Carbon Tax

By : Neha Dhyani

Updated : Apr 11, 2022, 14:19

Developing nations, including India, are anticipated to express their concerns over the European Union's (EU) recent attempt for the first-of-its-kind "Carbon Border Tax" during the recent G-20 ministerial conference on environment and climate change in Italy. The Carbon Tax scheme, which has yet to be officially formalized, might take effect in 2026.

"The world's co2 emissions from combustion of fossil fuels decreased by more than 1.6 billion metric tonnes in the first three quarters of 2020 from the very same period in 2019, a downward revision of 6.3%," according to the Carbon Monitor.

What is Carbon Tax?

The Carbon Tax is a Pigouvian tax of sorts (Tax on negative externalities). It is built on the notion of 'polluter pays.' A Carbon Tax's ultimate purpose is to limit and eventually abolish the dependency on fossil fuels. It charges a cost for the production, distribution, and use of fossil fuels according to the amount of carbon released during the burning of fossil fuels.

According to the Globe Bank, around 64 carbon pricing mechanisms are in operation worldwide, such as emissions trading programs or levies.

However, they only account for 21% of total world greenhouse gas emissions. The Tax's goal is to discourage enterprises outside the European Union from exporting four carbon-intensive items to the EU: steel, cement, fertilizers, and aluminium.

Who Pays the Carbon Tax?

Carbon Taxes would be imposed at various points in the consumption and manufacturing process. The following are some examples.

  • Heads of oil wells
  • Mines of coal
  • Suppliers
  • Coal-transporting shipping firms.
  • Companies that refine oil
  • Distributors
  • Marketing of Oil Companies
  • Utilities\sConsumers
  • Consumers will be directly taxed in this case through the implementation of increased electricity rates.
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India's position on climate change

In 2008, the National Climate Change Action Plan was unveiled. The eight vertical goals are water, efficient energy, photovoltaic, ecological habitat, agribusiness, forestry, Himalayan ecology, and strategic information on alarming environmental issues.

India's commitment to greening, mitigating climate change, and combating global warming is unquestionable. According to some estimates, India's environmental advocacy activities and leadership extend to the 1972 United Nations meeting in Stockholm.

After India put a carbon price on coal produced and imported, the following are the annual tax rates.


Price (tonne)









Carbon Tax and the European Union

The EU has committed to reducing carbon emissions by at least 55% by 2030, compared to 1990 levels. These levels have dropped by 24% since the beginning of the year.

However, import emissions, which account for 20% of the EU's CO2 emissions, are rising. Other nations would be enticed to decrease GHG emissions, reducing the EU's carbon footprint even more.

The EU officials are concerned that these companies would transfer to countries with lower or no emission standards. This is referred to as "Carbon Leakage," raising global emissions.

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FAQs on Carbon Tax

Q.1. What is the possible impact on the Indian Industry due to Carbon Tax?

The possible impact on the Indian Industry due to the Carbon Tax levy will increase the price of Indian-made items in the EU, making them less appealing to purchasers and perhaps reducing demand.

Q.2. Which countries have implemented a Carbon Tax?

A Carbon Tax has been introduced in 25 countries as of 2019.

Q.3. What are Digital Certificates provided in Carbon Tax?

Importers will be obliged to purchase digital certificates indicating the tonnage of carbon emissions in their imported products under the Carbon Tax plan.

Q.3. What are some worst-affected countries after the execution of the Carbon Tax?

Russia, the United Kingdom, Ukraine, Turkey, and China, which export considerable amounts of fertilizer, iron, steel, and aluminium to the European Union, will be the worst-affected countries after the execution of the Carbon Tax.