By Ayesha Saba ISLAMABAD, Jan. 26 (INP-WealthPK): Keeping in view the global climate change scenario, the carbon tax is usually imposed on production, distribution or consumption of carbon-content fossil fuels, its rate depending mainly on the amount of carbon leaked into the atmosphere by burning the respective fuel. The carbon tax is also considered a Pigouvian tax on a market transaction that creates a negative externality, or an additional cost borne by individuals not directly involved in the transaction. When individuals purchase goods that are created through a carbon-intensive production process, they create a negative externality. In the case of carbon emissions, carbon can build in the atmosphere and change the climate. This negative externality imposes a direct cost on those who were not part of the initial transaction of producing and purchasing the goods. Economists have long argued that a well-designed carbon tax is the most economically efficient way to reduce carbon emissions. A carbon tax is considered a consumption-based tax. In general, consumption-based taxes produce revenue with less distortionary effects than taxes on income, making them economically more efficient. Governments and other regulatory authorities adjust the tax rates in accordance with the basic price for one ton of carbon. If the government levies a tax at the rate of costs of pollution removal, firms tend to effectively limit their emissions to an acceptable level. Carbon pricing creates incentives for the development and deployment of clean-energy technologies across the board, and it boosts the supply of carbon-free renewable substitutes. A carefully designed time path for carbon pricing not only ensures that firms and households use less CO2-intensive production methods, appliances, vehicles, machines, and so on, but also ensures that renewables are brought to the market and phased in more quickly. A national carbon tax is currently implemented in 27 countries around the world, including various countries in the EU, Canada, Singapore, Japan, Ukraine and Argentina. The EU Emissions Trading System, currently the largest carbon market, covers about 1.75 billion tonnes of emissions. China has launched a process to create a national carbon emission trading system and also experimented with what will eventually become the world’s largest market-based carbon pricing system. In largely developed economies, there are a number of prerequisites and support mechanisms in place that make the move a little simpler. In emerging economies like Pakistan, climate change has the potential of serious harm with its social, environmental and economic impacts. Poisonous smog has the worst condition in various cities of Pakistan. Recently, the air quality turned so bad in Lahore that schools had to be closed. Lahore reigned as the world’s most polluted city. Several factors including rapid urbanisation and burning of agricultural waste damage air quality. Realising the high vulnerability to climate change, Pakistan has developed a national policy to combat this challenge. Despite being the fifth country in the world to establish a separate ministry of climate change, thus far, Pakistan needs to do more to reduce its own GHG emissions. Fossil fuel and industrial purposes in Pakistan produced 217 million metric tons of carbon dioxide (MtCO2) emissions in 2020. This was the second consecutive year that CO2 emissions in Pakistan fell, having peaked at 221 MtCO2 in 2018. Pakistan’s emissions surged by 123 percent from 1994 to 2015, reaching 405 mtCO2e (metric tonnes of carbon dioxide equivalents). According to the IPCC (Intergovernmental Panel on Climate Change), emissions are expected to increase by another 50 percent by 2030. In emerging economies, economic growth speeds up infrastructure construction such as ports, bridges and roads, which largely use cement and steel. Cement and steel manufacturing increase the combustion of fossil fuels in industrial facilities as these are energy-intensive industrial processes. Pakistan's largest contributor to emissions (46 percent) is the power generation sector, which is predicted to produce 898 mtCO2e by 2030 due to the country's energy deficit. Agriculture is the second-largest contributor (41 percent), followed by land-use change and forestry (6 percent), trash (5 percent), and industrial activities (4 percent). These figures are predicted to rise by 3.9 percent per year, or 10 mtCO2e, on average. Source: Statista Pakistan’s economy relies heavily on coal, oil and natural gas, and the major characteristic in Pakistan’s energy sector and the whole economy is “high carbon”. Thus, carbon emissions reduction has been and will continue to be a challenge for Pakistan. Under the pressure of global warming, it is imperative for Pakistani government to impose effective policy instruments to promote domestic energy saving and carbon emissions reduction. However, enacting of a carbon tax in Pakistan is not as simple as it appears. Critics doubted how Pakistan's products would compete worldwide if the government opted to impose a carbon tax on industrial facilities, given the increased cost of operations. These issues can be resolved in that sense like in the case of Pakistan, export industries will need to be exempted from a carbon tax, at least in the short run. Canadian industries, for instance, that face stiff foreign competition in, such as, chemicals and steels, are exempt from the carbon tax. The country needs more aggressive steps to address climate change, such as shifting to renewable energy sources and controlling industry emissions through carbon pricing mechanisms. Tackling hazardous air quality in Pakistani cities requires pragmatic policies. In terms of regulation, the government should establish strict emissions regulations so that stumbling cars, diesel buses, and two-stroke motorcycles may be phased out as soon as feasible. Appealing in light of the current fiscal crisis, carbon tax can provide a substantial source of government revenues and now it’s time to embark on developing an action plan to effectively implement climate change concerns in the planning process.