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How India’s Carbon Tax Implementation Could Set a Precedent for G20 Countries

How India’s Carbon Tax Implementation Could Set a Precedent for G20 Countries

Climate change is one of the biggest global challenges of the 21st century. The increasing concentration of greenhouse gases in the atmosphere, primarily carbon dioxide (CO2), has led to a rapid rise in global temperatures, with devastating consequences on urban settlements and ecosystems across the world brought about by extreme weather conditions and rising sea levels. A carbon tax implementation has emerged as a viable solution to reduce carbon emissions, which can be further used to fund climate mitigation measures. This article delves into the importance of India’s carbon tax implementation and how it can set an example for other G20 countries.

What Is a Carbon Tax?

A carbon tax is a tax imposed on the consumption or production of carbon-intensive fuels, such as coal, oil, and gas. The objective of this tax is to reduce carbon emissions by discouraging the use of these fuels. The tax rate is set based on the carbon content of the fuel, with a higher rate for fuels that produce more carbon dioxide (CO2). 

The revenue generated from this tax can be used to fund climate mitigation measures, such as renewable energy, public transport, and energy efficiency programs.

Carbon Tax by G20 Countries

The G20 is an international forum of 19 countries and the European Union, representing the world’s largest economies. Collectively, G20 members are responsible for 80% of global carbon emissions. Yet, only a few G20 countries have implemented carbon taxes and even those who have opted for relatively low taxes. For example, in 2019, Canada imposed a carbon tax of $20 USD per tonne of CO2 emissions, whereas France and Sweden imposed a tax of $133 and $124 per tonne of CO2 emissions, respectively. Other G20 countries, such as the United States, Australia, Japan, Russia, and Australia, have not yet implemented carbon taxes.

More on the topic here: What Countries Have A Carbon Tax?

What Would India’s Carbon Tax Implementation Mean?f

India is the third-largest emitter of CO2, after China and the United States. The country’s carbon emissions are projected to increase by 50% by 2030, primarily due to the growing demand for electricity and transportation. Therefore, India’s efforts and contribution to reducing global carbon emissions are a crucial step in the fight against global warming. 

India has already implemented several policies and initiatives to reduce carbon emissions, such as the National Action Plan on Climate Change, the National Solar Mission, and the Clean Energy Fund. However, these policies and initiatives are not enough to meet India’s target of reducing the carbon intensity of its GDP by 33-35% by 2030. Therefore, a carbon tax implementation can provide the much-needed push to meet this goal. Moreover, by implementing a carbon tax, the country has a unique opportunity to set an example for other G20 countries. India’s carbon tax rate is currently among the lowest in the world, at just US$1.6 per tonne of CO2 emissions. By increasing this tax rate, India can not only reduce its carbon emissions but also set an example for other G20 countries.

The revenue generated from this tax, which inevitably leads the creation of new jobs in the renewable energy sector, not only generates an economic boost but they can also be used to fund climate mitigation measures, such as renewable energy, public transport, and energy efficiency programmes.

You might also like: Carbon Tax Pros and Cons: Is Carbon Pricing the Right Policy to Implement?

Challenges in India’s Carbon Tax Implementation 

The implementation of a carbon tax is a crucial step towards achieving the goal of limiting global warming to 1.5C. However, it is not without its challenges, especially in developing countries like India.

One of the main obstacles to implementing a carbon tax in India is the potential impact on the economy. India is still a developing country, and any policy that affects the economy must be implemented with care. A carbon tax would increase the cost of production for industries, which could lead to higher prices for consumers. Additionally, India is heavily reliant on coal for electricity generation, which would be directly affected by a carbon tax.

Another challenge is the lack of accurate data on carbon emissions. India’s economy is highly fragmented, with a large number of small and medium enterprises (SMEs) that may not have the resources or expertise to accurately measure their emissions. This makes it difficult to design a carbon tax that is effective and equitable.

There is also the issue of revenue distribution. If the carbon tax is implemented, the revenue generated will need to be distributed fairly. This is especially important in a country like India, where there is a significant wealth gap. The revenue generated could be used to fund climate change mitigation and adaptation measures or could be used to provide social welfare programs.

india; indian streets; indian people; street market india

India is the second-most populous country in the world and the third largest polluter, behind only China and the US.

