Richard Damania, Chief Economist, Sustainable Development Practice Group at the World Bank
At a time when the United Kingdom (UK) and the European Union (EU) are looking to lower carbon emissions through various measures, including taxation, Richard Damania, Chief Economist, Sustainable Development Practice Group at the World Bank, told Moneycontrol in an interview that carbon pricing is a “double-edged sword” and needs to be addressed globally.
“If one country wants to have carbon pricing to protect its forests but a producer in another country does not protect its forests or aims to reduce carbon emissions, then the latter gets a competitive advantage. That means countries that are willing can’t go ahead with these steps because then they will lose business. So, unless it is a global effort, the problem of competitive disadvantage is not going to be addressed,” Damania says.
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Carbon pricing, or putting a price on carbon, entails capturing the external cost of emissions and consequently implementing steps to bring them down by driving investment into cleaner options. One of the measures to achieve this is a carbon tax, which directly sets a price on carbon by defining a rate of levy on greenhouse gas emissions.
The EU has introduced a Carbon Border Adjustment Mechanism (CBAM) starting October 1 this year. CBAM will translate into a 20-35 percent tax on select imports into the EU starting January 1, 2026. India is also said to be considering a carbon tax, especially for exports to European nations.
Excerpts from the interview:
What is your outlook for world trade given climate concerns, especially with certain countries leaning on measures like a carbon tax?
First, trade is vital to moving the economy and also for sustainability. Suppose we did not have trade; then all of us would have to produce our own goods. If you wanted to eat rice, which is a very water-thirsty crop, and you were living somewhere very dry, you would have to grow your own rice. With trade, countries that get more rainfall, like Thailand and parts of India, can grow rice and export it to nations