Revenue Neutral Carbon Tax for India (was: The Truth About Energy Efficiency Mission)

[Manu Sharma]

Dear Soumya,

As we move the discussion from rebound effect to carbon tax, I'm making it a new thread. (For benefit of other members who view this post on the web, the message I'm responding to is available here)

You wrote:

carbon taxation will lead to the economically disadvantaged paying for mitigation as well as those that are economically advantaged

Not at all. You see, since this tax will be revenue-neutral (govt. doesn't keep anything, the entire amount is distributed back to people divided equally among them), the economically disadvantaged will actually *benefit* from it. 

Here's how. Let's say the govt. collects 6 lakh crore in carbon tax annually from the player who's most upstream in the fossil fuel supply chain (that would be oil refineries, oil importers and coal mining industries, for example). Since the revenue will be divided equally amongst the 120 crore population of India, the amount per person  -- Rs.5000 -- will be the same for the rich and the poor. 

Now we know that the rich are voracious consumer of energy while the poor don't consume a lot. So, if a rich person, let's say with 3 air conditioners in his house and 2 cars would have spent let's say Rs.30,000 extra annually in terms of increased energy costs due to carbon tax.  When he receives a cheque of Rs.5000, he would have lost of Rs.25000 and therefore would be encouraged to invest in energy efficiency and renewable energy

A poor person on the other hand who doesn't consume a lot of energy, uses public transport and lives with a fan or a cooler at most, would have spend let's say Rs.1000 on increased energy prices annually. So when he gets a check or coupon of Rs.5000 -- he has a profit of Rs.4000.  

A revenue neutral carbon tax therefore is an elegant, effective and transparent mechanism. Far superior to the convoluted and complex PAT scheme of BEE. The govt of course doesn't like carbon tax because it will hurt industry. That said, provisions can be incorporated to phase it in slowly and or to protect the industry. Sweden has had a carbon tax since 1991 and last year registered a 7% growth rate!

Thanks,

Manu

On Thu, Nov 24, 2011 at 3:29 PM, soumyabrata rahut <soumyabr...@gmail.com> wrote:

Dear Manu 

I dont know if this is the right thread as it started off with the BEE NMEEE discussion however as this is turning out to be very informative to me I will throw in another idea.

Even though I do agree to a carbon tax (pigovian tax) as a general principle I would like to point out that a non stratified carbon taxation will lead to the economically disadvantaged paying for mitigation as well as those that are economically advantaged. Given that energy forms a larger share of expenditure of those that are economically disadvantaged (NSSO data) this might mean that the inequality energy or otherwise in the system will increase.

as an example: putting a carbon tax on coal fired thermal power plants will mean an increase in the price of electricity across the board. This increase while miniscule for a certain economic class could have massive impacts for those economically disadvantaged. 

maybe some consumption based taxation ? (telescopic electricity tariff) though the mechanism of implementation outside of electricity could be very hard to set up as consumption would not be at one point or metered.

do let me know if I am straying far too outside the thread topic.

Regards

2011/11/24 Manu Sharma <orang...@gmail.com>

Dear Soumyabrata,

Several other experts in the links I cited -- including this one by Dr. Jim Barrett, formerly senior economist on the Congressional Joint Economic Committee and now Chief Economist at the Clean Economy Development Center -- argue that the rebound effect is not significant. So yes, one can attempt to quantify it but I'm not sure if it will be a very meaningful exercise.

At Climate Revolution, amongst the key climate mitigation approaches we recommend is a revenue-neutral carbon tax which increases gradually over a period. One of the multiple benefits of that approach is that it addresses rebound effect to some extent as it ensures price of fossil fuel powered energy keeps increasing with time. 

The premise is that when one knows a resource will be premium in future, one will consume less of it even if greater efficiency allows us to have it in greater quantity.

So policy can tackle it indirectly but I don't think any direct intervention is needed.

Thanks,

Manu

On Thu, Nov 24, 2011 at 1:16 PM, soumyabrata rahut <soumyabr...@gmail.com> wrote:

 

how to quantify it so that it might be possible to provide true economic cost to efficiency measures.

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[soumyabrata rahut]

Dear Mnau 

This does seem to make a lot sense. Infact it would be great to read any analysis that you might have come across on this issue.

warm regards

soumyabrata

[Manu Sharma]

There's a lot of peer-reviewed  literature on carbon tax in general but I've gained much of my understanding about how it works from Carbon Tax Center (CTC) run by Charles Komanoff and Daniel Rosenblum and news reports on the topic. 

