Wake up call- Carbon Emission, Climate Change and Carbon Tax

Carbon Emission, Climate Change and Carbon Tax

By Adv. Sandigdha Mishra

advocate.sandigdhamishra@gmail.com

Carbon Emission

Climate Change and Disaster

It's the wake up call 

Introduction:

Angelina Jolie during her recent visit to Pakistan said,

“Climate change is not only real and it is not only coming - it is very much here. The real tragedy is that Pakistan contributes less than 1% of the world's carbon footprint and yet millions of people have been displaced or lost loved ones.

"Extreme heat waves, irregular monsoon,  this year at large parts of India was made 30 times more likely because of climate change. From last three days, continuous rain brought the Millennium City Gurugram  to its knees, with water inundating several roads and the expressway, throwing traffic into disarray."

Climate change is real, catastrophic and factual threat to humanityAccording to the Global Climate Rate Index, 2021, India is ranked 3rd among the top 10 countries and hence most affected by extreme weather caused by climate change. Since last couple of years India has seen lots of health disasters including natural calamities like floods, droughts, continuous rain, cyclones etc. due to heavy pollution.

Carbon emission is one of the key factors in climate change. There are many ways to reduce and lower greenhouse gases especially Carbon dioxide from the climate which is the main element for climate deterioration. 

Objective should be:

On controlling the emission of carbon to lessen the climate change impacts. It is essential that the government, industries, organisations and establishments should come forward and develop mechanisms, protocols, procedures to provide suitable Carbon foot printing analysis and develop better Carbon Management strategy to reduce the uses of fossil fuels including burning coal, oil, or natural gas, to increase smart use of energy production and limit the use of carbon. 

Carbon tax is one of the mechanisms for achieving the carbon neutrality in India. Hence for reducing the carbon dioxide or greenhouse gases,  establishments needs to adopt practices, protocols and develop policies where they can plan or strategies on how to reduce the emission.

Hence, Carbon tax plays an important role in Carbon emission control.

Scope and Applicability:

To control the emission of greenhouse gases, Carbon tax mechanism has been introduced. Carbon tax is a tax levied on greenhouse gas emissions.

Carbon Tax shall be levied on direct emissions from owned or controlled sources, indirect emissions from the generation of purchased electricity, steam, heating and cooling consumed by the reporting establishment and also includes all other indirect emissions that occur in a establishment’s functions which are related to productions and services.

This tax is paid by industries and companies who are the emitters and responsible for emitting the carbon. The taxation will be levied until the emissions are zero under the carbon tax policy. Hence, the Industries and Companies will take measures, such as switching fuels or adopting new technologies to reduce their emissions to avoid paying the tax or any such penalty to contain its cost.

Carbon tax is an indirect tax—a tax on a transaction, which means whenever an industry/ establishment will cause carbon emission then it will be liable to pay the tax equivalent to the emission or on the emission exceeding the allowed limit. 

It is imposed by a government to put a direct price on greenhouse gas emissions produced by companies or industries.

Current Position:

Currently, India does not have a uniform system of carbon taxation across the country nor it has any explicit tax on the emission of carbon. Currently, state governments have imposed implicit taxes to capture the costs of negative externalities—such as the Green cess implemented by Governments of  Goa and the Eco Tax on vehicles entering Mussoorie has been imposed by Government of Uttarakhand . 

In India, Private Sectors are using Internal Carbon Pricing (ICP) as a mechanism to encourage voluntary emission reduction so that investments can be made in greener, more efficient technologies to satisfy corporate sustainability objectives. Industries are establishing precise energy reduction targets to lower the emissions of carbon dioxide.  

Moreover, GST (Goods and Services Tax) compensation cess (also called as coal cess) of Rs 400 per tonne on coal production is an another example of an implicit tax on carbon emission under Indirect tax in India. 

Furthermore, Section 115BBG  of the Income Tax Act, 1961 allows  a concessionary tax rate of 10% on income earned by transfer of carbon credit. Carbon credit refers to a permit which allows an industries or companies to produce certain amount of carbon emissions. A carbon credit can be traded if the full allowance of carbon emission is not used. Income tax is part of Direct tax policy in India.

Government of India (GOI) has not implemented an explicit carbon tax yet in it tax policy.

Focus Area: 

Strategies for permissible carbon emission and availing benefit of carbon trading scheme should be the key focus for industries at the first stage to have a balanced growth for climate and economy. Under the carbon trading scheme establishments should acquire Energy Savings Certificates (ESCerts) and Renewable Energy Certificates (REC) so as to get the permission and limit to emit the carbon dioxide and produce or manufacture with permitted limit of carbon emission.

Through Carbon trading scheme establishment can emit carbon as per permitted limit and if the limit is not used then it can trade the unused limits. Income tax act allows a concessionary tax rate on the income earned on such trade under section 115BBG, Income Tax Act, 1961.

In the second stage, establishments should use non-fossil sources, including Green Hydrogen, Green Ammonia, Biomass and Ethanol for less carbon emission which will gradually lead to zero carbon emission.

As The Energy Conservation (Amendment) Bill, 2022 was already passed by the Lok Sabha in India during August, 2022 which focuses on energy transition, favouring renewable energy sources and green hydrogen to promote energy efficiency and conservation that will help in controlling carbon emission. So, it is important for  establishments to focus on use of non-fossil sources, Green Hydrogen, Green Ammonia, Biomass and Ethanol for energy and feedstock” and establish Carbon Markets.

Conclusion: 

Carbon tax balances between economy and environment. Carbon tax accelerates the development of innovative business models around clean energy like solar powered automobiles. This tax is viewed as an essential policy tool to limit carbon emissions, and is considered as a social cost on carbon paying high prices for carbon-emitting goods to reduce demand for them. Some countries have already adopted this tax and discussions are ongoing in other countries. Government of India is yet to roll out the imposition of this tax in the country.  Carbon tax will help India to accomplish its goal towards environmental safety by reducing carbon emission and give more emphasis on cleaner products across jurisdiction. 

Ref: 

https://www.worldbank.org/en/programs/pricing-carbon

https://www.vox.com/future-perfect/2019/8/26/20833263/andrew-yang-climate-plan

https://www.epa.gov/ghgemissions/global-greenhouse-gas-emissions-data

https://www.nrdc.org/experts/anjali-jaiswal/climate-action-all-eyes-india

Thank you

"Be Aware"