Carbon tax cannot be source of climate finance: Pranab Mukherjee

India Saturday strongly opposed imposition of carbon tax as an additional source of funding to fight climate change.

"India believes that some of the measures like carbon export optimisation tax and levy on CDM/offsets violate the principles of the Convention (UNFCCC) as their incidence falls entirely on developing countries and these cannot be recognised as a source of new and additional finance for climate change," Finance Minister Pranab Mukherjee said in Paris.

He was making an intervention at the G20 Finance Ministers' and Central Bank Governors' meeting on Development, Climate and Innovative Financing.

He said global levies on carbon emissions from shipping and aviation should be raised only if a mechanism for refund of revenues collected from developing countries in put in place.

The refund should not be treated as climate change finance flow or a contribution of developing countries to global revenue mobilisation envisaged under the UNFCCC, he said.

"We also feel that the flow of finance leveraged by international finance institutions (IFIs) or the multilateral development banks (MDBs) should be counted towards the overall target only if there is a net additional infusion of capital by the developed countries to the capital base of the MDBs/IFIs," he said.

Mukherjee said the grant or concessional portion of the loans advanced by MDBs on the basis of such new capital only should be counted as new and additional finance for climate change.

Mukherjee said that carbon offsets cannot be counted as a source of revenue if they lead to double counting of emissions.

"On the same grounds, carbon offsets cannot be counted towards fulfilling the emission reduction targets of developed countries if they are also counted as flow of finance from developed to developing countries," he said.

Carbon prices were dependent on ambitious emission reduction obligations of developed country parties under a legal obligation, he said, adding that in a voluntary market the carbon emission reductions command a very low price.

"Hence the high revenue scenarios are not achievable unless Kyoto negotiations on the second commitment period or climate change negotiations under the Convention succeed," he said.

Mukherjee said the revenue raised through taxes levied on the basis of carbon content in fuels would mostly flow into the domestic budgets of the developed countries with hardly 10 per cent reaching the developing nations for climate finance.

"The cost of raising revenues like administering these taxes uniformly at a global level, cost incurred in transferring the funds to the developing nations have not been explicitly touched upon," he said, adding that these costs would significantly affect the feasibility of a global USD 25 per ton carbon levy.

He pointed out that the G77 and China have proposed that developed countries should contribute around 0.5 per cent of their GDP to climate finance.

"Therefore, a USD 25 carbon tax amounting to 0.05 per cent GDP of an average developed country alone would not suffice, especially when only around 10 per cent of this amount will be available to the developing world," Mukherjee said.