March 27, 2019

Rahul Gandhi's Cash Transfer Scheme Could be A Revenue Neutral Carbon Tax

Its principal architect could very well be Jairam Ramesh, the former minister of environment, a close aide of Rahul Gandhi and Congress' chief strategist for 2019 elections.

Rahul Gandhi, leader of Congress - India's main opposition party - announced a major cash transfer scheme yesterday aimed at poverty alleviation, ahead of the upcoming elections. News reports say the amount will cost the national exchequer Rs. 3.6 Lakh Crore which is more than the central government subsidy expense (2.9 Lakh crore).

There's no clarity on how such a large sum is to be raised. Meanwhile the party has clarified that it will be additional to existing schemes and subsidies. It just occurred to me that the scheme could be another name for a revenue neutral carbon tax.

"Carbon tax" is term for taxation which is introduced on fossil fuels in order to reduce their consumption. The term "revenue neutral" simply means the income from the taxation is returned back to the public in some form. It's a great equaliser - make the polluting rich pay the taxes and then distribute the collection among the poor in a Robin Hood style. Hurray for environment, hurray for the poor.

A revenue neutral carbon tax is "the fairest, most effective, most efficient single policy tool in the fight for a habitable climate," says Charles Komanoff, on Carbon Tax Center website, who co-founded it twelve years ago. At that time it seemed to me that way too.  I campaigned for a revenue neutral carbon tax at every platform at which I had an opportunity. In this post from 2010 I explain the concept:
A revenue-neutral carbon tax means all the money collected from it is distributed back to the people -- divided equally to the population. So let's say if Rs.1 Lakh crore is collected every month is divided equally among 100 crore people, each person's share is Rs.1000. 

Which means, if a rich person, who consumes a lot of energy had paid say Rs.10,000 in terms of carbon tax -- extra cost incurred on energy made expensive -- then he has a loss of Rs.9000. He will naturally do all he can to save energy. 

A person with average energy consumption, having spent Rs.1000 in higher energy costs will get all his money back and he'd be able to even save some if he pursues energy efficiency.

A poor person who consumes very little energy, having spent only Rs.200 in higher energy costs will actually have a profit of Rs.800 - a substantial sum for him. 

So carbon tax can actually alleviate poverty in India by moving money from the rich to the poor, reducing energy consumption and carbon emissions and incentivising renewable energy.  
A version of revenue neutral carbon tax is in place in British Columbia, Canada and has been fairly successful. But nowhere has it been deployed at such a large scale and creates such high income as the transfer promised by Congress. This scheme, if it is to be generated from carbon tax, takes an approach in which the transfer is made not to everyone but to the poorest fifth of the population.

I have, of course, no inside knowledge that the cash transfer will be funded by carbon tax. You can call it conjecture but I base it on my intuition. Rahul mentioned that they have consulted various economists who have supported it. This is in line with the statements of major economists supporting revenue neutral carbon tax.

I have long suspected Jairam Ramesh to be the man behind Rahul Gandhi's makeover. Prior to elections Ramesh has been conspicuously absent from the limelight. Apart from book tours and occasional interviews he was rarely in news. This is quite uncharacteristic of someone who loves to face the camera and take the mic. To me this suggests an active behind-the-scenes engagement. Each time I come across Rahul Gandhi hurling a jumla (witticism) in his speech, and he has been hurling quite a few, I sense Jairam Ramesh to be behind it. Ramesh denies to be Rahul's speech writer but does admit to have offered "points" when asked. A recent report suggests he has taken a leading role in working for the 2019 elections.

During his stint as environment minister Jairam Ramesh had plenty of opportunity to consider all sorts of policy mechanisms for emission reduction including carbon taxation. It was he who first introduced coal cess, a form of carbon tax (it's another thing that in terms of carbon tax which is usually calculated as $/ton, the cess amounted to a paltry figure).

Rahul Gandhi's scheme is termed NYAY, for Nyuntam Aay Yojana (minimum income scheme). Literally translated, the word 'nyay' means justice. Because climate change is said to unfairly hurt the poor the most even though they are said to contribute least to it, justice is the appropriate term for the scheme.

Yet another reason why I suspect it is carbon tax is because Congress has refused to disclose how they will raise the funds. The taxation part is the tricky bit because carbon tax will hurt businesses that are energy intensive. So there's good reason for the party to hide it from the public and focus instead on cash transfers.

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