Parameter

Details

Definition

A carbon tax is a levy imposed on the carbon content of fossil fuels such as coal, oil and natural gas to curb GHG emissions.

Purpose

Disincentivize carbon emissions, encourage clean energy and fund green initiatives.

Target

Polluters – particularly industries, energy producers and transport systems using fossil fuels.

Mechanism

Calculated per tonne of CO₂ emitted or embedded in fuel consumed.

Type

Description

Example

1. Emissions Tax

Direct tax on total GHG emissions by industries or power plants.

Sweden taxes industrial CO₂ emissions.

2. Energy Tax

Based on carbon content or energy potential of fossil fuels.

UK Climate Change Levy on fuel use.

3. Cap-and-Trade System

Emission cap set; tradable carbon credits allow market-based reduction.

EU Emissions Trading System.

4. Border Tax Adjustment

Tax on imported goods based on emissions from production to prevent carbon leakage.

Proposed in EU’s Carbon Border Adjustment Mechanism.

5. Fuel Excise Tax (Carbon-linked)

Excise duty linked to carbon intensity of fuels.

Australia (2012–14) had direct carbon pricing on fuels.

6. Offset-linked Carbon Pricing

Emitters can pay for certified carbon offsets instead of tax.

Voluntary Carbon Market practices.

Feature

Details

Nationwide Policy

No formal nationwide carbon tax currently.

Coal Cess (Proposed Carbon Tax)

In 2010, India introduced a Clean Energy Cess (INR 50/tonne, later increased to INR 400/tonne) on coal production/import to fund the National Clean Energy Fund.

State-Level Actions

States like Tamil Nadu have levied carbon-related charges on coal-based power.

Substitutes/Complementary Measures

Though not labelled a carbon tax, India promotes emission reduction through:

·         National Clean Energy Fund

·         Perform, Achieve & Trade (PAT) Scheme

·         Renewable Energy Initiatives (National Solar & Wind Missions)

·         Energy Conservation Building Code

·         Faster Adoption of Electric Vehicles

Carbon Market (Future)

India plans to establish a Carbon Credit Trading Scheme and a Voluntary Carbon Market by 2025.

Sector Covered

Shipping industry, a major emitter of GHGs (~3% of global emissions).

Purpose

To reduce emissions from international shipping by creating a financial disincentive for using carbon-intensive fuels.

Significance

First global carbon pricing mechanism adopted for a specific international sector.

Implementation

Details on rates and enforcement expected by 2025; to be implemented by IMO member states.

Attribute

Description

Type

UN Specialised Agency

Established

1948 (as IMCO), operational from 1959

Headquarters

London, UK

Role

Ensures safe, secure and environmentally responsible shipping worldwide

Relevance

Key player in regulating maritime emissions, contributes to SDG 14 (Life Below Water)

Functioning

Proposes international standards; member states are responsible for implementing them through national laws.

Major Conventions

·         MARPOL (Marine Pollution Prevention)

·         SOLAS (Safety of Life at Sea)

·         Ballast Water Management Convention 

PRACTICE QUESTION

Q. Which of the following statements about Carbon Tax are correct?

1. A carbon tax directly taxes the energy output of a power plant irrespective of its fuel type.
2. India has already implemented a nationwide carbon tax applicable to all sectors.
3. Cap-and-trade system is an alternative to a fixed carbon tax model.

Options:

A. 1 and 2 only
B. 2 and 3 only
C. 3 only
D. 1, 2 and 3

Answer: C.

Explanation:

Statement 1 is incorrect.

Carbon tax is based on carbon content, not general energy output.

Statement 2 is incorrect.

India has a coal cess not a full carbon tax which was initially introduced as the Clean Energy Cess in 2010. While it's been renamed and integrated into the Goods and Services Tax as a Compensation Cess the underlying principle of taxing coal to generate funds for clean energy initiatives remains.

Statement 3 is correct.

Cap and trade is a market based carbon pricing mechanism.