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Govt tells TERI to study carbon tax

The government will commission a study to examine the possibility of a “carbon tax” to reduce emission of carbon dioxide, particularly by industries using fossil fuels, reports Gaurav Choudhury.

business Updated: Jun 20, 2007 10:56 IST
Gaurav Choudhury

The government will commission a study to examine the possibility of a “carbon tax” to reduce emission of carbon dioxide, particularly by industries using fossil fuels.

Sources who did not wish to be identified said the government was in the process of commissioning a study by energy research institute TERI on the possibility of levying a carbon tax or a pollution tax.

The issue was discussed during the meeting of the Investment Commission headed by Tata group Chairman Ratan Tata with Finance Minister P. Chidambaram last month.

A committee headed by the government’s Principal Scientific Adviser R Chidambaram is also undertaking a study on the impact of climate change. This committee will also identify measures that India may have to take in future on emissions.

Sources said in the meeting with the finance minister members of the Investment Commission raised the issue of global concerns on emissions and the possibility of a “carbon tax”.

“The commission members said this was important with respect to India’s dependence on coal-based power projects and suggested that effective measures should be taken to address the consequential incremental emissions,” sources said.

A carbon tax is levied on polluting industries to act as a disincentive against less fuel-efficient technologies. Sweden, Finland, the Netherlands, Norway and New Zealand are among the countries that have a carbon tax.

While a carbon tax is a disincentive, carbon credits are incentives where companies can earn by trading “credits” for using clean development mechanisms as defined by the Kyoto Protocol. Till March this year, the Centre had approved 550 projects complying with the Kyoto Protocol to earn carbon credits, and above 300 more are awaiting approval.

Leading the charge is the sugar industry followed by units in non-conventional energy, fertilizer and cement.

The Kyoto Protocol lists specific mechanisms to tackle emission reductions. These include an international “emissions trading” regime that enables developed countries to buy and sell emission credits and co-operate in projects under a system of joint implementation where one country can finance emission reductions in another.

The United Nations Framework for Climate Change Convention (UNFCCC) has put in place the rules and the required apparatus. Authorised agencies certify the reduction in carbon emission through a particular technology or project in terms of “units.” The price of carbon is set per tonne and determined by market forces.