Thursday, November 8, 2012

Carbon tax or Sin tax?

The National Electricity Policy-2005 had promised: Access to Electricity - Available for all households in next five years; Availability of Power - Demand to be fully met by 2012. Energy and peaking shortages to be overcome and adequate spinning reserve to be available; Supply of Reliable and Quality Power of specified standards in an efficient manner and at reasonable rates; Per capita availability of electricity to be increased to over 1000 units by 2012; Minimum lifeline consumption of 1 unit/household/day as a merit good* by year 2012. The 2011 Census shows 9 crore households lack access to electricity!
There is not much hope that above promises can be met even in the 12th five year plan unless certain urgent and strong measures are taken under the provisions of the Energy Conservation Act, 2001, the Electricity Act, 2003 and other relevant Acts & Policies.

In economic parlance, a demerit good is a good or
service
whose consumption is considered unhealthy, degrading, or otherwise socially undesirable due to the perceived negative effects on the consumers themselves. It is over-consumed if left to market forces. Examples include tobacco, alcoholic beverages, recreational drugs, etc. Because of the nature of these goods, governments often levy taxes on these goods (specifically, sin taxes), in some cases regulating or banning consumption or advertisement of these goods.
Some energy experts have an interesting thought process: Considering the fact that 34 % of the households in India are still living without electricity, should over consumption/inefficient use/abuse of electricity be considered as 'Demerit Good' and be taxed heavily as 'Sin Tax' ?! What do you think??

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