Climate action beyond carbon tax

One of the key outcomes of the recent COP29 held in Baku, Azerbaijan, is finalising rules for a global carbon market to buy and sell carbon credits, earned through green initiatives, and deciding to launch a centralised UN trading system in 2025. The goal is to create a stronger demand for carbon credits, especially to fund climate projects in developing nations.

Carbon markets are trading systems where entities buy carbon credits to offset their greenhouse gas emissions by supporting projects that reduce or remove emissions to meet their required or voluntary emissions limits. Carbon offsetting, the process by which entities account for emissions by purchasing calculated and third party-verified reductions elsewhere, is
central to carbon markets’ functioning and trading of credits. Carbon pricing mechanisms are projected to play a crucial role in achieving broad decarbonisation of the global economy in line with the targets set under the UN Paris Agreement and updated Nationally Determined Contributions (NDCs).

The core principle behind an effective carbon tax is that it sets a stable, rising price trajectory that is high enough to drive meaningful emissions reductions and the scaling of clean technologies over time. The tax is measured per ton of carbon dioxide equivalent emissions released
and needs to be paid by the burning entity. According to the World Bank, over 65 carbon pricing initiatives have been implemented or are scheduled, covering nearly 22% of global emissions.

However, carbon tax is not without its downsides. Many believe that taxing carbon, in the short term, could negatively affect economic activities. The other main criticism against taxes is that they
do not guarantee emissions reductions. Companies and other entities that can afford to pay the taxes will continue to emit. At present, none
of the countries in South
Asia or South West Asia are imposing carbon tax; only Pakistan is considering joining the initiative.

South Asia is among the regions that are most vulnerable to the impacts of climate change. It is also a densely populated region with developing economies which makes it hard for the governments to address climate change impacts independently. While they have contributed the least to global GHG emissions, the people in the region face imminent threats to their health and well-being due
to extreme weather events and a range of other climate-induced challenges, such as biodiversity loss and monsoon floods.

Need for multi-sectoral approach

Many South and South West Asian (SSWA) nations have taken proactive measures by implementing domestic regulations, engaging in international initiatives, and developing technical solutions to address climate-related concerns. However, enduring political, socio-economic, and governance barriers necessitate strategic resolutions. Regional cooperation is crucial for implementing successful climate measures and requires skilled diplomacy.

The countries in the region need to enhance their NDCs by updating their emission reduction targets, expanding sectoral coverage, strengthening adaptation commitments, and improving data collection and analysis. However, a range of cross-sectoral approaches, policies, and strategies will be needed to fully increase NDC ambitions and achieve a resilient and low-carbon development objective.

Policies for India’s power, residential, and transport sectors have already saved 440 million tons of carbon dioxide (MtCO2) between 2015 and 2020. Further, India’s current climate policies
are projected to reduce carbon dioxide emissions by around 4 billion tons between
2020 and 2030 and drive a
24% reduction in coal-based power generation. This is significant, considering the commitment to reducing emissions by one billion tons by 2030, made at COP26.

At present, India generates around 71% of its electricity using coal. With strategic support and competitive tenders, the share of combined solar and wind power in the country’s energy mix is projected to rise to 26% by 2030 and 43% by 2050, up from only around 3% in 2015.

Current policies have set India on the right path. New policies that build on the existing climate policies are already being formulated to accelerate efforts to meet the 2070 net-zero target. Immediate steps should include scaling up investments in renewable energy, enhancing the domestic Carbon Credit Trading Scheme, and focusing on energy efficiency in key sectors like industry, transport, and buildings.

Increased climate finance to developing countries, without riders, is critical to the Global South’s efforts. This would deepen renewable markets and help strategies towards a sustainable future for all.

(The writer is Director, Centre for Environment and Sustainable Development India)