Willingness to pay for carbon tax: A study of Indian road passenger transport

Transport plays an important role in everybody's life; but transport, specifically road transport contributes highly to the emissions of CO2 and other Green House Gases. Road transport bears 73% share of total CO2 emissions from transport sector. High concentration of these gases leads to air pollution in terms of poor air quality and health related risks. Many countries have adopted carbon tax as a cost effective measure to correct environmental externality and reduce CO2 emissions since early 1990s. But before adopting carbon tax as a policy measure, it is important to determine people's willingness to pay (WTP) for effective implementation of the same. In order to know the effectiveness of carbon tax in Indian road passenger transport, this study presents the contingent valuation analysis of people's willingness to pay with the help of primary data collected from three different metropolitan cities – Delhi, Mumbai and Bangalore. Probit and tobit regression models are used to analyse the data. Findings show that people of India are willing to pay. Environmental awareness in terms of people's interest in environment, their environmental activities, education, income and age have significant role in determining WTP. The study suggests macro level policy recommendations in terms of utilizing fiscal instruments (such as tax) for environmental externalities. It also helps to analyse sustainability oriented behaviour in terms of society's willingness to pay to avoid environmental risks through contingent valuation method.