CARBON TAX

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Context: Pennsylvania becomes the first major fossil fuel-producing state in the US to adopt a carbon pricing policy to address climate change.

It joins 11 states where coal, oil and natural gas power plants must buy credits for every ton of carbon dioxide they emit.
Canada imposes fuel charges on individuals and also makes big polluters pay for emissions. It’s one of 27 nations with some kind of carbon tax. Canada’s carbon taxes include a minimum fuel charge for individual’s equivalent to about $40 per ton.

Provisions in India:

India, the world’s third-largest emitter of greenhouse gases, is among the few countries in the world to have introduced a carbon tax.
India has the world’s fourth-largest reserves and is the second-largest producer of coal.
The government created the National Clean Energy Fund (NCEF) with contributions from the clean energy cess imposed on coal mined in India or imported.
The cess, which came into effect in July 2010, was initially ₹50 per tonne in 2010 and reached ₹400 in 2016. However, with the goods and services tax (GST) coming into effect in July 2017, the clean energy cess was subsumed by the GST compensation cess.
In Glasgow, India promised to bring down the country’s total projected carbon emission by 1 billion tonnes by 2030, reduce carbon intensity by 45% by the end of the decade from 2005 levels and achieve net-zero carbon emissions by 2070.
The commitment also includes meeting 50% of India’s energy requirements from renewable energy by 2030 and increasing non-fossil fuel power generation capacity to 500GW by the end of the decade.
The Union budget announced a scheme, named Roadmap for Sustainable and Holistic Approach through National Energy Efficiency, or ROSHNEE, to help cut the country’s carbon emissions.

Carbon border tax

A carbon border tax is a tax on carbon emissions attributed to imported goods that have not been carbon-taxed at source.
The carbon border tax proposal is part of the European Commission’s European Green Deal that endeavors to make Europe the first climate-neutral continent by 2050.
A national carbon tax is a fee that a government imposes on any company within the country that burns fossil fuels.
However, this often results in an increase of electricity costs in households and industry, which may lead to local business closures and other economic hardships for businesses and citizens.
In contrast, a carbon border tax is able to protect a country’s local manufacturers, motivating them to adhere to green regulations.
Many EU companies are at a cost disadvantage as they have been paying a carbon border tax and for carbon emissions since 2005 under the EU’s Emissions Trading System.
The new carbon border tax can therefore lead to a more level playing field against importers, especially those from nations with more lax environmental standards.
The border tax would not take effect until 2026.

How does this impact India?

As India's third largest trading partner, the EU accounted for $74.5 billion worth of trade in goods in 2020, or 11.1% of India's total global trade.India's exports to the EU were worth $41.36 billion in 2020-21, as per data from the commerce ministry.
By increasing the prices of Indian-made goods in the EU, this tax would make Indian goods less attractive for buyers and could shrink demand.
The tax would create serious near-term challenges for companies with a large greenhouse gas footprint--and a new source of disruption to a global trading system already roiled by tariff wars, renegotiated treaties, and rising protectionism.
A levy of $30 per metric ton of CO2 emissions could reduce the profit pool for foreign producers by about 20%if the price for crude oil remained at $30-40 per barrel.