Editorial of the Day: Time to Put a Price on Carbon Emissions (The Hindu)

Context: The article is discussing the need to address the environmental destruction caused by economic growth and the role of valuing nature, including through pricing carbon emissions, in mitigating the impacts of climate change. It argues how countries have prioritized economic growth at the expense of the environment, in the absence of a price for the use of natural resources such as air and forests, leading to the emission of carbon and other greenhouse gases, causing climate change.

Time to Put a Price on Carbon Emissions Background

What is Carbon Pricing?

• Carbon pricing is a market-based mechanism used to reduce greenhouse gas (GHG) emissions.
• It works by putting a price on carbon emissions, either through a carbon tax or an emission trading system, in order to create an economic incentive for individuals and businesses to reduce their carbon footprint.

Need for Carbon Pricing:

• Climate change mitigation: Carbon pricing supports climate change mitigation efforts by encouraging individuals and businesses to reduce their carbon footprint.
• Revenue generation: Carbon pricing can generate revenue for environmental programs that promote sustainable practices and research into new technologies.
• Encouraging Sustainable Business Practices: Carbon pricing can encourage sustainable business practices by making them more cost-effective than environmentally harmful practices.

What are the various types of Carbon Pricing Mechanisms Available?

Landscape of Carbon Pricing across the Globe:

• Carbon pricing has become an increasingly popular policy tool for addressing climate change around the world.
• As of 2021, over 60 carbon pricing schemes are in operation or scheduled for implementation in 46 countries and regions.
• Here are some prominent examples of carbon pricing policies  from around the world:
  • European Union Emissions Trading System (EU ETS): This is the world’s largest carbon pricing system. It operates on a cap-and-trade system, with the cap declining over time.
  • China’s Emission Trading Scheme: China introduced its first national carbon market in 2021, which covers the power sector and is expected to expand to other industries.
  • California’s Cap-and-Trade Program: This program covers around 450 businesses in California and has been successful in reducing emissions while generating revenue for the state. It operates on a cap-and-trade system, with the cap declining over time.
  • South Korea’s Emission Trading Scheme: This scheme covers around 600 businesses and is the second-largest carbon pricing scheme in the world. It operates on a cap-and-trade system, with the cap declining over time.

Limitations of Carbon Pricing:

• Impact on Low-Income Households: Carbon pricing can have a regressive impact on low-income households, as they may spend a larger portion of their income on energy and other goods and services that are subject to carbon pricing.
• Impact on Industries: Carbon pricing can also have a negative impact on industries that are heavily reliant on carbon-intensive processes, such as the oil and gas industry.
• Difficulty in Implementing: Implementing carbon pricing can be difficult, as it requires a complex regulatory framework and monitoring system to ensure compliance.
• Limited Scope: Carbon pricing alone may not be sufficient to achieve the necessary emissions reductions to combat climate change.
• Carbon Leakage: Carbon pricing in one country or region can lead to carbon leakage, where emissions-intensive industries move to countries or regions with weaker carbon pricing or regulatory systems, resulting in no overall reduction in global emissions.
• Political Opposition: Carbon pricing can be a controversial policy measure, and it may face opposition from industry groups, politicians, and the public who are concerned about its impact on the economy or personal finances.

Decoding the Editorial

The article calls for the G-20, which represents the world’s largest economies, to take the lead in valuing nature and pricing carbon emissions. By pricing carbon emissions, the G-20 can create incentives for businesses and individuals to reduce their carbon footprint and invest in renewable energy, which can open up unexpected avenues for decarbonization.

The author suggests that India, as the current president of the G-20, can play a key role in advancing this agenda.

• Ways of Carbon Pricing & Significance:
  • There are three ways to price carbon: carbon tax, emissions trading system, and import tariffs.
  • 46 countries have implemented carbon pricing, but it only covers 30% of global greenhouse gas emissions at an average price of $6 per ton of carbon, which is lower than the estimated harm caused by pollution.
  • The International Monetary Fund has proposed minimum carbon prices of $75, $50, and $25 per ton for the US, China, and India, respectively.
  • Carbon pricing has more benefits than costs in the EU, British Columbia, Canada, and Sweden. It encourages investment in renewable energy like solar and wind, which has great potential in India.
• What will best suit India?
  • Carbon Tax in place of Petroleum Tax:  Among the various ways of pricing carbon, the article suggests that India may find a carbon tax appealing as it can directly discourage fossil fuels, while raising revenues that can be invested in cleaner sources of energy or used to protect vulnerable consumers.
    • India could start with a carbon tax rate of $25 a ton, as proposed by the IMF, to discourage the use of fossil fuels and promote cleaner sources of energy.
    • However, industrial firms may oppose this due to concerns about losing their competitive advantage to exporters from countries with lower carbon prices.
  • Possible Solution: To address this issue, all countries within the same income bracket should set the same rate to ensure a level playing field (a higher tax rate could encourage greater reductions in greenhouse gas emissions).
    • Companies should be allowed to use high-quality international carbon credits to offset a certain percentage of their taxable emissions.
    • Example: EU, which excludes transport from the carbon tax to avoid passing on higher costs to consumers directly. Singapore provides vouchers to consumers impacted by rising utility prices, and California uses proceeds from carbon permits sales to subsidize purchases of electric cars.
    • Certain emission-intensive trade-exposed enterprises should be exempted from the carbon tax, but the article proposes that output-based rebates would be a better approach to achieve the same goal.
• Challenges and Political Opposition: Carbon Pricing has faced a lot of political opposition.
  • Examples:
    • Australia saw its carbon tax repealed just two years after its introduction when a new conservative government came to power.
    • The EU, of late, has been facing a lot of challenges in maintaining carbon prices in the face of soaring energy prices and these repercussions due to political pressures can make it difficult to implement effective carbon pricing policies.
    • However, it is to be noted that Sweden has been successful in presenting the carbon tax as part of a larger package that includes lower taxes and new social safety nets.

Therefore, it is important to effectively communicate the societal benefits of carbon pricing, even in the face of opposition from individual producers who may experience losses.

• How to Achieve Reduction in Global Emissions:
  • According to the author, a significant reduction in global emissions and warming could be achieved by implementing a sufficiently high carbon tax in China, the U.S., India, Russia, and Japan, which account for over 60% of global emissions, alongside other complementary measures.
  • This could lead to a paradigm shift where decarbonisation is viewed as a winning strategy for development.
  • India, as the G-20 summit president in September, can take the lead in the global fight against climate change by proposing a plan for global carbon pricing.

Beyond the Editorial

Decarbonising Targets of India:

• India has set a goal to achieve a net-zero emissions economy by 2070.
• Additionally, the country aims to generate 40% of its total energy needs from renewable sources by 2030, and it has a target to install 450 gigawatts of renewable energy capacity by 2030.
• India also aims to reduce the emissions intensity of its economy by 33-35% by 2030 compared to 2005 levels.

Policies and Interventions to Reduce Carbon Emissions:

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