CLIMATE CHANGE- A GLOBAL CONCERN
The most important issue of our day is climate change, and this is a pivotal period. The effects of climate change are unparalleled in magnitude, ranging from shifting climates that endanger food production to increasing sea levels that increase the likelihood of catastrophic flooding. Without immediate action now, future adaptation to these effects will be more challenging and cost prohibitive.
THE ROOT CAUSE OF MALFEASANCE
Fossil fuels, which include coal, oil, and gas, are by far the biggest cause of climate change, contributing more than 75% of all greenhouse gas emissions and almost 90% of all carbon dioxide emissions.
The heat from the sun gets trapped on Earth as a result of greenhouse gas production. Global warming and climate change result from this. The rate of global warming is presently higher than it has ever been. Weather patterns are shifting as a result of warming temperatures, which is also upsetting the natural order. This puts both ourselves and all other kinds of life on Earth in grave danger. Some of the key factors causing climate change are:
• Electricity generation
Burning fossil fuels to provide power and heat accounts for a sizable portion of world emissions. Burning coal, oil, or gas still supplies the majority of the world’s electricity, which produces carbon dioxide and nitrous oxide, two potent greenhouse gases that cover the planet and trap the sun’s heat.
• Manufacturing processes
Emissions from manufacturing and industry are mostly the result of burning fossil fuels to create energy for the production of items like textiles, electronics, plastics, cement, iron, and steel. Gases are also released during mining and other industrial activities, as well as during construction.
Cutting down forests to make way for farms, pastures, or other purposes increases emissions because when trees are felled, the stored carbon is released. An estimated 12 million hectares of forest are burned annually. The destruction of forests reduces nature’s capacity to keep emissions out of the atmosphere because they absorb carbon dioxide.
• Increased transportation
Fossil fuels are typically used to power cars, trucks, ships, and aircraft. As a result, emissions of greenhouse gases, particularly carbon dioxide, are highly prevalent in the transportation sector. Due to the internal combustion engines used in road vehicles, which burn petroleum based fuels like petroleum, they make up the majority.
THE ECHOING REVERBRATIONS
The effects of climate change on various societal segments are interconnected. Food production and human health can be harmed by drought. Flooding has the potential to spread illness and harm infrastructure and ecosystems. Health problems can reduce worker productivity, raise mortality, and have an impact on the availability of food. Impact of climate change can be seen in every area of the world we live in. However, the effects of climate change are not uniform throughout the nation and the world; even within a single community, different neighborhood or people may experience different effects. Underserved communities, who have the highest exposure to risks and the fewest means to respond, might become increasingly vulnerable as a result of long-standing socioeconomic disparities.
THE ENVIRONMENTAL/GREEN TAXES BY EU
Compared to the US, most European nations generally have rather high environmental tax rates. This seems to be generally true for both tax rates and tax collections. It is partly owing to a greater acceptance of taxes and perhaps a larger public sector as a whole, as well as to a greater dependence on taxes as a tool of environmental policy. It might also be the result of a more ambitious objective for reducing the use of fossil fuels, particularly for transportation.
Environmental economics emphasizes environmental taxes as an effective and efficient tool to internalize negative effects resulting from individual consumer behavior and production activities. Environmental taxes try to price individual ecologically detrimental behaviors. This objective is met by taxing negative externalities at a rate based on the marginal social harm they produce. The fundamental concept of using taxes to address harmful externalities that are not taken into account by market prices.
Environmental tax changes, or the shifting of the tax burden from labor to resource and environmental consumption, are frequently included in the broader framework of environmental tax integration. Such tax reforms have been a major area of study in environmental economics and have been discussed in the context of economic policy for many years. These are predicated on the claim that a change in tax policy that reduces environmental pollution also has good economic impacts by cutting other more distorting taxes by using the money raised from environmental taxes.
These green taxes levied by countries around the world not only prove to be an important instrument towards combating climate change but also holds a greater power over developing countries like India that have not yet developed or imposed such taxes. These taxes not only lead to an increased price of foreign products and services but also raise the cost of Indian products in the foreign market. Thus, demoralizing the market for Indian goods and services.
INITIATION OF CARBON TAX BY INDIA
In response to such high tax rate imposed by EU, India intends to lodge a complaint with the World Trade Organization against the European Union’s proposal to levy 20% to 35% tariffs on imports of high-carbon goods including steel, iron ore, and cement from India. This is a part of New Delhi’s plan to counter the EU’s Carbon Border Adjustment Mechanism (CBAM), which encourages regional businesses to invest in cutting-edge technology to reduce carbon emissions. India is in a way preparing the foundation of its own carbon border tax to strike back against the European union.
In addition to CBAM, the advanced economies’ move to enact green taxes, such as the US’ Inflation Reduction Act to promote green technology companies and the EU’s anti-deforestation law, has made developing and emerging economies, like India, leery of such initiatives.
These circumstances are a clear illustration of the classic economic concept of Pigouvian tax- a tax on a market transaction that creates a negative externality, or an additional cost, borne by individuals not directly involved in the transaction, named after 1920 British economist Arthur C. Pigou. In the given scenario, the industries that are involved in contribution of carbon emission are imposed a Pigouvian tax i.e., carbon tax for the negative externality caused to other industries or citizens of the country. These taxes not only create an incentive for individuals and firms to reduce or eliminate negative activities but also generate additional tax revenue for the government which may be used to reimburse or benefit those who are affected by these activities.
Thus, it can be clearly observed that it is high time for developing economies like India to take steps towards the development of such taxes and duties keeping in mind its impact on the domestic industries. However, one cannot easily judge or determine the motive behind these plans- Is it a step towards making the world a better place for generations to come or just a tool for ‘tit-for-tat’?
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of Finance. 27 February, 2015. https://pib.gov.in/newsite/PrintRelease.aspx?relid=116058
Carbon tax and its impact on India,iPleaders. October 27, 2021.
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What is Climate Change ?, World Bank.
How Do We Know Climate Change Is Real?, NASA. https://climate.nasa.gov/evidence/.
Savleen Kaur is Research intern, IMPRI.
Acknowledgment: The author would like to thank Dr. Arjun Kumar, Upasana Dasgupta and Tripta Behra for their kind comments and suggestions to improve the article.
Disclaimer: All views expressed in the article belong solely to the author and not necessarily to the organisation.
This article was posted by Priyanka Negi, Research intern, IMPRI.