A carbon tax is a direct price placed on greenhouse gas emissions — typically expressed as a cost per tonne of carbon dioxide (CO₂) equivalent emitted. By making carbon-intensive activities more expensive, a carbon tax incentivises businesses and consumers to reduce emissions, switch to cleaner technologies, and improve energy efficiency. Carbon taxes differ from cap-and-trade systems in that the price of carbon is fixed by regulation rather than determined by market forces. While India does not currently have an explicit carbon tax, the country effectively implements a form of carbon pricing through its coal cess (the National Clean Energy Fund levy) and excise duties on fossil fuels. For Indian investors, the global trend toward carbon pricing has significant implications for the valuations of carbon-intensive sectors — including steel, cement, aluminium, and fossil fuel energy — and for the competitiveness of green energy investments.
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