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<p>This paper uses a detailed input–output (Leontief) price model to quantify the inflationary effects of imposing a carbon tax on the Indian economy. By mapping primary fuel consumption (coal, crude petroleum, natural gas) to I-O sectors and applying fuel-specific emission factors, the analysis traces how tax-induced cost shocks propagate through supply chains to producers’ prices and, ultimately, to the Consumer Price Index. Results show a highly heterogeneous sectoral impact: electricity generation, coke and refined petroleum and basic metals register the largest price increases, while most service sectors see only modest effects. At the aggregate level, the simulated carbon tax raises CPI by roughly 0.6 - 4.1 per cent for carbon prices in the range US$10–100 per ton CO₂. Scenario analysis that allows for incomplete pass-through and modest fuel-switching substantially reduces these upper-bound estimates. </p>

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Inflationary Impact of Carbon Tax in India

  • 期刊论文

  • 发表日期：

    2026年3月17日

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  • Madhuresh Kumar

摘要

This paper uses a detailed input–output (Leontief) price model to quantify the inflationary effects of imposing a carbon tax on the Indian economy. By mapping primary fuel consumption (coal, crude petroleum, natural gas) to I-O sectors and applying fuel-specific emission factors, the analysis traces how tax-induced cost shocks propagate through supply chains to producers’ prices and, ultimately, to the Consumer Price Index. Results show a highly heterogeneous sectoral impact: electricity generation, coke and refined petroleum and basic metals register the largest price increases, while most service sectors see only modest effects. At the aggregate level, the simulated carbon tax raises CPI by roughly 0.6 - 4.1 per cent for carbon prices in the range US$10–100 per ton CO₂. Scenario analysis that allows for incomplete pass-through and modest fuel-switching substantially reduces these upper-bound estimates.