Towards more reliance on carbon pricing in India

Abstract

The STG Climate Cluster is studying pragmatic means of promoting a wider use of carbon pricing in emerging economies, particularly those belonging to the G20. As part of their commitments under the Paris Agreement, countries are showing more interest in putting a price on carbon as this helps to cut emissions in a cost-effective manner. The focus is therefore to find pragmatic approaches to add carbon pricing tools to the domestic policy mix. At the end of 2020, UN Secretary-General Guterres pleaded to the European Council for Foreign Relations to plan for a green recovery post-COVID, stopping the financing of coal immediately and putting a price on carbon. Yet, despite the numerous second round pledges for carbon neutrality under the Paris Agreement, very few countries have consistent policies in place which would deliver both. In this respect, India offers an interesting case-study. There are many opportunities, challenges and pitfalls in the energy transition moving away from a high reliance on coal. In this policy brief, four ‘no regret’ steps towards an intersectoral carbon pricing scheme are formulated. These would gradually strengthen the institutions that support and embed carbon pricing in India. The steps include reforming existing energy policies, extending corporate climate risk disclosure, developing a sustainable finance taxonomy, and further supporting greenhouse gas monitoring, reporting and verification. Before outlining the four policy options, we offer a summary of India’s energy and climate policy context.