India would need to spend at least $2.5 trillion between 2015 and 2030 on mitigation activities to meet targets as part of its Intended Nationally Determined Contribution (INDC) submission to the United Nations Framework Convention on Climate Change (UNFCCC).
To achieve the INDC of reducing the emissions intensity of its GDP by 33 to 35 per cent by 2030 from the 2005 level, India has said it will bank on fiscal measures including fuel subsidy cuts and increased taxes on fossil fuels including diesel and petrol.
The Modi government’s policy of duty increases that are an implicit carbon tax of $140 for petrol and $64 for diesel in absolute terms will help India achieve a net reduction of 11 million tonnes of CO emissions in less than a year.
Over the past one year, India has almost cut its petroleum subsidy by about 26 per cent, according to the 38-page document. This, it said, is substantially above what is now considered a reasonable initial tax on CO emissions of $25- $35 per tonne. “The subsidies cuts and increased taxes on fossil fuels have turned a carbon subsidy regime into one of carbon taxation.”
India is experimenting, said the submission, with a careful mix of market mechanisms together with fiscal instruments and regulatory interventions to mobilise finances for climate change.
Cess on coal One of the dedicated funds at the national level for meeting the costs of mitigation is the cess on coal. In 2010, the cess was imposed at the rate of Rs.50 ($0.8) per tonne of coal and has been quadrupled to Rs.200 ($ 3.2) per tonne of coal. The coal cess translates into a carbon tax equivalent, using the emission factor for coal, of about $2 per tonne. This forms the corpus for the National Clean Environment Fund -- used for financing clean energy, technologies, and projects related to it.
The total cess collection, of Rs.17,084 crore ($2.7 billion) till 2014-15, is being used for 46 clean energy projects worth Rs.16,511 crore ($2.6 billion).
Tax-free infrastructure bonds of Rs.5,000 crore ($794 million) are also being introduced for funding of renewable energy projects during the year 2015-16, India said.
Forestry sector Also included in the submission is the 14th Finance Commission recommendation on incentives for forestry sector that has based the devolution of funds to states from the federal pool of taxes on a formula that attaches 7.5 per cent weight to the area under forest. According to the estimations based on 14th Finance Commission data, the initiative provides afforestation a boost by conditioning about $6.9 billion of transfers to the states based on their forest cover, which is projected to increase up to $12 billion by 2019-20. “Implicitly, India is going to transfer to states roughly about $174 per hectare of forest per year which compares very favourably with other afforested countries,” the INDC document said.
