of ` 100 per tonne of coal is equiv­a­lent to a car­bon tax of US $1 per tonne of CO2. It ar­gues that this cess should be in­creased so that it can lead to CO2 re­duc­tion and also bet­ter re­flect the health cost of emis­sions from coal-fired power plants. It cal­cu­lates that a three-fold in­crease from the cur­rent rate would lead to an an­nual CO2 emis­sion re­duc­tion of 129 mil­lion tonnes—this is equal to seven per cent of In­dia’s cur­rent emis­sions. A five-fold in­crease in the cess would equalise price of do­mes­tic coal with in­ter­na­tional and would con­trib­ute to an­nual CO2 emis­sion re­duc­tion of 214 mil­lion tonnes, which is 11 per cent of In­dia’s an­nual emis­sions.

In bud­get 2015, the fi­nance min­is­ter has opted to take the slow road and has dou­bled the cess on coal to bal­ance the need to tax pol­lu­tion and the price of power in his words. He also men­tions that In­dia’s de-facto car­bon tax on most petroleum prod­ucts com­pares with in­ter­na­tional norms. But is this tax an ad­e­quate sig­nal to bring about change?

Let’s take petrol and diesel.The fact is that the gov­ern­ment has in­creased the tax on fuel be­cause it is con­ve­nient.It will be im­por­tant to main­tain this “car­bon tax”, even when the price of petrol and diesel in­creases in the in­ter­na­tional mar­ket. But it is also a fact that the price of th­ese fu­els is lower to­day and as far as the con­sumer is con­cerned, the sig­nal to change con­sump­tion is weak and in­ad­e­quate.

There­fore, not only does the gov­ern­ment re­quire to tax th­ese pol­lut­ing fu­els, it also re­quires to use the tax funds and much more to pro­vide in­fra­struc­ture to wean us away from cars or us­ing roads to trans­port goods. What is bad is bud­get 2015 is do­ing the re­verse. It says it will set aside ` 4 per litre of the ex­cise duty on petrol and diesel for a ded­i­cated road cess. This tun­nel vi­sion of view­ing in­fra­struc­ture for trans­port as just “roads” is re­gres­sive. In­stead, what is needed is to rein­vent mo­bil­ity so that it moves goods and peo­ple, and not ve­hi­cles.The fact is that bud­get 2015 has recog­nised that this ex­cise duty is a car­bon tax, which is putting a price on each tonne of CO2 emit­ted.Now this tax must be used to help shift to less car­bon-in­ten­sive ways of pro­duc­tion.

We also know that the health costs of air pol­lu­tion are very high. Bud­get 2015 does lit­tle to ad­dress this con­cern. It does not say that the ex­cise duty col­lected on dirty fuel will be used to up­grade re­fin­ery tech­nol­ogy so that we can get clean fuel and breathe easy. It is also a fact that even though the gov­ern­ment is no longer sub­si­dis­ing diesel, its price re­mains lower than that of petrol, mainly be­cause of dif­fer­en­tial lev­els of tax­a­tion. So, even though there has been a decline in the num­ber of diesel pri­vate cars be­ing sold, it is not enough to make a dent in pol­lu­tion lev­els. There­fore, what is needed is to tax diesel ve­hi­cles to equalise the price dif­fer­en­tial.

This is also the case with coal cess.The gov­ern­ment now aims to use this cess to clean the Ganga or build toi­lets.All this is im­por­tant but takes us away from the ob­jec­tive of mov­ing away from us­ing pol­lut­ing fu­els or clean­ing emis­sions from ther­mal power.

What is needed is to walk the talk.Not just talk the talk.

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