While carbon pricing is considered an effective policy tool to curb carbon emissions and transition to cleaner sources of energy, there are several economic and social challenges associated with its implementation in the Indian context. Do the perceived challenges outweigh the environmental benefits of carbon pricing in India? Examine.

Carbon pricing aims to internalize the negative externalities of carbon emissions by imposing a price on goods based on their carbon footprint. This creates an incentive for industries and consumers to switch to lower-carbon alternatives. However, in India, carbon pricing is opposed on the grounds that it will increase production costs, reduce competitiveness of domestic industries, and impact lower income groups the most.

  • The benefits of carbon pricing are diffuse as the impacts of climate change are long-term while costs are concentrated in the short-run on carbon-intensive sectors.
  • There are concerns over how carbon tax revenue will be utilized given past experiences of revenue from other environmental taxes remaining unutilized.
  • Carbon pricing changes the status quo and creates winners and losers, with carbon-intensive industries lobbying against it

While these are valid economic and political challenges, the environmental benefits of carbon pricing cannot be ignored. According to the UN Environment Programme, unchecked carbon emissions put India at high risk of facing losses of over 10% of its GDP by 2100. Pricing carbon can help drive the estimated $223 billion annual investment needed for India’s climate targets. With proper revenue recycling mechanisms and public awareness, carbon pricing’s economic impacts can be mitigated while still incentivizing emission reductions. Therefore, on balance, the environmental benefits likely outweigh the economic challenges in the long-run.”


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