INTRODUCTION
Climate Change has now become an inextricable element of human existence on Earth. With the ever-rising emission of carbon dioxide caused by unregulated and incessant development, the menace of climate change has become an issue of utmost importance in today’s world. Irregular rains, natural disasters, and ever-rising global warming are all testimony to the fact that climate change is taking place like never before. When businesses, factories, and governments grow, they emit a lot of carbon dioxide by burning fossil fuels and other activities, eventually increasing greenhouse gases in the atmosphere. The increased proportion of greenhouse gases in the environment ultimately gives birth to the menace of global warming. Here, it becomes essential to regulate the growing temperature and to limit the menace of global warming. In the present era, the concept of carbon tax policy has come into existence to deal with global warming.
This article aims to explore different dimensions related to the utility of carbon tax policy. The author has tried to make a sincere effort to dig deep into the concept of carbon taxation and understand its benefits and shortcomings.
THE CARBON TAX POLICY: AN INSIGHT
When fossil fuels such as coal, petroleum, diesel, etc. are burnt, they release carbon dioxide, a greenhouse gas.[1] Greenhouse gases like carbon dioxide accumulate in the atmosphere and prevent the infrared radiations generated by the sun from escaping the atmosphere, which results in the heating of Earth. This phenomenon is responsible for global warming and, eventually, many climate-related problems[2]. So, it becomes crucial to limit the emission of greenhouse gases in the environment to reduce the rising warming of Earth’s atmosphere.
A carbon tax is a tariff imposed on the emission of carbon dioxide in the atmosphere that happens through various sources like the burning of fossil fuels, production of oil and gases, emission of greenhouses through refineries, and many others.[3] The primary object of carbon taxation is to reduce and restrict carbon emissions into the atmosphere by discouraging the use of fossil fuels. The tax rate is fixed by taking into account the level of carbon emission that takes place from a particular source.[4]
The policy of carbon taxation, even though it is framed with the objective of limiting the emission of greenhouse gases, has many far-reaching advantages. This policy will not only reduce the level of greenhouse emissions in the environment, however, it will also help in raising revenue for the governments, by which they can work in furtherance of devising new projects for environmental protection. As with the imposition of the carbon tax, the prices of commodities are bound to rise, but the funds raised through carbon taxation can counteract the same[5]. The fund can also be used to carve out policies to provide a quality life to society’s poor and backward class to ensure that they do not bear the brunt of increasing prices because of carbon taxation.
NEED OF CARBON TAXATION TO MAINTAIN BALANCE BETWEEN ECONOMIC GROWTH AND ENVIRONMENTAL SUSTAINABILITY
When issues related to environmental protection arise, it is very often assumed that the development caused by economic growth is responsible for environmental degradation. It is ironic that many environmentalists and thinkers share the view that to ensure environmental sustainability, we have to do away with economic growth.[6] As per their idea, economic growth and environmental protection are altogether different paradigms, and they have no compatibility. However, economic growth cannot be stopped as it is the fundamental element of civilizational progress, and it is impossible to do away with it. In developing countries, people desire to develop, improve their lives, and reach the living standards of developed countries. So, economic growth is in no sense responsible for environmental degradation; instead, it is unregulated economic growth that is responsible for the same.
So, economic growth, instead of being a barrier in the course of environmental protection, is a facilitator that facilitates environmental sustainability. When it comes to clean water access, there is someone who builds sewage and water treatment plants. Also, when it comes to discouraging vehicles running on fossil fuels and encouraging electric vehicles, some companies manufacture electric vehicles and earn profits. So, economic growth and environmental sustainability are two sides of the same coin, and they have a symbiotic relationship.
In the same sense, carbon taxation is also a facilitator of economic growth and environmental sustainability. The funds raised through carbon taxation can be used to build environment-friendly infrastructures that will result in employment generation; at the same time, environmental sustainability will be maintained. The revenue generated through carbon tax policy can be used to enhance the quality of life of backward and poor sections of society. In that sense, environmental consciousness will also further the cause of social justice in society.
ISSUES RELATED TO THE IMPLEMENTATION OF CARBON TAX POLICY
Even though the carbon tax policy serves the need of time, it also has some shortcomings and flaws. Some of the flaws related to carbon tax policy in India are[7] –
- Estimating the amount of taxation
It becomes extremely taxing to finalize the measures to estimate taxation that must be imposed on carbon emissions. One of the measures is that the optimal tax on carbon dioxide must be equal to its marginal social cost. In simple terms, the amount of taxation must be equal to the social repercussions that such carbon emissions will produce. However, it becomes difficult to estimate the social cost of carbon emissions because of the lack of quantitative measures for the same7.
