Denmark’s carbon tax on livestock

Why in the news- Denmark is going to become the first country in the world to impose a carbon tax on livestock farmers from 2030 for greenhouse gases emitted by their cows, sheep, and pigs. This pioneering initiative targets methane emissions, one of the most potent gases contributing to global warming. By introducing this tax, Denmark aims to significantly reduce its greenhouse gas emissions and set a precedent for other countries to follow.

Denmark’s Carbon Tax Policy

• 2030 Danish livestock farmers will be taxed 300 kroner ($43) per tonne of CO2 equivalent.
• This tax will rise to 750 kroner ($108) by 2035.
• Due to an income tax cut of 60%, the effective cost per tonne will initially be 120 kroner ($17.3) and rise to 300 kroner by 2035.
• It aims to reduce Denmark’s greenhouse gas emissions by 70% below 1990 by 2030.

What is a carbon tax?  

• A carbon tax is a fee imposed on the burning of carbon-based fuels (coal, oil, gas).
• It is designed to reduce greenhouse gas emissions by making fossil fuels more expensive.
• Thereby encouraging individuals and businesses to reduce consumption, switch to cleaner energy sources, and adopt more energy-efficient practices.

Purpose of a carbon tax

• The primary goal of a carbon tax is to reduce carbon dioxide (CO2) emissions, which are a major contributor to global warming and climate change.
• By putting a price on carbon, the tax encourages a reduction in fossil fuel use, promotes energy efficiency, and encourages investment in renewable energy and low-carbon technologies.

How does a carbon tax work?

• A carbon tax sets a carbon price directly by defining a tax rate on greenhouse gas emissions or the carbon content of fossil fuels.
• This price signal encourages emitters to reduce their carbon footprint, innovate in clean technologies, and switch to sustainable energy sources.
• Revenue generated from a carbon tax can be used to fund renewable energy projects, and climate mitigation initiatives, or redistributed to citizens to offset any increased costs.

Benefits of a Carbon Tax

Environmental Benefits

Reduces emissions: Encourages the consumption of less fossil fuels, thereby reducing CO2 emissions.

Promotes clean energy: Encourages a shift to renewable energy sources and energy-efficient technologies.

Economic benefits

Revenue generation: Provides a source of revenue that can be used to fund public investment or reduce other taxes.

Market efficiency: Gives businesses a financial incentive to improve energy efficiency and innovate.

Social benefits

Health improvements: Reducing the use of fossil fuels reduces air pollution, leading to better public health outcomes.

Fairness: People who pollute pay for the environmental damage they cause, which is consistent with the “polluter pays” principle.

Global examples of carbon taxes

Sweden

• Sweden introduced a carbon tax in 1991.
• It is considered one of the most successful examples, with the current rate being around $137 per tonne of CO2.
• This tax has significantly reduced emissions and promoted the use of renewable energy.

Canada

• Canada implemented a federal carbon tax in 2019.
• It started at 20 CAD per tonne of CO2 and is planned to increase annually, to reach 50 CAD per tonne by 2022.
• Provinces can either implement their carbon pricing system or adopt the federal backstop.

What is the Carbon Border Adjustment Mechanism?

• The Carbon Border Adjustment Mechanism (CBAM) is an initiative by the European Union aimed at reducing carbon emissions globally.
• It involves taxing imports of carbon-intensive products to ensure that foreign producers face the same carbon costs as domestic producers.
• The primary goal of CBAM is to prevent “carbon leakage,” which occurs when businesses shift production to countries with lower emissions restrictions, harming global climate efforts.

Implementation

• CBAM targets products such as iron and steel, cement, fertilizers, aluminum, and power generation.
• From 2026, goods imported from countries with less stringent carbon regulation will be subject to this tax, thereby leveling the playing field for EU producers, who already face strict carbon pricing.

Why is India opposing the Carbon Border Adjustment Mechanism (CBAM)?

Economic impact

• India, like many developing countries, is concerned that the CBAM could impose unfair costs on its exports to the EU.
• The tax could increase the prices of Indian goods in the European market, making them less competitive than those from countries not subject to the CBAM.
• The additional financial burden could hamper India’s economic growth and development.

