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2023 | OriginalPaper | Chapter

17. Role of Fiscal Policy in Climate Change Mitigation in India

Author : U. Sankar

Published in: India’s Contemporary Macroeconomic Themes

Publisher: Springer Nature Singapore

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Abstract

There is no consensus on social cost of carbon or marginal abatement cost of greenhouse gases for climate change mitigation, even though greenhouse gases are a global public bad. Some countries use different values of social cost of carbon in deciding policies for climate change mitigation. Using National Action Plan on Climate Change (NAPCC) and nationally determined contributions (NDCs) under the Paris Agreement, India uses sector-specific policies for climate change mitigation. These policies are reviewed and we note that even though these policies helped in achieving the targets they do not raise revenue and may not minimize the aggregate mitigation cost. As 61 countries have adopted carbon tax system or emission trading system, as there are doubts about achieving emission reduction to achieve the 1.5 °C increase in average global temperature by using NDCs by 2030, and as some developed countries which have either carbon tax or emission trading demand border taxes on goods imported from countries which do not have carbon taxes or lower levels of carbon taxes, India may have to prepare for an introduction of the carbon tax system or emission trading system soon.

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Footnotes
1
Despite the recommendations of many committees and Finance Commissions, state governments continue to subsidize electricity in agriculture and a few other sectors. The subsidy burden is nearing Rs one lakh crore. The problem is that the Electricity Act 2003 Section 65 permits state governments to provide subsidies if states bear the subsidy burden.But many state governments do not reimburse the subsidy amounts to state electric utilities. As a result, the state electric utilities are facing financial difficulties.
 
2
The external costs include the costs of CO2, SO2, SPM, and coal ash. The coal cess is not sufficient to cover these external costs. However, the ideas that atmosphere is a global common and the historical responsibility of developed countries for global warming are not yet accepted.
 
3
At COP 27 meeting in Egypt on 20 November 2022, “loss and damage” due to climate change to poor countries was discussed and there was an agreement to create a compensation fund.
 
4
The global average temperature in 2022 is estimated to be 1.15° C above the 1850–1900 average. A UNFCCC (2022) article states that “the ambition of emission reduction pledges for 2030 needs to be seven times higher to be in line with the 1.5° C goal of the Paris Agreement”.
 
5
China launched its emission trading program in 2021. It is the largest carbon trading program in the world.
 
6
India has experience in operating emission trading systems for reducing SPM in Surat and PAT for energy-intensive industries. The plan to introduce the cap-and-trade system for reducing carbon emissions in Gujarat is a good beginning. For a discussion of issues in the design and implementation of a carbon tax system in India, see Sankar (2012) and Mukherjee (2022).
 
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Metadata
Title
Role of Fiscal Policy in Climate Change Mitigation in India
Author
U. Sankar
Copyright Year
2023
Publisher
Springer Nature Singapore
DOI
https://doi.org/10.1007/978-981-99-5728-6_17