By Vritti Gandhi

Edited by Nandini Bhatia

As the price of oil declines in the US, Larry Summers, former treasury secretary and economic advisor to the Obama administration, has said that now might be a good time for the nation to start imposing carbon taxes.

We wonder, is it though?

The first obvious reaction would be for people to agree with Summers. Levying of carbon taxes would reduce carbon emissions, leading to a positive impact on the climate change. Reduction in global warming due to the carbon tax with the fall in the prices of oil would seem like an ideal win-win situation for all.

However, let’s move beyond the obvious.

Carbon dioxide, being a greenhouse gas, contributes to global warming. But its reduction in no way ensures the reduction of hazardous air pollutants that have a negative effect on people’s health. Hence, there is more than a slight chance of the carbon tax being ineffective in alleviating global warming.

According to an article written by Nicolas Loris, an economist, there is no evidence that our planet is heading towards a climate catastrophe. Not yet.

Thus, the need for a carbon tax might not be as urgent.

Also, with the rise in the prices of electricity and energy as a result of this tax, many developing countries such as India and China would be unwilling to follow suit even if the US decides to go ahead with this proposed policy change, what with millions of people in these nations not even having access to electricity. The costs of carbon-emitting fossil fuels (such as diesel, gasoline) would soar high with the imposition of this tax. This would then lead to an increase in expenditure, and would by and large affect the low-income families.

Albeit Summers’ idea of the carbon tax is up for debate, it is being largely appreciated by economists and policy makers alike. The increase in revenue that this tax could bring about could be used on infrastructure, developing renewable sources of energy and on other pressing needs. There is no doubt that this tax would reduce carbon emissions. But will that reduction really drive the positive climate change?

The declining energy prices appear like a breath of fresh air after an era of rising prices. At a time like this when the doom of the planet seems inevitable, the idea proposed by Summers is one of those that have flickered in people a feeling of hope. There would be a consensus on the fact that loopholes do persist. However, with a proper policy design and implementation, this might go on to be a successful change after all.

Vritti Gandhi is a second year Economics student at the Shri Ram College of Commerce. She enjoys being her eccentric self, astrology is her first love, and F.R.I.E.N.D.S is her way of life. Having co-founded a chapter of an NGO in her college, she strongly wills to highlight the importance of self-sustenance. She is presently looking for her passion, hoping to light up others’ lives and leaving her own mark in this world.

Posted by The Indian Economist | For the Curious Mind