Role of Fiscal Policy in Climate Change Mitigation in India

There is no consensus on social cost of carbon or marginal abatement cost of greenhouse gases for climate change mitigation, even though greenhouse gases are a global public bad. Some countries use different values of social cost of carbon in deciding policies for climate change mitigation. Using National Action Plan on Climate Change (NAPCC) and nationally determined contributions (NDCs) under the Paris Agreement, India uses sector-specific policies for climate change mitigation. These policies are reviewed and we note that even though these policies helped in achieving the targets they do not raise revenue and may not minimize the aggregate mitigation cost. As 61 countries have adopted carbon tax system or emission trading system, as there are doubts about achieving emission reduction to achieve the 1.5 °C increase in average global temperature by using NDCs by 2030, and as some developed countries which have either carbon tax or emission trading demand border taxes on goods imported from countries which do not have carbon taxes or lower levels of carbon taxes, India may have to prepare for an introduction of the carbon tax system or emission trading system soon.