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Exploring a Design of Carbon Tax for Coal- and Lignite-Based Thermal Power Sector in India

Author

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  • Sacchidananda Mukherjee

Abstract

According to India’s ‘Third Biennial Update Report to the United Nations Framework Convention on Climate Change’, electricity production contributes half of India’s total carbon dioxide (CO 2 ) emission (without land use, land-use change and forestry [LULUCF]) and 40% of CO 2e (CO 2 equivalent) emission in 2016. Coal- and lignite-based thermal power sector is the predominant source of electricity generation in India, and it contributes 74% in 2019–2020. In the 26th Conference of the Parties (COP26), India has committed to achieve net zero (in CO 2e emission) target by 2070. Therefore, any strategy to reduce the total CO 2e emission in India cannot spare emission reductions from coal- and lignite-based thermal power plants (TPPs). To accelerate achieving India’s emission intensity reduction target to 45%, we explore a design of carbon tax for coal- and lignite-based TPPs. Given the constraints involved in designing carbon tax based on cost-benefit analysis as well as integrated assessment models, we estimate a revenue neutral rate of tax on CO 2e emission by converting taxes on coal and lignite. Our carbon tax proposal sets the floor (minimum) rate, and it requires regular upward revisions to induce TPPs to take action. To reduce disruptions in tax administrations, we propose adjustments of input tax credits with carbon tax liability. JEL Classification: H23, Q54, Q4, P43

Suggested Citation

  • Sacchidananda Mukherjee, 2022. "Exploring a Design of Carbon Tax for Coal- and Lignite-Based Thermal Power Sector in India," Review of Market Integration, India Development Foundation, vol. 14(2-3), pages 83-112, August.
    • Handle: RePEc:sae:revmar:v:14:y:2022:i:2-3:p:83-112
    DOI: 10.1177/09749292221103916
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    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • P43 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Finance; Public Finance

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