Despite these challenges, there are compelling reasons for India to implement a carbon tax. The revenues generated could be used to fund renewable energy projects, energy efficiency programs, and sustainable transportation initiatives. A carbon tax would also encourage industries to adopt cleaner technologies and reduce their carbon footprint, which could lead to economic and environmental benefits in the long run. Moreover, implementing a carbon tax in India would send a strong signal to other developing countries that taking action on climate change is essential. It would also set an example for other G20 countries to follow, highlighting the importance of international cooperation in reducing emissions.

While there are challenges in implementing a carbon tax in India, there are also significant benefits. It is essential that policymakers carefully consider the impacts of the policy and work to ensure that it is implemented in a way that is equitable and effective. By doing so, India can play a critical role in the global fight against climate change.

How Can Carbon Tax Be Implemented in India?

One of the main reasons why India has not yet implemented a carbon tax is the fear of adverse effects on the country’s economic growth. However, many experts argue that a well-designed carbon tax policy can help mitigate climate change while also promoting economic growth.

A crucial aspect of implementing a successful carbon tax policy in India is determining an appropriate tax rate.

According to the World Bank, a carbon tax of $40 per tonne of CO2 could reduce emissions by up to 1.7 billion tonnes by 2030, which is equivalent to 30% of India’s projected emissions. This tax rate would also generate significant revenue for the government, which could be used to support clean energy development and climate adaptation measures.

Another critical aspect is ensuring that the carbon tax policy is equitable and does not disproportionately affect low-income households. One way to achieve this is by using revenue from the carbon tax to provide subsidies for low-income households to offset any increases in energy costs. Additionally, the tax revenue could be used to support clean energy development in rural areas, which would create new job opportunities and reduce energy poverty.

One significant challenge in implementing a carbon tax policy in India is the country’s complex tax system, which has multiple layers of taxes and levies. This complexity could lead to administrative difficulties and increase compliance costs. However, many experts argue that simplifying the tax system could help address this challenge. The government could consider integrating the carbon tax into existing tax regimes, such as the Goods and Services Tax (GST), to streamline the process and reduce compliance costs.

Furthermore, it is crucial to ensure that the carbon tax policy is implemented transparently, with clear guidelines and procedures. This transparency would help build trust and credibility with stakeholders and reduce the likelihood of corruption and mismanagement.

India’s current political climate is also favourable for implementing a carbon tax policy. The country’s ambitious renewable energy targets, coupled with the government’s commitment to reducing greenhouse gas emissions under the Paris Agreement, provide a strong foundation for implementing a carbon tax.


A carbon tax is a vital tool for mitigating climate change and promoting sustainable development. It is also an effective way to generate revenue, incentivise cleaner technologies, and enhance a country’s international competitiveness. 

As a member of the G20, India has a critical role to play in implementing carbon pricing mechanisms, a move that could significantly reduce the country’s carbon emissions while also promoting economic growth and social equity, and thus setting an example for other countries to follow.

The government must consider the various challenges and opportunities in designing and implementing a carbon tax policy, including determining an appropriate tax rate, ensuring equity, simplifying the tax system, and ensuring transparency. A successful carbon tax policy in India could serve as a model for other countries and demonstrate the country’s commitment to addressing climate change.

By implementing a carbon tax, India can show its commitment to reducing greenhouse gas emissions and contributing to the global effort to combat climate change. It can also generate revenue to fund public goods and services, incentivise companies to innovate and adopt cleaner technologies, and enhance India’s international competitiveness. It is time for India to take bold action and join the growing list of countries that have implemented carbon pricing mechanisms.

You might also like: 5 Biggest Environmental Issues in India in 2023

Tagged: carbon tax G20 India

About the Author

Prof. Mohammed Khaja Qutubuddin

Professor Mohammed Khaja Qutubuddin is a faculty member at ICBM SBE in Hyderabad, India, where he has been teaching postgraduate students about Sustainability and Business Ethics for 15 years. Through his extensive experience in teaching, he has gained a deep understanding of the crucial role that sustainability and ethical behaviour play in modern business practices. He is passionate about educating his students on the importance of environmentally sustainable business practices, as well as the ethical considerations that must be taken into account in decision-making. His expertise in these areas has made him a valuable resource for companies seeking to implement more responsible business practices. Overall, his commitment to sustainability and ethics in business has made him a respected authority in his field.

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