Monday, September 07, 2015

Arvind Subramaniam: Global response to falling fossil fuel prices

In a larger article on India's policies on climate change, this stuck out -- no wonder the Indian Government has cracked down on Greenpeace!

The cause of climate change has suffered a setback recently because of the large (about 35-40 per cent) decline in international energy prices. But that setback need not have occurred had governments taken offsetting actions to impose taxes on petroleum products. How have the major governments fared on this score? The chart highlights a striking difference between the responses of advanced countries and those of India. The former have reduced taxes while India has increased them substantially. Essentially, advanced countries have stood by passively, passing on the benefits of price reductions to consumers and producers.

One surprise is the lack of outrage by international greens at this non-action on the part of advanced countries.

Subramaniam notes:

First, reflecting the developments noted in the chart, the government increased the excise duty on petrol and diesel, passing on only about one-third of the benefit of declining prices to consumers. As a result, on petroleum products, India has moved from a carbon subsidisation regime to one of significant carbon taxation — from a negative price to a positive price on carbon emissions. And the shift has been large.

For example, according to calculations done for the Economic Survey by Muthukumar Mani and Fang Zhang of the World Bank, the effect of the recent action has increased the carbon tax by nearly $60 per tonne of CO2 in the case of petrol and nearly $42 per tonne in the case of diesel.

In absolute terms, the implicit carbon tax ($140 for petrol and $64 for diesel) is substantially above what is now considered a reasonable initial tax on CO2 emissions of $25 per tonne.


Second, the coal cess has quadrupled from Rs 50 per tonne to Rs 200 per tonne. This has resulted in an implicit carbon tax of $2 per tonne of CO2 on domestic coal, and a carbon tax of $1.4 per tonne of CO2 on imported coal. This may, of course, still not be enough, and cleaning coal may require more domestic action by way of stricter regulation and enforcement.

There's more there, on afforestation, solar power, HFCs, and on internal political pressures -- read the article!