The carbon emissions accumulate in the atmosphere and stay there for decades, and their environmental and social impacts are extremely difficult to be quantified. This is because the effect of carbon emissions depends on future economic developments and domestic climate policies in countries worldwide. So, estimation of the social cost of carbon emissions requires complex estimation methods and difficult scientific assumptions based on future carbon emissions and formulation of climate-sensitive policies around the world that are uncertain.
- Implementation of Carbon Tax Policy in Developing Countries
The carbon taxation policy, despite being a modern solution to the issue of global warming, is incompatible with the needs of developing countries. It becomes extremely difficult for countries, like India, to implement a carbon tax policy because as these countries are developing, the carbon emissions from these countries are higher than their developed counterparts[8]. If a carbon tax policy is implemented, the prices will also go high, which will worsen the condition of the economically backward section of the society and may lead to injustice.
- Unequal distribution of Carbon emission sources –
One of the major hurdles ahead in carbon taxation is that the distribution of carbon emitters is complex. For instance, in India, there are major carbon emitters like factories, refineries etc. However, at the same time, there are many MSMEs (Micro et al.) that emit carbon dioxide, and it is extremely difficult to measure their emissions. It would be challenging to monitor all the carbon emission sources and impose a tax on them. Instead, the best way forward would be to impose taxation at the site of production of carbon-containing material like for coal at the site of extraction, or diesel at the site of oil refineries; that would be more feasible.7
CONCLUSION
The carbon tax policy is undeniably one of the best techniques to mitigate climate change. It is an instrument to raise revenue and make efforts to further the goal of environmental protection in practicality. However, there are some hurdles in its effective implementation, like uncertainty regarding the method of tax estimation, difficulty for economically backward sections of society because of rising prices etc. However, flaws and fallacies are part and parcel of every policy, and overcoming them is essential.
As per the report of IPCC, there is a possibility that global warming will surpass 1.5 degrees Celsius in the following decades if there is no urgent decline in greenhouse emissions by 2030[9]. If implemented, the carbon tax policy would lead to a reduction in greenhouse emissions. It will eventually make the goal set in the Paris Agreement, to limit temperature increase to 1.5 degrees Celsius above pre-industrial levels[10], more easily attainable. It will also provide revenue to governments worldwide to invest in environmental and social welfare projects that would do justice instead of being unjust. Even despite the importance of carbon tax, very few countries have implemented carbon tax policies. For instance, Canada came up with the policy of carbon taxation in 2019 where it imposed a carbon tax of $20 per tonne of carbon emission[11]. However, many important countries like India, China, the United States, Australia etc. have still not come up with a policy of carbon taxation. Finally, in the end, the need of the hour is to devise innovative and smart options to ensure the effective implementation of carbon tax policy for a safe and protected future.
Author(s) Name: Vishnu Sharma (Symbiosis Law School, Pune)
References:
[1] ‘Carbon Tax Basics’ (Center for Climate and Energy Solutions, 21 October 2021) https://www.c2es.org/content/carbontax-basics accessed 19 September 2023.
[2] Taylor FW, ‘The Greenhouse Effect and Climate Change’ (1991) 54 Reports on Progress in Physics 881
[3] Tuladhar SD, Montgomery WD and Kaufman N, ‘Environmental Policy for Fiscal Reform: Can a Carbon Tax Play a Role?’ (2015) 68 National Tax Journal 179.
[4] Parry I, ‘Carbon Taxation and the Paris Agreement’ [2021] Oxford Research Encyclopedia of Economics and Finance.
[5] Canada E and CC, ‘Government of Canada’ (Canada.ca, 22 November 2022) <https://www.canada.ca/en/environment-climate-change/services/climate-change/pricing-pollution-how-it-will-work/carbon-pollution-pricing-federal-benchmark-information.html>.
[6] Shi-Ling Hsu, ‘Carbon Tax Rising’ (2017) 48 Trends 2.
[7] Marron DB and Toder EJ, ‘Tax Policy Issues in Designing a Carbon Tax’ [2014] SSRN Electronic Journal.
[8] Herber BP and Raga JT, ‘An International Carbon Tax to Combat Global Warming: An Economic and Political Analysis of the European Union Proposal’ (1995) 54 American Journal of Economics and Sociology 257.
[9] (unfccc.int) <https://unfccc.int/process-and-meetings/the-paris-agreement> accessed 19 September 2023
[10] Finkelstein Shapiro A and Metcalf GE, ‘The Macroeconomic Effects of a Carbon Tax to Meet the U.S. Paris Agreement Target: The Role of Firm Creation and Technology Adoption’ (2023) 218 Journal of Public Economics 104800
[11] Canada E and CC, ‘Government of Canada’ (Canada.ca, 22 November 2022) <https://www.canada.ca/en/environment-climate-change/services/climate-change/pricing-pollution-how-it-will-work/carbon-pollution-pricing-federal-benchmark-information.html>> accessed 19 September 2023
