ABSTRACT
A green transition – a goal of most economies today – requires a set of fiscal instruments to serve the dual objectives of both phasing out fossil fuels and promotion of low-carbon sources of energy and their wide adoption. We call these instruments as ‘green fiscal instruments’. This chapter attempts to evaluate the effectiveness of some important green fiscal instruments like carbon tax, removal of fossil fuel subsidy, Green bond issuance and R&D in clean technologies and feed-in tariffs. While successful implementation is beneficial as they create capacity for clean energy generation, inflationary pressure could be an undesirable by-product of such a policy. Therefore, a careful cost-benefit analysis of green fiscal instruments is required to understand net social welfare. Since many European countries have already adopted green fiscal instruments, this chapter seeks to learn from their experience, through appropriate statistical analysis, and recommend suitable fiscal instruments for India, one of the fastest growing emerging economies with a heavy dependence on fossil fuels. A transition to low-carbon economy by adoption of clean energy will help India achieve not only net-zero emission target but also reduce dependence on imported oil. This in turn will help in insulating the Indian economy from international oil price volatility.
