Carbon pricing is a potent weapon against climate change while putting the responsibility firmly where it should be
Carbon pricing simply put refers to placing a fee for emitting harmful gases like carbon dioxide (CO2) and other gases that harm the environment into the air and/ or offering an incentive for emitting less. It essentially moves the responsibility of covering the costs of climate change from the public to those causing it by producing greenhouse gas emissions (GHG).
While the idea of carbon pricing has existed for many years, it gained more recognition in recent times with regional and national cap-and-trade systems, carbon taxes, and emissions trading systems emerging worldwide. After the 2015 Paris Climate Agreement, it was realized that key structural changes were needed to shift to a ‘low carbon economy’. And Carbon Pricing is one of the best tools to do the same.
The two main types of Carbon Pricing methods in practice today are:
Carbon Tax: This is a direct tax on emissions. It encourages cleaner technologies by making high emissions more expensive. The tax rate is linked to the amount of emissions produced.
Emissions Trading Systems (ETS): This limits GHG emissions by setting a cap on them. Companies need permits for their emissions, which they can buy or sell, and the price depends on supply and demand.
Companies that implement internal carbon pricing strategies gain a competitive edge in regions with mandatory GHG emissions reduction regulations like the EU and Canada. It is a valuable tool that fosters innovation and sustains economic competitiveness, concurrently highlighting organizational inefficiencies that drive up costs, enhancing their operational efficiency and market profitability.
Carbon pricing introduces significant challenges which include concerns over equity and distributional impacts, ensuring that disadvantaged/ lower-income communities are not disproportionately affected. Competitiveness in global markets is a pressing issue for businesses, along with the risk of carbon leakage, where emissions may shift to regions with less stringent regulations. Measuring emissions reliably, managing price fluctuations, aiding energy-intensive industries, transitioning from fossil fuels, and gaining public support are crucial in carbon pricing.
40 countries and 20 cities and regions have already implemented Carbon Pricing. India, the world’s third-largest CO2 producer, anticipates a 50%* surge in carbon emissions by 2030 due to growing electricity and transportation demands. To combat global warming, India’s actions to curb carbon emissions are crucial.
Despite measures like the National Action Plan on Climate Change, National Solar Mission, and Clean Energy Fund, India may fall short of its goal to reduce carbon intensity in its economy by 33-35%* by 2030. To bridge this gap, implementing a higher carbon tax is essential which could help India meet its emission targets and set an example for other G20 nations.
Vice President – ESG, Communications and Transformation
Suzlon Energy Ltd
Implementing a carbon tax in India faces economic challenges. As a developing nation, India must remain cautious and strike balance. The tax may raise production costs temporarily and consumer prices, impacting industries. Also, ensuring fairness and protecting low-income individuals from the carbon tax’s impact is crucial. Integrating the carbon tax into existing taxes like the Goods and Services Tax (GST) may simplify administration and reduces costs in India’s complex tax system.
During the G20 summit in September 2023, it has been agreed to triple renewable energy capacity by 2030. While this is certainly a positive step, and it will be important to see how the G20 countries implement this commitment, while maintaining a reduced carbon footprint.
To conclude, Carbon pricing is a potent weapon against climate change while putting the responsibility firmly where it should be. It reduces emissions, sparks innovation, boosts economic efficiency, cleans the air, encourages sustainable living, fosters global unity, plans for the long term, and ensures fairness.
Source: https://earth.org/
