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Carbon tax is a form of pollution tax. It levies a fee on the production, distribution or use of fossil fuels based on how much carbon their combustion emits. The government sets a price per ton on carbon, and then translates it into a tax on electricity, natural gas or oil. Because the tax makes using dirty fuels more expensive, it encourages utilities, businesses and individuals to reduce consumption and increase energy efficiency. Carbon tax also makes alternative energy more cost-competitive with cheaper, polluting fuels like coal, natural gas and oil.
Carbon tax offers social and economic benefits. It is a tax that increases revenue without significantly altering the economy while simultaneously promoting objectives of climate change policy. The carbon tax is the most practical method to reduce the fossil fuel consumption. It checks the use of fossil fuel.
• It helps India to reach the committed INDC of 33% by 2030.
• This will benefited to protect the environment and ensure good quality of air in cities especially cities like Delhi and Kanpur.
• A carbon tax is a step towards helping India meets their voluntary target to reduce the amount of carbon dioxide released per unit of gross domestic product by 25% from 2005 levels by 2020.
• The clean energy tax will help to finance a National Clean Energy Fund (NCEF). Industry bodies have not favored the levy and fear that the resultant higher price of coal could trigger inflation.
• The carbon tax charges a fee based on the carbon emission. So, to reduce the fee, users try to use less of the fossil fuel.
• The alternative energy such as solar, hydro and wind energy are costlier than the fossil fuel energy. The carbon tax on fossil fuel makes the alternative energy competitive to the fossil fuel. It results in more use of alternative and clean energy. Perhaps, that will help India to promote the flagship programmes like International solar Alliance, start up India and Make in India by reducing use of non renewable fossil fuels.
• All the money raised by the tax. It can help subsidize environmental programs and clean energy. Instead of investing more amount on importing the energy bill from outside the country.
• Can make the correct and more use of fund availability for the programmes like afforestation and ISA.
Problems related to Carbon Tax are: Production may shift to countries with no or lower carbon taxes. (so called ‘pollution havens’); the cost of administrating the tax may be quite expensive reducing its efficiency; Higher taxes may encourage firms to hide carbon emissions.
Further a global carbon tax may curtail economic activity in the poor developing world because they can’t afford the small increase in energy costs, but the developed world may simply be able to pay.