Environmental Economics

Research Paper

Topic: Environmental Taxes

Submitted To: Rita Rani Ma’am

Submitted By:
Name - Ritu
Roll no: 1510

ABSTRACT
Environmental issues are putting more pressure on
governments to find solutions to decrease environmental
damage while preserving economic growth. Regulations,
information programmes, innovation policies, environmental
subsidies, and environmental levies are among the options
available to governments. Taxes, in particular, play an
important role in this toolset. Environmental taxes provide
numerous benefits, including environmental effectiveness,
economic efficiency, the ability to raise public funds, and
openness. Environmental taxes have also proven to be
effective in addressing a variety of concerns, including waste
disposal, water contamination, and air pollutants. The design
of environmental taxes, as well as political economics
concerns in their application, are critical determinants of
their overall success, regardless of policy area.

Why to use environmental taxes

By factoring environmental implications into prices, taxes can
directly address the inability of markets to take
environmental problems into account. Environmental pricing
via taxation gives consumers and businesses the freedom to
choose how to decrease their "footprint" on the
environment. This allows for the most cost-effective
solutions, encourages innovation, and reduces the need for
the government to "select winners."

INTRODUCTION
What are environmental taxes
Environmental taxes are "those whose tax base consists of a
physical unit (or similar) of some material that has a negative,
verified, and specific impact on the environment," according
to the statistical framework developed jointly by Eurostat,
the European Commission, the Organisation for Economic
Cooperation and Development (OECD), and the International
Energy Agency (IEA) in 1997.
In an unregulated environment, a corporation could create a
polluting product without considering the influence on the
planet's or the environment's health. Externality is the term
used in economics to describe this situation. Green taxes are
designed to make polluters pay according to the "polluter
pays" principle, with the price reflecting the cost of
externalities.

Why Environmental taxes are required?

Increased population increase over the last few decades has
had a significant influence on the environment. Huge
greenhouse gas emissions have resulted from the intensive
use of scarce natural resources and rising pollution levels
(GHG). Climate change, the rise of chronic diseases,
increasing
sea levels, and economic ramifications are all examples of
ecological mismanagement.
This is where the Environment Tax, often known as the Green
Tax or the Eco Tax, comes into play. It makes people pay for
natural resources, which deters them from harming the
environment.
The primary purpose of environmental taxes is to save the
environment. There are a few more reasons why
environmental taxes are necessary right now -
 Promote energy saving and the use of renewable
sources.
 Internalize the negative externalities .
 Motivate companies to innovate in sustainability
 Discourage anti-ecological behaviour .
 Generate revenue for govt , allowing other taxes to
lowered or environmental projects to be carried out.

Aim for Applying Environmental taxes

The environmental tax strives to ensure that polluters are
appropriately penalised for activities that impair the
environment by levying a penalty on them for the harm they
bring to the environment and others.
Directly taxing polluters is a cost-effective way to encourage
them to reduce their pollution to the point where further
reduction would be more expensive than paying the tax.
 Pollution level in India
Air quality trends
EPA creates air quality trends using measurements from
monitors located across the country. The table below show
that air quality based on concentrations of the common
pollutants has improved nationally since 1980.

SOURCE: EPA United States Environmental Protection Agency

Emission Trends:
The Environmental Protection Agency (EPA) calculates
national emissions of ambient air pollutants and the
pollutants that these pollutants are made up of (their
precursors). These figures are based on actual measured
readings or technical calculations of the amounts and types
of pollutants generated by cars, factories, and other sources.
Estimates of emissions are dependent on a variety of factors,
including industrial activity, technical advancements, fuel
consumption, car miles travelled, and other pollution-causing
activities.

State and municipal air agencies, tribes, and industry all

contribute to the development of emission data. The
Environmental Protection Agency (EPA) keeps track of a
variety of emissions statistics, such as how much of each
pollutant is emitted from different pollution sources. Visit the
EPA's Air Emissions Sources site to examine data on national,
state, and local emissions.

Types of Environmental taxes

 Carbon tax is an example of a pollution tax. It imposes a
tax on the production, distribution, or use of fossil fuels
according on the amount of carbon released after
combustion. It is a low-cost method of lowering
greenhouse gas emissions in the environment. New
Zealand is the first country who introduced carbon tax in
2002. India introduced it in 2010.
 Green Tax, often known as ECC (Environmental
Compensation Charge), is a tax imposed in India on
vehicles (cars and motorcycles). It will be imposed on
pollutants based on the size of the vehicle. It was first
introduced in Delhi in October of 2015.
 The Delhi administration is also considering extending
Section 194 of the Motor Vehicles Act, which prohibits
commercial vehicles from entering the city at certain
times.
 Import duties on commodities with a considerable non-
ecological energy input (to a level necessary to treat fairly
local manufacturers) severance taxes.
 Camping, hiking, fishing, and hunting licences, as well as
associated equipment, are all subject to fees.
 Specific taxes on technology and products with significant
negative externalities are imposed.
 Taxes on waste disposal and refundable fees
 Taxes on effluents, pollution, and other hazardous wastes
are being steered.

