Context

• The largest carbon dioxide emitter China has recently announced that it would balance out its carbon emissions with measures to offset them before 2060 and hence the spotlight is now on the U.S. and India, the countries that rank second and third in emissions.

Need to cut carbon effluents

Vulnerability of India’s Climate risk

• India ranks fifth in the Global Climate Risk Index 2020 released by German Watch.
• Also according to a United Nations report, between 1998 and 2017, disaster-hit countries reported $2.9 trillion in direct economic losses, with 77% resulting from climate change of which the highest losses were incurred by the U.S. followed by China, Japan, and India.

To reduce the impact of global warming

• Record heat waves in Delhi, floods in southwest China, and catastrophic forest fires in California this year are indicative of the existential danger from global warming for which the main cause can be attributed to carbon dioxide.

To fulfill targets

• India has committed to 40% of electricity capacity being from non-fossil fuels by 2030
• It also committed to lower the ratio of emissions to GDP by one-third from 2005 levels. 
• It is in the country’s interest to take stronger action before 2030, leading to no net carbon increase by 2050. 

How to cut effluents?

Carbon Pricing

• Pricing the carbon content of domestic production and imports, be it energy or transport can be one way to cut effluents while earning revenues.

Emission trading

• Carbon pricing can be done through emission trading, i.e., setting a maximum amount of allowable effluents from industries, and permitting those with low emissions to sell their extra space. 

Introduce a carbon tax

• A carbon tax is a fee imposed on the burning of carbon-based fuels (coal, oil, gas).
• By putting a carbon tax on economic activities can help reduce effluents.
• A carbon tax at $35 per tonne of CO2 emissions in India is estimated to be capable of generating some 2% of GDP through 2030. 
• Example: Canada imposed a carbon tax at $20 per tonne of CO2 emissions in 2019, eventually rising to $50 per tonne. This is estimated to reduce greenhouse gas pollution by between 80 and 90 million tonnes by 2022.

Imposing a carbon tariff

• Big economies like India should also use their global monopsony, or the power of a large buyer in international trade, to impose a carbon tariff as envisaged by the EU. 
• Focusing on trade is vital because reducing the domestic carbon content of production alone would not avert the harm if imports remain carbon-intensive. 
• Therefore, leading emitters should use their monopsony, diplomacy and financial capabilities to forge a climate coalition with partners.

Conclusion

A market-oriented approach to tax and trade carbon domestically and to induce similar action by others through international trade and diplomacy offers a way forward.

1. Reference:
   https://www.thehindu.com/opinion/op-ed/the-benefits-of-a-carbon-tax/article32709677.ece