CTC website includes a section of supporters of carbon tax including scientists and economists (some noble award winning). So you can look up papers and reports by the names that resonate with you. 

Thanks,

Manu

[Sanjay Arora]

Manu

On 24/11/11 4:01 PM, Manu Sharma wrote:
>
> Here's how. Let's say the govt. collects 6 lakh crore in carbon tax
> annually from the player who's most upstream in the fossil fuel supply
> chain (that would be oil refineries, oil importers and coal mining
> industries, for example). Since the revenue will be divided equally
> amongst the 120 crore population of India, the amount per person --
> Rs.5000 -- will be the same for the rich and the poor.
>
> Now we know that the rich are voracious consumer of energy while the
> poor don't consume a lot. So, if a rich person, let's say with 3 air
> conditioners in his house and 2 cars would have spent let's say
> Rs.30,000 extra annually in terms of increased energy costs due to
> carbon tax. When he receives a cheque of Rs.5000, he would have lost
> of Rs.25000 and therefore would be encouraged to invest in energy
> efficiency and renewable energy
>
> A poor person on the other hand who doesn't consume a lot of
> energy, uses public transport and lives with a fan or a cooler at
> most, would have spend let's say Rs.1000 on increased energy prices
> annually. So when he gets a check or coupon of Rs.5000 -- he has a
> profit of Rs.4000.

Not bad at all ;-))

But to expand my understanding of this....where does industry hurt in
this ?....redistribution of money in the economy is still just
reallocation....spending will go on after re-adjustment and industry
should not be affected.

But...your illustration make carbon tax generation & allocation clear
within a country....but what about inter-country mappings....major
problems in the world are still astronomical carbon consumption in the
developed world vis-a-vie the developing world! Does Carbon Tax proposal
have something that would distribute carbon tax generated out of
developed world to the developing world.....similar to your illustration
above? Carbon Credits IMHO, are a faulty mechanism and prone to
manipulation & causative of non-economically viable projects (projects
that become viable only with value of carbon credits capitalized as some
sort of viability gap funding). Does the Carbon Tax proposal have
something better to offer?

With best regards and looking forward to a better understanding.
Sanjay.

[Manu Sharma]

Sanjay Arora wrote:

But to expand my understanding of this....where does industry hurt in this ?....redistribution of money in the economy is still just reallocation....spending will go on after re-adjustment and industry should not be affected.

Carbon tax will affect industry through increased energy prices that will raise input costs and transportation costs leading to more expensive goods and services. This will lead to an overall slowdown of industrial growth in the short term as industry adopts energy efficiency and moves to cleaner sources of energy. Although if carbon tax is gradually phased in, this slowdown can be averted or minimised to a large extent. Which is why it's important to start early and gradually increase the price.

Also, as I said in the original thread, provisions can be made to protect the industry. Sweden for example provided exemption to power generation sector when they instituted a carbon tax but provided a separate electricity tax for residential consumers. Manufacturing industry was also provided 50% rebate in carbon tax on other fossil fuels.

 

But...your illustration make carbon tax generation & allocation clear within a country....but what about inter-country mappings....major problems in the world are still astronomical carbon consumption in the developed world

Correct. Carbon tax is only a market based mechanism -- whether it is instituted domestically or internationally is a matter of implementation. What I argue is, if India unilaterally adopts serious climate mitigation measure such as a carbon tax, it will change the dynamics of international emission reduction negotiation process. With India in the lead, there will be enormous pressure on China and other developing and developed nations to pledge similarly aggressive mitigation measures. 

Thanks,

Manu

_____________

Manu Sharma

Climate Revolution Initiative

http://climaterevolution.net/

[mahesh shelar]

Manu wrote

With India in the lead, there will be enormous pressure on China and other developing and developed nations to pledge similarly aggressive mitigation measures

   two recent articles in EPW one by praful bidwai cite india shying away from aggressive mitigation measures and toeing the USA line.developing countries and even other BASIC Countries seemto have taken a more aggressive posture

what is most worrying aspect is the concluding lines of Bidwai's article

At 4

0C, say some scientists, only one-tenth of the world’s population will survive.

Durban has made that terrifying result likelier

Mahesh

 

Prof Mahesh Shelar
M.Tech Energy Systems Engg
Certified Energy Auditor
Department of Mechanical Engg
KKW Institute of Engg Education and Research
NASHIK
9822052351

From: Manu Sharma <orang...@gmail.com>
To: green...@googlegroups.com
Sent: Wednesday, 28 December 2011 12:58 PM
Subject: Re: [Green-India] Revenue Neutral Carbon Tax for India (was: The Truth About Energy Efficiency Mission)

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