India has turned carbon subsidy regime into carbon taxation

New Delhi, Feb 27 (IANS) India has managed to turn a carbon subsidy regime into a carbon taxation one by cutting subsidies and increasing taxes on fossil fuels such as petrol and diesel, the Economic Survey for 2014-15 said Friday.

This has significantly increased petrol and diesel prices while serving as a price signal to reduce fuel burnt and hence CO2 emissions, the survey, which was tabled in parliament by Finance Minister Arun Jaitley, said.

The survey acknowledged green actions taken by India, including imposing significantly higher taxation of petroleum products and thereby re-energizing the renewable energy sector.

India shifted from a carbon subsidization regime to one of significant carbon taxation regime, from a negative price to an implicit positive price on carbon emissions.

Calculating CO2 emission reductions from measures taken for petrol and diesel suggests that there will be a net reduction of 11 million tonnes of CO2 emissions in less than a year compared to the baseline or 0.6 percent India's annual emissions.

In addition, India has increased the coal cess from Rs.50 per tonne to Rs.100 per tonne, which is equivalent to a carbon tax of about $1 per tonne.

A higher tax on coal offsets the domestic externalities including health cost of coal for power generation.

The survey points out that any rationalization of coal pricing must take account of the implications for power prices and hence access to energy for the poorest in India which is and must remain a fundamental objective of policy.

It observes that there is still a long way to go with potential large gains still to be reaped from reform of coal pricing and further reform of petroleum pricing policies.

The move to substantial carbon taxation combined with India's ambitious solar power programme suggests that India can make substantial contributions to the forthcoming Paris negotiations on climate change, it said.