OECD: India's Carbon Dossier Unveiled

Carbon Pricing
Carbon PricingImage Source: Oreaco

Synopsis:

In the labyrinth of India's emissions landscape, an OECD study reveals that 54.7% of greenhouse gas emissions bear an implicit carbon price, largely due to fuel excise taxes. Despite lacking an explicit carbon tax, India demonstrates a nuanced approach to carbon pricing. Fossil fuel subsidies cover a minor 2.5%. The study examines the evolution of effective carbon rates, shedding light on currency fluctuations and their impact on carbon pricing trends.

 

Article:

Delving into India's carbon pricing dynamics unveils a nuanced landscape where over half of the country's greenhouse gas (GHG) emissions, precisely 54.7%, are subjected to a positive Net Effective Carbon Rate (ECR). This intriguing revelation, unchanged since 2018, underscores India's implicit carbon pricing strategy.

Unlike nations with explicit carbon taxes, India relies on indirect measures. Notably, fuel excise taxes emerge as the linchpin, encapsulating 54.7% of emissions in 2021, maintaining a steady trajectory since 2018. In essence, a substantial portion of India's carbon footprint carries an embedded price tag, subtly steering the emissions landscape.

Fossil fuel subsidies play a contrasting role, covering a mere 2.5% of emissions in 2021. This figure remains unchanged over the examined period from 2018, signifying a relatively minor influence on India's carbon pricing structure.

Examining the evolution of effective carbon rates from 2018 to 2021 reveals intriguing shifts. Fuel excise taxes, representing an implicit carbon price, witnessed an average increase to EUR 13.16 in 2021, marking a notable rise of EUR 3.48 (36%) since 2018. In contrast, fossil fuel subsidies experienced a substantial reduction, dwindling to an average of EUR 0.17 per tonne of CO2e—a staggering 89.5% decrease from 2018.

The study delves into the economic nuances impacting India's carbon pricing scenario. Exchange rate fluctuations and inflation have played pivotal roles in shaping the trajectory of carbon prices. When measured in real 2021 euros, the average Net ECR on GHG emissions has surged by 60.9% since 2018. This upward trend is even more pronounced in real Indian rupees (INR), witnessing a remarkable 743% increase, attributed in part to the INR's depreciation against the euro between 2018 and 2021.

The distribution of effective carbon prices across GHG emissions in 2021 provides a snapshot of the carbon cost landscape. Less than 8.2% of GHG emissions carry a Net ECR surpassing EUR 60 per tonne of CO2e, offering a mid-range estimate of current carbon costs. This insight nuances the carbon pricing debate, showcasing the variability in pricing across different emission sectors.

Zooming into specific sectors, the road transport sector emerges as a focal point, accounting for 8% of the country's total GHG emissions with the highest Net ECR. In contrast, the buildings, agriculture & fisheries, and other GHG emissions sectors depict a Net ECR of zero or even negative values, collectively constituting 36.2% of GHG emissions. These divergent sectoral dynamics underscore the need for a targeted and sector-specific approach to carbon pricing in India.

Conclusion:

India's carbon pricing narrative unfolds as a tapestry of implicit strategies, with fuel excise taxes taking center stage in the absence of explicit carbon levies. The steady trajectory of emissions under a positive Net ECR since 2018 signifies a stable, albeit indirect, approach to carbon pricing. Currency fluctuations and sector-specific nuances further shape this intricate landscape, showcasing the multifaceted nature of India's journey towards carbon neutrality.

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