The government in India, until recently, has not put in place a carbon tax or cap in the trade system. However, leading Indian companies have set up their own carbon pricing mechanisms following a three-phase process. In the foundational phase, a company assesses how much carbon it is emitting through greenhouse gas inventories. In the next phase, the company sets its ‘green’ vision and identifies an ideal carbon pricing strategy to achieve it. Several pricing approaches are possible including shadow prices, taxes or fees, cap-and-trade and implicit carbon pricing. Finally, in the roll out phase, the company operationalizes its scheme and sets in place a system to track its effectiveness.
40 large Indian companies have priced or are planning to price carbon. Combined, their revenue exceeds $7 trillion. They include (a) a company operating in the cement sector that wants to lessen its risk exposure to a clean environment tax. It set up an internal carbon tax of $11 per metric ton of carbon dioxide (CO2). (b) An oil company that wants to manage climate-related risks and drive technological innovation. It set up a shadow price of $15 per tCO2. (c) A technology company that wants to become carbon neutral by 2018. It also plans to use 100% renewable power and cut its per capita electricity needs by 50% below 2007 levels by 2018. A carbon price of $10.50 per tCO2is one of a slew of measures the company has adopted to achieve its green goals. (d) A manufacturing firm that wants to reduce the carbon dioxide emissions intensity of its output by 25% below 2016 levels by 2019. It estimated an implicit carbon price for the company’s existing green investments and introduced a shadow price of $10 per tCO2.
Evolving Role of the Government in Carbon Pricing
The Indian government has been working closely with the multilateral agencies including the World Bank and learning how the private sector businesses are slowly aligning the carbon pricing with their decisions on investments. Over the last five years the government has been gradually evolving its thinking and approach to delve deeper into understanding of issues around carbon pricing. The good news is that the Indian government’s budget for 2020-2021 includes preliminary plans for some form of environmental taxation.
A distinctive fiscal measure undertaken in the Indian Union Budget (announced in July 2019) in regards to environmental protection was to incentivize the purchase of electric vehicles by way of introducing a deduction in the Income Tax Act, 1961. The proposed provision, in effect by April 2020, shall provide a deduction of interest on loans taken by an individual taxpayer (sanctioned between 2019 and 2023) for purchase of an electrical vehicle. The amount of the deduction is capped at one lakh fifty thousand rupees (equivalent of USD $2,000).
Concurrently, it was reported that a rate reduction for purchase of electric vehicles by individual consumers would soon be introduced, thus reducing the overall tax burden of consumers (to date this note was last reviewed, this rate change is yet to be notified in accordance with the prescribed method). It is estimated that there is an urgent necessity to dedicate an exclusive fiscal policy in the design of fiscal instruments that are intended to promote sustainable development and the reduction of carbon emissions.
Activity Rating: *** Right Direction
The Indian private sector has already stepped up its efforts and considerations towards the carbon pricing but needs to match policy coherence in this regard. India has been working both with multilateral agencies and other specialist agencies to find the best pricing model fit for the country. Given the urgency of climate crisis, it has taken quite some time to arrive at a policy framework.
For any policy to work effectively, the state and markets need to reach a stable degree of coherence with mechanisms in place for the policy to succeed to both prevent any potential climate risk and also contribute to sustainable development.
India has potential and resilience to fast track its policy work, legislations, and effect the policy changes soon and the Indian budget of 2020 shows much promise. India has proclivity to safely reach the gold standard of 1.5 degree Celsius by 2030, earlier than many others with policy coherence and its implementation. India is widely estimated to announce a slew of climate efforts and environmental laws by 2022, when it assumes G-20 presidency.
Action Alert Message:
With the Indian government’s policy work and adoption of carbon pricing mechanism still being formative, needing consistent efforts to put it in place to enable private sector’s stepping up its efforts, the Indian union Minister of Environment, Forests and Climate Change is requested to quicken the pace of implementing a carbon pricing policy that can support the country’s commitment to become 1.5 degree C compliant by the year 2030, if not earlier.
Mr. Prakash Javadekar, Minister for Environment, Forest and Climate Change, Government of India, Email: firstname.lastname@example.org
This Post was submitted by Climate Scorecard India Country Manager Pooran Chandra Pandey