Climate justice

• India argues that CBAM contradicts the principles of climate justice.
• Developing countries like India have historically contributed less to global carbon emissions than developed countries.
• Therefore, the imposition of such a tax is considered unfair, especially when these countries are still in the process of building their economies and lifting the population out of poverty.

Priority to international cooperation

• India advocates international cooperation and capacity-building measures rather than unilateral measures like CBAM to address climate change.
• The country prefers a collaborative approach where the emphasis is on technology transfer, financial assistance, and shared responsibilities to achieve global climate goals.

Effects of global warming

Global warming refers to the long-term increase in the Earth’s average surface temperature caused by human activities, primarily emissions of greenhouse gases (GHGs).

The consequences of global warming are severe and widespread, including:

Rising sea levels: Melting ice caps and glaciers contribute to rising sea levels, which threaten coastal communities and ecosystems.

Extreme weather events: Increased frequency and intensity of storms, droughts, heatwaves and floods.

Loss of biodiversity: Changing habitats and ecosystems lead to species extinction.

Health effects: Increased incidence of heat-related illnesses, respiratory problems due to poor air quality and spread of diseases.

Economic costs: Damage to infrastructure, reduced productivity, and increased costs of disaster response and adaptation measures.

Major sources of methane emissions 

Methane (CH4) is a potent greenhouse gas with a global warming potential significantly higher than that of carbon dioxide (CO2). Major sources of methane emissions include:

Livestock: Methane is produced during the digestive process of ruminant animals such as cows and sheep.

According to the United Nations Environment Programme, livestock accounts for about 32% of human-caused methane emissions.

Landfills: Methane is produced by the decomposition of organic waste in landfills.

Oil and natural gas systems: Methane is emitted during the extraction, processing, and transportation of oil and natural gas.

Agriculture: Rice fields, manure management, and other agricultural practices contribute to methane emissions.

Greenhouse gases

Greenhouse gases trap heat in the atmosphere, contributing to the greenhouse effect, which warms the planet. Primary greenhouse gases include:

Carbon dioxide (CO2): Emitted through the burning of fossil fuels, deforestation, and various industrial processes.

Methane (CH4): Emitted from livestock, landfills, natural gas systems, and certain agricultural practices. Methane traps about 87 times more heat than CO2 over 20 years.

Nitrous oxide (N2O): Emitted from agricultural activities, fossil fuel combustion, and industrial processes.

Fluorinated gases: Industrial gases used in refrigeration, air conditioning, and other applications.

Initiatives taken by India to reduce carbon emissions  

National Action Plan on Climate Change (NAPCC)

India’s NAPCC outlines the country’s strategy to combat climate change through eight national missions, which focus on:

Solar energy: Promote the use of solar energy.

Enhanced energy efficiency: Improve energy efficiency across various sectors.

Sustainable housing: Encourage sustainable urban planning and building practices.

Water mission: Ensure integrated water resources management.

Green India: Increase forest cover and reforestation efforts.

Sustainable agriculture: Promote climate-resilient agricultural practices.

Sustaining the Himalayan ecosystem: Protect and preserve the fragile Himalayan ecosystem.

Strategic knowledge for climate change: Enhance scientific understanding of climate change.

International Solar Alliance (ISA)

• India launched the ISA to promote solar energy globally, especially in developing countries.
• The coalition aims to mobilize over $1 trillion in investment by 2030 to support solar power deployment and enhance energy security.

Renewable Energy Targets

• India has set ambitious renewable energy targets, aiming to install 175 gigawatts of renewable energy capacity by 2022 and 450 gigawatts by 2030.
• This includes solar, wind, biomass, and small hydropower projects.

Electric Mobility   

• To reduce dependence on fossil fuels and reduce emissions, India is promoting the adoption of electric vehicles (EVs).
• The Faster Adoption and Manufacturing of Electric Vehicles (FAME) scheme provides incentives for the purchase of EVs and supports the development of EV infrastructure.