Accounting for India's Forest Wealth - Madras School of Economics

Increasing the price of energy is considered to be criticalintervention for achieving the GHG emissions reduction targetsinternationally. Increased energy efficiency through higher investment inrenewables and reduced demand for energy services will also help Indiaachieve the emission reduction target for which a commitment has beenmade.In the past there have been two sources of energy priceincreases: from markets, as (for example) the oil price increases in 1973and 1979, and more recently in 2007-08; and from government policy,mainly from taxation such as fuel duty or the Climate Change Levy in theUK. Both these taxes have reduced fuel use below what they wouldotherwise have been, although in the case of fuel duty even a relativelyhigh rate of duty has not been enough to actually reduce the use oftransport fuels. In Germany however, a 90 percent increase in dieselprices and 62 percent increase in petrol prices over 1997-2006, largelydriven by increases in taxation, caused the total consumption of the mainroad fuels to decrease by 13 percent.But price increases by government keep revenues in the countryand generate tax receipts which allow other taxes to be reduced. There isa very important economic difference between market-driven andtaxation-driven increases in energy prices. In the case of the former theextra revenues accrue to energy companies and energy-producingcountries, at the expense of energy-consuming countries. With the latterthe government of the energy-consuming country keeps the revenuesfrom the price increase, which, for a given level of governmentexpenditure, allows it to reduce other taxes, with greatly reducednegative impacts on its economy.Another important difference is that market-driven increases in,for example, oil prices will stimulate investment into high-carbonsubstitutes for crude oil (e.g. oil shale and tar sands - as indeed has31