ABSTRACT
Green taxation refers to fiscal instruments such as taxes, cess, duties, and charges imposed to discourage environmentally harmful activities and promote sustainable development. In India, green taxation has emerged as an important policy tool to address environmental degradation, climate change, and pollution. While India’s approach reflects its commitment to sustainable growth, the effectiveness and equity of such taxation remain subjects of debate. One of the most notable examples of green taxation in India is the coal cess (introduced in 2010 and later subsumed under the GST Compensation Cess). The objective was to generate funds for the National Clean Energy Fund (NCEF) and promote renewable energy initiatives. Similarly, higher excise duties on petroleum products, green cess on old vehicles in certain states, plastic waste management fees, and pollution charges imposed by the National Green Tribunal (NGT) represent efforts to internalize environmental costs. India has also implemented carbon pricing indirectly through fuel taxation, though it does not yet have an explicit carbon tax system. The significance of green taxation lies primarily in its alignment with the “polluter pays principle.” By increasing the cost of environmentally harmful activities, green taxes create economic incentives for industries and consumers to shift towards cleaner alternatives. For a developing country like India, facing severe air pollution, water contamination, and rising greenhouse gas emissions, fiscal measures can play a transformative role in promoting renewable energy, electric mobility, and sustainable consumption patterns.
Key Words: Green Taxation, Carbon Tax, Indian Taxation, Environmental Protection, Green Economy.
INTRODUCTION
Environmental degradation, climate change, and rapid industrialization have emerged as major challenges confronting India in the twenty-first century. As one of the fastest-growing economies in the world, India faces the dual responsibility of sustaining economic development while ensuring environmental protection. In this context, green taxation has gained prominence as an important fiscal policy instrument aimed at promoting sustainable development. Green taxation refers to the imposition of taxes, cess, duties, and other fiscal charges on activities that cause environmental harm, with the objective of discouraging pollution and encouraging the adoption of cleaner alternatives. In India, green taxation has been implemented through measures such as the coal cess, increased excise duties on fossil fuels, green cess on old vehicles, and various environmental compensation charges imposed by regulatory authorities. These measures reflect the application of the “polluter pays principle,” which seeks to internalize environmental costs within market mechanisms. However, the effectiveness, fairness, and overall impact of green taxation remain subjects of critical examination, particularly in a developing country where socio-economic inequalities and developmental priorities coexist with environmental concerns.[1]
This study undertakes a critical analysis of green taxation in India and its significance, examining its objectives, implementation, challenges, and role in advancing environmental sustainability while balancing economic growth and social equity. However, the implementation of green taxation in India presents several challenges. First, there is a concern about regressivity. Higher fuel taxes can disproportionately affect lower-income groups, as transportation and energy costs form a significant part of their expenditure. Without adequate redistribution mechanisms or subsidies for clean alternatives, green taxes may widen socio-economic inequalities. Second, there are questions regarding the utilization of funds. Critics argue that revenues collected under environmental levies are not always transparently or exclusively allocated to environmental protection. The diversion of funds may dilute the intended environmental impact.
Another critical issue is the lack of a comprehensive framework. India’s green taxation measures are often fragmented across sectors and states, lacking uniform standards and long-term policy coherence. While initiatives like the Perform, Achieve and Trade (PAT) scheme and Renewable Purchase Obligations (RPOs) complement green taxation, a more integrated carbon pricing mechanism could provide clearer signals to the market. Furthermore, enforcement remains inconsistent, particularly in regulating industries and ensuring compliance with environmental norms. Despite these limitations, green taxation has significant policy relevance in India’s developmental context. It supports India’s international commitments under the Paris Agreement and reinforces the transition towards a low-carbon economy. By generating revenue for clean energy projects and incentivizing technological innovation, green taxes can reconcile economic growth with environmental sustainability[2]
RESEARCH METHODOLOGY
The present study on green taxation adopts a doctrinal research methodology, which is primarily library-based and focuses on the analysis of existing legal principles, statutory provisions, judicial decisions, and scholarly writings. This research relies on primary and secondary sources of law. Primary sources include the Constitution of India (particularly Articles 48A, 51A(g), 253, and related fiscal provisions), parliamentary legislations such as the Finance Acts introducing coal cess and GST Compensation Cess, the Environment (Protection) Act, 1986, and relevant taxation laws. Judicial pronouncements of the Supreme Court of India, High Courts, and the National Green Tribunal (NGT) interpreting the “polluter pays principle,” sustainable development, and environmental compensation form a crucial part of the doctrinal analysis. Landmark cases such as Vellore Citizens’ Welfare Forum v. Union of India and Indian Council for Enviro-Legal Action v. Union of India are examined to understand the evolution of environmental fiscal responsibility in India. Secondary sources include books, peer-reviewed journal articles, law commission reports, government publications, policy documents, reports of the Ministry of Environment, Forest and Climate Change (MoEFCC), and reports from international organizations such as the OECD and World Bank. These materials provide conceptual clarity, comparative perspectives, and critical commentary on green taxation mechanisms and their implementation.
[1] Nicholas Stern, The Economics of Climate Change: The Stern Review (Cambridge Univ. Press 2007).
[2] William J. Baumol & Wallace E. Oates, The Theory of Environmental Policy (2d ed. Cambridge Univ. Press 1988).