MC Interview | Carbon pricing is a two-edged sword that requires worldwide attention: Damania, an economist with the World Bank

 MC Interview | Carbon pricing is a two-edged sword that requires worldwide attention: Damania, an economist with the World Bank

Damania thinks that because of digital marketing, the Indian economy would keep expanding at historically high rates.

In an interview with Moneycontrol, Richard Damania, head economist of the Sustainable Development Practice Group at the World Bank, said that the UK and the EU are thinking about taxing carbon emissions in order to reduce energy use. I mentioned. Carbon pricing is a "double-edged sword" that requires international attention.

"A producer in another nation gains a competitive advantage if they do not endeavor to cut carbon emissions or conserve their forests, even if the country wishing to implement carbon pricing does so. since a result, interested nations are unable to go further with these actions since they would lose out on trade. Therefore, the issue of competitive disadvantage won't be resolved until there is a worldwide effort, claims Damania.

Placing a price on carbon, often known as carbon pricing, entails calculating the external costs of emissions and then taking action to lower them by encouraging investment in greener alternatives. A carbon tax is one tool to do this; it establishes the rate of taxation on greenhouse gas emissions, so directly putting a price on carbon.

Beginning on October 1st, this year, the EU implemented the Carbon Border Adjustment Mechanism (CBAM). Starting on January 1, 2026, the CBAM will be implemented as a 20–35 percent levy on a limited number of imports entering the EU. There are rumors that India is also thinking about implementing a carbon price, particularly for exports to Europe.

Takeaways from the conversation:

In light of climate concerns, how do you see global commerce developing, particularly as some nations are turning to policies like carbon taxes?

First, trade is critical to both economic growth and stability. In the event where none of us had a company, we would all need to produce our own goods. You will have to raise your own rice if you live someplace arid and wish to consume this very water-demanding crop. Trade allows nations with heavy rainfall—like Thailand and certain areas of India—to cultivate rice and sell it to nations without such resources. Thus, trade that capitalizes on a nation's inherent comparative advantage may advance sustainability. That being said, if you have a skill, you should create and market it. Although it hasn't been completely acknowledged yet, awareness of it is growing. Additionally advocating for this recognition is the World Trade Organization (WTO).

This has two drawbacks in relation to carbon pricing. LAUS has a competitive advantage if a nation want to apply carbon pricing in order to preserve its forests, but a producer in the other nation does not protect its forests or do not seek to minimize carbon emissions. since a result, interested nations are unable to go further with these actions since they would lose out on trade. Therefore, the issue of competitive disadvantage won't be resolved until there is a worldwide effort, Ga. Therefore, I believe that when we discuss global concerns, we should do it on a worldwide scale.

However, you may always modify for unique requirements. We have always maintained that one can make accommodations in low-income nations. We cannot treat this harshly. Numerous nations now have some exclusions in place.

Should rich nations spearhead the funding of the shift to environmentally friendly practices?

Wealthy and developed nations must take the lead in climate funding. Nevertheless, there are several domains where low-income nations excel in cutting emissions. And the world's woods are a prime illustration of this. The majority of the world's forests are found in developing or middle-income nations, giving them a natural comparative advantage in terms of economics when it comes to forest preservation. In a research we termed Nature Frontiers, we compared the advantages of greenhouse gas sequestration and forest cover with those of agricultural output and forest cover. Different nations exhibit distinct trends. Some nations have extremely low-cost means of capturing carbon dioxide for their forests, thus it makes sense to balance the opportunity cost. I'm hoping that action will be taken to save trees.

India has promised to achieve net zero emissions by 2070. Is this a realistic objective?

If India hadn't really meant to do this, I'm confident it would not have been able to. In general, India has performed well by any measure when considering its part of the mix, at least when it comes to energy-related factors. India made great efforts to reverse the country's trend of deforestation long before any of these conversations started. A map of the 1970s and 1980s would have shown a declining amount of forest cover, but things have altered since then. Positive signals seem to be approaching, in my opinion. India is a very large country, so if you create a market for anything, people would want to buy it. Therefore, you can manufacture more inexpensively when you have economies of scale. Thus, a lot of potential exists; if everything goes according to plan, India's net zero goal makes sense.

Are conflicts making it more difficult for countries to prioritize and advocate for climate-friendly policies?

I believe that conflicts are horrible because they divert attention from many important issues that the world needs to address, not just the environment. The world is suffering because of this. I'm hoping for peace. Agreements reached by discussion, in my opinion, are more enduring than those reached by force. The cost of war is so high that the globe may have become green if we had invested even a small portion of that money on environmental conservation. Wars are needless, unjustifiable, a horrible tragedy, and a terrible diversion.

Do you think India will be able to continue growing economically at its present rate in the face of climate change?

Long-term threats like climate change are impacted by adaptation. Science makes it abundantly evident that India's agriculture would suffer greatly from climate change rather than profit. As a result, it may eventually impede India's economic growth. Positively, you become less dependent on agriculture the more you spend in education and human capital. Adopting climate-friendly practices by businesses will also be crucial and required.

For what duration will India's economy continue to expand at its present rate?

The Indian economy has many advantages, thus I believe the historical rate of growth will be maintained, even if not at this rate. Since digital business is driving the expansion, it now aligns with India's capabilities. I believe other nations had a stronger comparative advantage when development was being driven by other types of economic endeavor. The way things are now set up, I believe India will gain.