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

Author

Listed:
  • Mukherjee, Sacchidananda

    (National Institute of Public Finance and Policy)

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 (CO2) emission (without LULUCF) and 40 per cent of CO2e (CO2 equivalent) emission in 2016. Coal and lignite based thermal power sector is the predominant source of electricity generation in India and contributes 74 per cent in 2019-20. In COP26, India has committed to achieve net-zero (in CO2e emission) target by 2070. Therefore, any strategy to reduce total CO2e 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 per cent, we explore a design of carbon tax for coal and lignite based TPPs. Given the constraints involved to design a carbon tax based on Pigouvian tradition, we estimate a revenue neutral rate of tax on CO2e emission by converting taxes on coal and lignite. To make the proposed carbon tax system less disrupting for tax administrations, we propose adjustments of input tax credits with carbon tax liability. The proposed carbon tax will be incentive-compatible, as carbon efficient TPPs will face lower carbon tax burden.

Suggested Citation

  • Mukherjee, Sacchidananda, 2022. "Exploring a Design of Carbon Tax for Coal and Lignite based Thermal Power Sector in India," Working Papers 22/382, National Institute of Public Finance and Policy.
    • Handle: RePEc:npf:wpaper:22/382
    Note: Working Paper 382, 2022
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    References listed on IDEAS

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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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