Hybrid model of environmental taxation: Transition from European to Indian carbon tax to energy trade scheme

Abstract

Rapacious exploitation of nature and natural resources by industrial economies in the 20th century has brought the world to the brink of environmental catastrophe. Realizing the gravity of crisis off late, growing environmental consciousness has pushed societies and governments worldwide to sustainably utilize resources and vigorously pursue nature conservation to mitigate the brimming disaster. One such attempt in the offing is the concept of Environmental Taxation, a tax intended to raise revenues to promote ecologically sustainable activities. This is a kind reinforcement of long-held ethical principle of polluter pays and it proves to be a major deterrent towards environmental degradation and brings sustainable growth. In the current work, a comparative analysis of the two economic approaches of tax and energy trade scheme (ETS) is studied, elaborated and discussed to achieve a low carbon intensive economy. European experience in carbon taxation is taken as a prime reference point. The sector-wise impact of the carbon tax in the European countries as well as the timeline, during which the taxes were imposed, provides an insight as to how such a tax can be internalized in the Indian context and its effectiveness was judged.