Can Carbon Tax Ensure a Cleaner Greener Future?

Author – Suhail Chaturvedi

Canada has introduced a novel carbon tax on fossil fuels last week. Prime Minister Justin Trudeau announced a national carbon tax, starting at CAD10 ($8) per ton in 2018, which would rise to CAD50 by 2022. Media has been raving about this novel plan, while experts are poring over the details. Can a developing country like India introduce a similar tax on carbon? Our inhouse expert Suhail Chaturvedi explains…

The Canadian carbon tax is still being intensely debated in various business forums, since the price on carbon emissions changes across cities and states. The challenge for India is to create a similar carbon tax and implement policies for the formulation of various agencies to monitor and measure the implementation.

By definition, carbon tax, green tax, clean energy cess are different names of similar initiatives that put a price on carbon loaded fossil fuels from extraction to consumption. However, the most important aspect in this front is the direction taken by the largest stakeholder – the Government. Stability and consistency in policy formation remain the biggest concerns.

All the carbon and climate change initiatives in India are still in a voluntary phase. Private and public enterprises have not been pressurized enough to follow mitigation mechanisms as per mandatory compliance which would have penalized them for non-implementation.

The typical Indian business mindset is to procrastinate on law compliance until it becomes mandatory or is enforced vigorously. This is a major cause for lack of vigor among business segments towards undertaking climate change emission mitigation initiatives.

This lack of interest from the business sector diminishes the rate of return, since there are no buyers for clean technologies and applications available for emission mitigation. The gestation period for any sustainable solution company from interest to final order is around 2 years or more. Such a delay in the conversion of initial interest to a work order results in many startups to fold up even before they are able to prove the feasibility of their innovation.

Banks and financial institutions also need to support the cause of environmental impact mitigation technologies. In the recent ‘India Greenhouse Gas Program’ hosted by World Resources Institute, the panelists discussed the gap between the available funds and the cost of clean technologies and solutions for climate change mitigation.

Currently, the financial viability of most sustainability startups and clean technology companies are not quite appealing to financial institutions due to their paltry revenues. Hence, banks are often reluctant to walk that path of uncertainty and risk their money for a noble cause. They find as history seems to prove time and again to risk with high net worth individuals/companies of not to green repayment records ending up in increasing the amount of loans under NPAs.

Further, the political game of thrones being played at both local to central levels regarding carbon-based taxation is also a big deterrent against a sustained effort for climate change mitigation. In India, all the funds collected from the current Cess for Swachh Bharat and Kisan Krishi Vikas are handled by the central government under one single account. The government decides where to use these funds and under what priority. This creates more questions about their proper utilization despite the numerous assurances given by cabinet ministers.

Hence, the available solutions are long drawn but they can be made certain if there is a clear vision matched by mission-based milestones:

• There is a need for a committee with public and private members to decide the allocation of funds and set the priority on tasks at hand for climate change goals.
• Governments need to pass laws and ensure strict monitoring structures that do not get affected by politics at regional levels. Compliance should be made mandatory with increasing levels of penalties.
• Banks should set up Green Financing and Green Bonds with mandatory minimum targets for funding SMEs and incubation centers. Soft loans to be made available at lower interest rates for dovetailing existing setup with improved upgrades aimed at climate change mitigation. (monitored meticulously)
• Insurance companies should be involved as a stakeholder for handling green business risks in the ensuring soft loans are provided to the renewable energy industry.
• Industry leaders need to support startup innovation incubation centers for fostering new technologies and act as guarantors for project surety to lessen the financial risks.