Damage to Indian Economy

 According to the bank's report—Diagnostic Assessment of
Select Environmental Challenges in India—released in New
Delhi this week, the combined cost of outdoor and indoor
air pollution is the largest yearly burden on India's
economy. Pollution and natural resource deterioration
were also taken into account in the report.
 Outdoor air pollution accounts for 29% of total pollution,
with indoor air pollution accounting for the remaining 9%.
(23 per cent) the significant cost of outdoor and indoor air
pollution is caused by particle matter pollution exposure
among the youthful and productive urban population. As a
result, adult fatalities from cardiac and chronic obstructive
lung disorders are on the rise.
 It is the first national-level economic analysis of
environmental deterioration in India, and it proves the
significant cost of air pollution to India's economy.
Particulate pollution is predicted to cost India 3% of its
GDP in catastrophic health repercussions.
 Environmental deterioration has caused a total loss of Rs
3.75 trillion (US $80 billion). This is the equivalent to 5.7
percent of the country's gross domestic product.

Mitigation benefits are enormous:

The most important conclusion for policymakers to take up
from this study is that the health benefits of investing in
damage mitigation much outweigh the health costs of doing
nothing.
The analysis found that while particulate matter mitigation
will be costly, the benefits in terms of lower health costs will
outweigh the costs. By 2030, a 10% reduction in PM10 might
result in a US$ 10-20 billion benefit, and a 30% reduction
could result in a Rs USD 47-105 billion gain.
Mitigation action can also have other benefits. Along with
improving public health it can help in climate mitigation.
With 10 per cent PM10 reduction by 2030, carbon dioxide
emissions can be reduced by 10-20 per cent. With 30 per
cent PM10 reduction, CO2 can be reduced by 30-60 per cent.
This is a win-win formula.
Sources: Down-to-earth

Revenue from environmentally related taxes in

India

Carbon Credit
A carbon credit is a tradable certificate or permit that
represents the right to release one tonne of carbon dioxide
or the mass of another greenhouse gas with a carbon dioxide
equivalent (tCO2e) equal to one tonne of carbon dioxide.

Objective:
The goal is to allow market mechanisms to steer industrial
and commercial processes toward lower emissions or less
carbon-intensive ways than those utilised when there is no
penalty to emitting carbon dioxide and other greenhouse
gases into the environment. This strategy can be used to
finance carbon reduction schemes across trading partners
and around the world because GHG mitigation projects earn
credits. Many businesses and individuals who want to reduce
their carbon impact on a voluntary basis can purchase carbon
credits from a variety of providers.
Benefits:
Its goal is to encourage businesses and countries to reduce
their greenhouse gas emissions. Those who do not use all of
their caps are permitted to sell them on the open market or
to companies in need. Those who do not use up their full
allotment of credits are rewarded by being able to sell them,
while those who go over their allotment are penalised by
having to pay for m Carbon credits provide a market for
reducing greenhouse emissions by assigning a monetary
value to the cost of polluting the atmosphere. Companies are
driven to explore for alternate and safer energy sources as a
result of making carbon credits a part of the production
situation. Carbon credit reduction solutions help participating
companies save money. Because carbon credits are used by
all countries across the world, they have a positive impact on
global warming. This provides an additional source of income
for companies based in poor countries. It is a unique
investing opportunity for people.

INDIA'S CARBON CREDITS SCENARIO:

As a developing country, India has no emission targets to
adhere to. Cement, steel, electricity, textile, fertiliser, and
other industries in India create greenhouse gases as a result
of burning fossil fuels. Companies that invest in windmills,
biogas, biodiesel, and cogeneration will earn Carbon Credits
that may be sold to developed countries. Steel, electricity
generation, cement, fertilisers, waste disposal units,
plantation firms, sugar companies, chemical facilities, and
municipal corporations are among the polluting industries
that are attempting to minimise emissions in order to gain
carbon credits and profits.
India’s rank in carbon credit:
India remained the same at 10th position even in this list on
account of efforts being made to lower its greenhouse
emissions with a total score of 31.42.

CONCLUSION
An environmental tax, often known as an Eco Tax, is an excise
fee imposed on commodities with the goal of reducing
pollution. Environmental damage will be reduced in a cost-
effective manner by levying fees on emissions that cause
pollutants. As a result, supporting behavioural changes in
homes and businesses who seek to reduce pollution. For
many years, India's indirect tax system has been undergoing
substantial adjustments. By raising the relative prices of
polluting inputs and outputs and therefore addressing the
negative externalities of a polluting behaviour, it can result in
suitable environmental selections.
Because commercialization of ‘surroundings' is a public good,
like any other public good, funding for this public good
should come from the general pool of taxation, which
includes environmental taxes. As a result, the financial
impact of the pandemic, understanding eco tax, and various
types of environmental regulation implemented in India,
such as penalties for polluters, are all ways in which India can
gain. As a result, environmental taxes help internalise
negative environmental externalities within the broader
framework, incentivizing greener products and approaches
while discouraging polluting tactics and items.

REFERENCES
 https://byjus.com/current-affairs/environmental-tax/
 https://www.downtoearth.org.in/news/deep-
percolation-pits-in-odisha-forests-harmful-for-local-
flora-fauna-say-experts-82421
 https://www.downtoearth.org.in/news/health-cost-of-
air-pollution-in-india-assessed-at-3-per-cent-of-its-gdp-
41699
 https://taxguru.in/corporate-law/detailed-analysis-of-
carbon-credit-benefits-role-of-professionals.html