Bengaluru: This year’s Economic Survey published by the finance ministry has a stark message: climate change can dent farm incomes by as much as 25% in rain-fed areas over the medium term. Given that roughly 50% of India’s workforce is employed in agriculture, this is a big risk factor.
Our ability to mitigate the impact of climate change depends partly on global action to fight climate change. But it also depends on what actions the government takes to fight climate change, and to invest in climate mitigation efforts.
India’s record so far has been a mixed one. Over the past few years, the government has been very successful in imposing new taxes ostensibly to protect the environment. But it has been lackadaisical in utilizing proceeds from such taxes for fighting climate change, an analysis of budget documents show. What makes matters worse is that the resources to fight climate change are under threat since most of these were in the form of fuel taxes. Given the rise in global oil prices and a possible political backlash against further rise in fuel prices, the headroom for the government to raise carbon taxes seems to have shrunk considerably.
Over the past few years, carbon taxes collected by the centre have seen a sharp increase. Such taxes, which penalize the use of fossil fuels and automobiles, are an effective weapon to fight climate change as the 2015-16 Economic Survey pointed out. Such taxes discourage carbon emissions even while raising revenues. The fall in global oil prices in mid-2014 allowed the government to raise carbon taxes such as “additional excise duty” on petrol and diesel, without a sharp rise in retail prices (see charts 1A and 1B).
As long as oil prices were low, consumers and voters were acquiescent. But the rise in prices threatens to undo those gains as it has made such additional duties and taxes ex¬tremely unpopular. After raising excise duty on petrol and diesel nine times since Nov¬ember 2014, the government was forced to cut back on such duties by Rs2 per litre in October last year. There is intense pressure on the finance ministry to cut such duties further.
The revenues raised so far through carbon taxes may thus have been a one-time bonanza for the government rather than a pivotal shift in energy-pricing policy. But even that windfall does not seem to have been well-utilized.
Government spending on environment and renewables has been consistently low, despite the twin bonanza of increased revenue from carbon taxes and reduced burden of petroleum-related subsidies. The actual spending of the renewable energy and environment ministries and that of the power ministry on energy conservation has been lower than budgeted over the past few years (see charts 3 and 4).
