Effective Carbon Taxes and Public Policy Options: Insights from India and Pakistan

In this paper, we take as given the need for public action on climate change (see Stern, 2007), and that carbon taxation is one of the key instruments for influencing both behaviour of consumers and producers. The calculations also illustrate the eventual effects on prices of a scheme based, for example, at least in part on a quota-cum-trading scheme linked to upstream activities, such as electricity generation or steel production. Section II examines methods for designing and implementing effective carbon taxes. In Section III we ask whether the states/provinces or the center should administer the tax. We also raise some political economy issues concerning gainers and losers, and possible compensation measures for poor people. Section IV concludes.