RESEARCH ARTICLE Evaluating the performance of carbon tax on green technology: evidence from India Aaqib Ahmad Bhat 1 & Prajna Paramita Mishra 1 Received: 16 February 2019 /Accepted: 1 October 2019 # Springer-Verlag GmbH Germany, part of Springer Nature 2019 Abstract Introduction of carbon tax and the resulting National Clean Energy and Environment Fund are seen as important policy reforms in India’ s quest for achieving energy security and reducing the carbon intensity of energy. This study seeks to evaluate the impact of carbon tax on R&D in energy efficient technologies. To carry out the analysis, the study employed the difference-in-difference technique for the period 2005–2017. The results highlighted that there are less chances of achieving a ‘Double Dividend Hypothesis’ for carbon tax in India. Except the renewable energy sector, the support initiatives for enhancing energy efficiency have been rather limited and the government’ s own revenue considerations seem to be dominating. The study holds that the NCEEF should be insulated from the vagaries of fiscal politics and that a strong reformation in guidelines, utilisation and allocation patterns is required to optimally realise the potential of the fund. Keywords Carbon tax . NCEEF . R&D . Double dividend hypothesis . Difference-in-difference technique Introduction Introduction of carbon tax (known as the ‘Clean Environmental Cess’) and the resulting National Clean Energy and Environment Fund (NCEEF) 1 are seen as important policy reforms in India’ s quest for achieving energy security and reducing the carbon in- tensity of energy. This has been done to fulfil the voluntary commitment of reducing emission intensity from the 2005 level 2 by 20–25% by 2020 via sector-specific support in terms of fi- nancial outlay, technology choices and research and innovation (Bali and Mongia 2013). Without an appreciable technological advancement of both existing and new technologies, especially in the energy sector, the problem of climate change is unlikely to be addressed (Helm 2012). Pricing energy fuels is a way of internalising negative ex- ternalities (carbon emissions), thereby acting as an inducing factor to switch over to clean energy sources (Georgakellos 2010; Bhattacharyya 1995). While praising carbon tax, Hansen held that ‘carbon tax is essential to make all other climate policies work and “decarbonize” the economy’ (Hansen 2009). However, the additional increase in costs as- sociated with carbon taxes can be substantial and may act as a hindering factor for economic growth. Moreover, firms may be tempted to shift the burden of increased costs to the final consumers and hence worsen the already existing skewed in- come distribution (Goto 1995; Callan et al. 2009; Siriwardana et al. 2011). To avoid the possible unfavourable effects due to carbon pricing, several policy measures of revenue recycling are recommended. The prominent ones are revenue recycling through lump-sum grants, cuts in other distortionary taxes or by a win-win policy (for those who reduce emission via a technological base), technological diffusion in developing economies—a thorough analysis of which has been done by Sumner et al. (2011) and Bowen (2011). 1 As a voluntary green initiative, in 2010, India imposed a nationwide carbon tax on coal, lignite and peat in the form of tax per ton of carbon emissions generated from the burning of fossil fuels produced both domestically and abroad. The resulting collections contribute to the corpus of the National Clean Energy Fund (NCEF), established to finance research & development (R&D) and innovative projects aimed at promoting clean energy technologies and associated clean environment initiatives. 2 In 2005, India’ s emission intensity was 0.47 metric tons of CO 2 per $1000 of GDP (Gross Domestic Product). In order to fulfil its commitment, its emission intensity should come to about 0.35–0.31 metric tons by 2020. Responsible editor: Philippe Garrigues * Aaqib Ahmad Bhat aaqibbhat1771@gmail.com Prajna Paramita Mishra ppmss@uohyd.ernet.in 1 School of Economics, University of Hyderabad, Hyderabad, Telangana 500046, India Environmental Science and Pollution Research https://doi.org/10.1007/s11356-019-06666-x