Legacy IAS Academy

#1535, 39th Cross Road, Kottapalaya,

Jayanagar 4th ‘T’ Block, Bangalore- 560041.

Q) Although The Target of Net Zero by 2070 is Within

India’s Capability, Its Strategy Without Pushing The
Deadline Further May Be Challenging. Analyse.
150 words / 10 marks GS-3 (Environment)

Approach:

1. Introduction.
2. Analyse about India’s net zero commitment, with the measures initiated and
challenges.
3. Mention the additional requirements to achieve the target.
4. Conclusion.
The 6th Assessment Report of the IPCC made it clear that the world faces catastrophic
consequences of rising temperature unless nations make significant innovative efforts to alter
this course. ‘Net Zero’ refers to the offsetting new GHG emissions with actions that make net
emissions zero. This concept has become the focal point of action to deal with anthropogenic
climate change.

At the 2021 COP 26, many countries have agreed to the goal of achieving Net Zero by 2050.
However, countries which are still relatively poor, have been reluctant to commit. They argue
that advanced countries, which created the current situation with their past emissions, should
do more to fix the problem. At COP 26, India agreed to a goal of Net Zero by 2070.

India contributes just above 7% to global CO2 emissions. This reflects the fact that it is still in
the early developmental stages. Given this situation, India’s adoption of the net zero target by
2070 is quite reasonable, with strategies like rapid adoption of renewable energy, advanced
technologies, etc.

India needs to focus on green electrification to make net zero goal possible without sacrificing
economic growth. India will require large investment in solar power. Currently, electricity
accounts for just over a quarter of total final energy consumption, and solar & wind power is
about 20%. To achieve net zero by 2070, electricity generation capacity must be increased to
 Legacy IAS Academy
#1535, 39th Cross Road, Kottapalaya,
Jayanagar 4th ‘T’ Block, Bangalore- 560041.

6% p.a. Solar power capacity will have to grow faster at 10% p.a. Transmission, distribution &
storage will have to be improved commensurately.

However, the challenges include managing adjustment costs associated with structural changes,
overcoming vested interests, catalyzing innovation, and coordinating different aspects of
change across sectors.

Given the global nature of the menace of climate change, India should be receiving financial
support from countries that have historically been greater cumulative contributors to the grave
situation. Estimates suggest that India will need additional annual investment of 2.7 – 4.5% of
its current GDP. This is beyond the government’s resource capacity, only feasible through a
mix of bilateral & multilateral contributions, along with private investments. National
policies have to be coordinated accordingly. Also, the strategy of green development should be
more inclusive & equitable than usual business approaches.

While a net zero target by 2070 is well within India’s capacity, accelerating that goal by a decade
or two or flattening the emissions curve may be more challenging. In particular, the dominance
of coal in electric power generation & industrial processes require special attention to capture
C at project & plant level. Clear estimates of resource costs & degree of technological
innovation can help integrate national strategy with international resource commitments. India
can serve as a role model & leader for all developing countries in achieving global coordination
of reduction of GHG emissions.
 Legacy IAS Academy
#1535, 39th Cross Road, Kottapalaya,
Jayanagar 4th ‘T’ Block, Bangalore- 560041.

Q) Elucidate How The Delay in Pillar I implementation

Of The OECD Taxation Framework Will Have
Ramifications From India’s Equalization Levy
Standpoint.
250 Words / 15 marks GS-2 (Global Groupings)

Approach:

1. Introduction.
2. Mention the proposals in Pillar I and Pillar II.
3. Point out the implications on India’s Equalization levy.
4. Mention briefly about Pillar II implementation.
5. Conclusion.
The OECD nations and other nations signatories to the G20 Inclusive Framework on Base
Erosion and Profit Shifting (BEPS) worked with an ambitious timeline to implement the Pillar I
of the two-pillar solution developed to address the tax challenges that have emerged over the
past few years from increasing digitalization of the economy. The broad consensus was
announced in 2021, with necessary changes to domestic laws and treaties be drafted, enacted
and implemented for the new rules to come into force in 2023.

● Pillar I: The new taxing right allows market jurisdictions to tax a portion of the profits
of the largest multinational groups. The implementation of this entail multiple steps –
multilateral convention, followed by explanatory statements & draft model rules for
domestic legislation. This is to be finally succeeded by ratification by countries to take
effect on ground in 2023.
● Pillar II: The development of standard remuneration for in-country baseline marketing
& distribution activities are scheduled to be released this year end.

However, it appears that these challenging timelines for the development and signing of
multilateral convention by mid-2022 may not be met. The OECD Secretary General recently
commented that implementation of Pillar I could be deferred to 2024. From India’s
perspective, this potential deferral can have impact in 3 broad areas :
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#1535, 39th Cross Road, Kottapalaya,
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● Implementation of Pillar I is linked to withdrawal of digital service tax like

equalization levy. A potential delay can therefore prolong the applicability of
equalization levy by one more year.
● There are many uncertain areas around the scope of equalization levy, like definition
of ‘online sale of goods’ & ‘online provision of services’. Also, compliance
mechanism for it has not evolved fully. There is no refund mechanism. An early
withdrawal of equalization levy could have curtailed avoidable litigation.
● India & US have agreed on a transitional approach under which India is required to give
a credit for equalization levy paid by US companies from April 1, 2022 to the date of
implementation of Pillar I (March 31, 2024). Any delay in implementation would mean
bearing the credit amount for the US companies.

Work on Pillar II has proceeded more rapidly, and model rules & technical commentary on GloBE
Rules have been released, and countries can implement them by incorporating such model rules
into their domestic tax laws. Although Pillar I & II are linked, they are part of a common solution,
but can be implemented independently. It will be important to see if India goes ahead with the
implementation of GloBE Rules in 2023.

Pillar I & Pillar II proposals did put a lot of pressures on multinational corporations which must
not only undertake detailed assessment of the potential impact on their tax profiles &
structures, but also make significant changes to their internal reporting and financial
systems to ensure robust data complying with these changes. A delay can help companies plan
and adapt to these new rules better.