In India, a New Carbon Tax Will Fund Renewable Energy

India will soon have a new source of funding to finance clean energy research and development: a carbon tax on the coal industry, which went into effect the first day of this month, will raise fifty rupees for each metric ton of coal used in India. This money will help create India’s National Clean Energy Fund and jump-start the renewable industry in this developing country’s growing economy. India’s tax on coal is one of the first carbon taxes enacted at the national level by any major economy in the world. It’s an indicator of the growing importance of developing nations in setting the bar for climate leadership, and an example of an innovative strategy for curbing the effects of climate change.

Like nearby China, India’s economy remains dangerously dependent on coal, the most carbon-intensive of all fossil fuels. Breaking the country’s dependence on coal while its economy is rapidly growing will be the great challenge for Indian climate policy. India has not always been seen as a leader on climate change; the nation was reluctant to agree to strong targets for reducing carbon emissions during last year’s climate negotiations in Copenhagen, and India has vigorously opposed the idea that industrialized countries might exact a carbon tax on imports from developing countries.

Yet it’s worth noting both these examples are cases in which India may have felt it was being pressured by more powerful developed nations in international negotiations over which the Indian government had little control. Giving India the benefit of the doubt, perhaps the country is not so much opposed to regulating carbon emissions, as it is to developing countries shouldering the burden of reducing climate change. India’s implementation of its own carbon tax could help show the nation’s government is serious about reducing the causes of climate change after all. If replicated by other countries, India’s efforts could have a dramatic effect on global climate politics.

With the right market incentives to curb carbon emissions and a national commitment to fund renewable energy, there’s no reason coal and other fossil fuels have to remain India’s most important source of energy. Receiving 300 days of sunny weather each year, India is and ideal place for development of renewable energy, particularly solar power. The Indian government says it wants to generate 22,000 megawatts of electricity from solar power by the year 2022, and funding from the carbon tax could help make this happen. Indian policymakers also expect stimulating the renewable energy industry will help attract investors to India, and position the country as a global leader in the growing clean tech economy.

Back in the US, allies of the fossil fuel industries continue to deride the idea of a “carbon tax” as placing a burden on consumers. Yet India is showing how placing a tax on the fossil fuel industries can be a logical, and perhaps even necessary, part of an overall strategy to reduce the causes of climate change. Meanwhile a carbon tax can serve as a revenue source for renewable energy development, and help create thousands of clean energy jobs.

While the US, Australia, and other industrialized nations dither, some developing countries are taking climate policy into their own hands, showing how to regulate carbon responsibly. India still has a long ways to go, and time will tell if it is truly able to break coal’s grip on the Indian economy. Yet today this important growing economy is shining a light for others to follow. If only the United States could do as well.

Photo credit: Renewable Energy