Carbon Pricing - Exploring the Business Case for India

Progressive Indian businesses have been playing a key role in the country’s transition towards a low carbon development and more so in recent times. With strong commitments in the area of renewable energy and a growth trajectory that is expected to unfold exponentially, the role of the private sector cannot be understated. In the process, businesses are going beyond measurement and management of GHG emissions to undertake more ambitious goals. Business leaders are carefully evaluating and considering the use of specific tools like “Carbon Pricing” to accelerate progress and enhance ambition; by strategically looping in key investors and financial personnel into the climate change dialogue.

Most organizations are voluntarily and internally pricing carbon without any regulations – which affects key decisions on the fuel purchase, electricity mix etc. It might also be pertinent to assess the impact of implicit policy actions that have been on the anvil as well. Initial understanding suggests that India taxes carbon in seven implicit ways that include -

• The National Clean Energy Cess on Coal
• Excise duties on fossil fuels
• Derived impacts from PAT
• REC/RPO and other schemes

A comprehensive evaluation of the landscape and potential opportunities, barriers and next steps would provide some information in a standardized and consistent manner, thereby creating a cohesive response from the private sector to climate change in the most economical manner.

To effectively engage and facilitate the use of internal carbon pricing within businesses, deliberations across some key broad principles are essential. These include:

• Having best possible insights on future carbon policies (market and price trends in case of emission trading schemes and taxation implications in other geographies)
• Valuation techniques (specific approaches available to determine the price on carbon – using the right to emit approach, business cost of carbon, societal cost of carbon or the costs to abate the approach) including ways and means to have a standardized approach
• Means to operationalize carbon pricing or voluntarily driving the use of carbon pricing in the absence of any external or explicit regulation (how this helps allocate specific funds to low carbon project deployment or the impact on strategic decision making by the use of shadow pricing)
• Top management buy-in: Assessing the current CEO/CFO thinking and how this fits into the strategic long term goals for the organization

Implications:

• On financial statements (profit and loss/balance sheets) and the accounting approaches to reflect the price on carbon to appropriately engage investors and other stakeholders
• On absorbing the costs – who is responsible to pay (does the polluting company or the project take the impact) or is it more likely to be a pass through to the consumer or a hybrid model?

To develop a better understanding of the subject, the World Bank/IFC led Carbon Pricing Leadership Coalition along with the World Resources Institute India and CDP India is organizing a high level workshop in Mumbai with key Indian business leaders and practitioners with an aim to build institutional capacities and technical knowledge as well as build on existing peer discussions and highlight Indian leadership examples.

For more details contact - Vivek Adhia (vadhia@wri.org) or Chirag Gajjar (CGajjar@wri.org)