Controlling emissions: Explicit carbon taxation needed, indirect taxation doesn’t help

Low-carbon, inclusive growth (LCIG), as a strategy, has been the hallmark of India’s vision on clean environment. This strategy is a multi-pronged one, which broadly includes the following policy instruments: regulations and standards, such as, building codes, bio-fuel standards and vehicle-efficiency standards; public funding for R&D; awareness and capacity building activities; and market-based instruments, which, in turn, include quantity instruments (emission trading schemes, such as Perform, Achieve and Trade, or PAT, and renewable energy certificates) and price instruments (removal of subsidies and imposition of a carbon tax on fossil fuels). Among these, it is the price instrument of carbon tax that remains the most potent market-based policy tool for inducing fuel-switching towards cleaner sources of energy. Yet, it has not found favour with policymakers in India because of its supposed detrimental effects on economic growth and income distribution.

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