The increase in energy prices is a politically sensitive issue which can invite critics as being hard on common man and affecting economic growth, the Kirit Parikh committee report on ‘Viable and Sustainable System of Pricing of Petroleum Products’ invited criticism as worse for the aam admi .

During the eleventh plan period, Indian economy grew at 7.9 per cent, and certainly at some environmental costs. The environmental performance index in India ranked 127 in 2011 and the environmental quality is degraded in many urban and industrial areas, with biodiversity loss, ground water depletion and such associated impacts.

India has no obligation to cut carbon emissions as per Kyoto protocol, however is required to promote development in a low carbon and environmentally sustainable manner and the National Environmental Policy envisages the same.

India’s carbon emission has risen from 0.98 billion tonnes per annum in 1991 to 2.01 billion tonnes per annum in 2011, almost doubling the base level emission, and with the targeted economic growth, environmental degradation and carbon emissions are likely to increase manifold, economic models predict emissions close to 3.5 billion tonnes by 2030 (World Energy Outlook, 2012) High population and real economic growth rates involving high energy consumption specially from oil and coal is likely to have higher carbon emission in India.

In addition to environmental degradation, climate change is fast becoming a threat to development, while still the exact threats, mitigation and adaptation costs of climate change are debated, there is ample scientific evidence on India being highly vulnerable country to impacts of climate change and certainly requires active mitigation and adaptation plans.

The UK government produced research on ‘Economics of climate change’ , authored by former world bank chief economist Lord Nicolas Stern, highlights three important aspects, one is if we don’t act now, the overall costs and risks of climate change will be equivalent to losing at least 5 per cent of global GDP each year, now and forever with higher costs for developing nations, secondly there is greater link between climate-change policies and economic and environmental objectives and thirdly on the need for increasing the price of carbon emissions.

Economic growth

Energy is critical for economic growth, and is a scarce resource in India. The per capita energy consumption in India is less than 800 Kilo Watt hour, compared to the global average of nearly 2782 KWh.

The per capita energy consumption is usually taken as an indicator of economic growth, though the per capita energy consumption in India has grown from 15 KWh in 1959 to 779 KWh in 2010, and there is a large gap in the demand and supply with a wider gap in rural electrification.

About 80 per cent of energy comes from burning of fossil fuel and it is unlikely that this scenario gets changed in coming years, as a shift to renewable energy and clean technology will require higher investment costs, the Prime Minister recently said that the Government aims at doubling the renewable energy production in India by 2017.

Carbon Tax and Tradable Carbon Emission Permits as the key points in the efforts towards global climate change mitigation. Carbon tax is tax on the proportion of carbon content in the fossil fuel, A ton of coal contains 0.65 tons of carbon, so a $1 per ton carbon tax would translate into a tax of $0.65 per ton of coal.

A few studies have argued that Cap and Trade mechanism is a better study for India than putting a carbon tax and some studies have pointed out a need for a global uniform carbon tax.

A recent economic survey has warned that a carbon tax of $10 per tonne of greenhouse gas emissions could cause a GDP loss of more than $600 billion, and the way forward for domestic environment financing must come from a mix of market mechanisms, fiscal instruments and regulatory interventions.

During the first period of the Kyoto protocol, India was a leading CDM (Clean Development Mechanism) beneficiary next only to China, over 470 projects registered with Certified Emission Reduction close to 17 million tonnes 5, with almost 85 percent of CER coming from Energy industry on both renewable energy projects and on improving efficiency in non renewable energy sector.

This not only provided financial benefits close to US$ 300 million at the rate of 15 US $ per tonne of emission reduction but also provided scope for energy efficiency and increasing the share of renewable energy .

However with the uncertainty looming around the CDM sector and the tough global negotiations on the second commitment period of the Kyoto protocol, India clearly needs to find its own efforts towards promoting energy efficiency and in investment in renewable energy.

Though voluntary measures on mitigation and adaptation like the eight National Missions or Action Plans on Climate Change (NAPCC) was started, more such actions are required. To successfully implement NAPCC and to promote development in a low carbon and environmentally sustainable manner, large scale investments will be required, especially in the energy sector; Energy efficiency, renewable energy and clean technology in non renewable energy sector. To manage this huge investment, domestic funds will clearly be required.

A few studies also recommends that participation in the tradable emission permits regime will open up an opportunity for India to sell surplus permits. Though Carbon tax is itself not a direct solution which can cut down emissions, it forms a supportive solution for investment in carbon-abating technologies that can promote environmentally sustainable development, which is critically important for India.

Economic surveys in India warns on high GDP loss if Carbon Tax is imposed, and there is no clear scientific study specific to India on GDP losses due to Climate Change impacts, and the estimate of Stern Review pegs it at 3 per cent per annum.

Thus without considerable evaluation of both the losses the option of Carbon Taxes should not be ignored, and with no serious commitment on the second Kyoto period or Global Green Climate Fund, the revenue from Carbon Tax may provide a better solution for investment in clean energy and low carbon development.