component, and imposing a direct price tag on carbon-equivalent GHG emissions (i.e., a carbon tax).<sup>5</sup> This will allow for gradual substitution across energy types and provide an incentive for producers to transition to low-carbon technologies.

# **2.2 South Asia’s climate mitigation commitments**

All South Asian economies have committed to reducing GHGs as specified in their Nationally Determined Contributions (NDCs) towards climate mitigation announced in the 26<sup>th</sup> United Nations Climate Change Conference of the Parties (COP26). Table 1 summarizes the NDCs of the economies in the region that have specified mitigation pledges.<sup>6</sup> Appendix 1 provides details on the pledges under COP26, and policies undertaken so far. Each of these NDCs comes with a set of proposed actions, detailed in the official UNFCCC NDC Registry.<sup>7</sup>

**Table 1. South Asia: NDCs and NDC-consistent carbon taxes by economy, 2030**

|**Economy**|**NDC description**|**2030 NDC-consistent carbon**<br>**tax(US$/ton CO2e)**|**NDC achievable**<br>**in BAU?**|**Income**<br>**group**|
|---|---|---|---|---|
|**Afghanistan**|13.6 percent reduction in emissions against the baseline<br>(conditional on external financing).|50.0|No|IDA|
|**Bangladesh**|Limit of 381.85 mt CO2e including LULUCF.|0.0|Yes|IDA|
|**Bhutan**|Remain carbon neutral.|Unquantifiable NDC|n.a.|IDA|
|**India**|45 percent reduction in emissions intensity of GDP.|0.0|Yes|MIC|
|**Maldives**|Limit of 2.43 mt CO2e by 2030 excluding LULUCF.|8.5|No|IDA|
|**Nepal**|Reduce fossil fuel dependency by 50 percent via various<br>renewables/sectoral targets.|Unquantifiable NDC|n.a.|IDA|
|**Pakistan**|Limit of 1362.55 mt CO2e including LULUCF.|0.0|Yes|IDA|
|**Sri Lanka**|4 percent reduction in emissions (14.5 percent conditional on<br>external financing)against the baseline.|23.7|No|IDA|

Source: UNFCCC (https://di.unfccc.int/time_series), and authors' estimates using CPAT.

Note: Nationally Determined Contributions (NDCs) are assumed to be unconditional on external financing, except for Afghanistan. ‘2030 NDC-consistent carbon tax’ assumes a gradual introduction of the carbon tax rate (in equal increments) between 2024 and 2030, as well as absence of consumer/producer fossil fuel subsidy or price control phaseouts. If NDCs are assumed conditional on external financing the ‘2030 NDC-consistent carbon tax’ would be equal to 36.9 US$/ton CO2e for Bangladesh and 40.2 US$/ton CO2e for Sri Lanka, respectively. International Development Association (IDA) countries are more likely to be eligible for grants to finance mitigation and/or adaptation. Bhutan and Maldives borrow on small economy terms. Bangladesh borrows on blend credit terms. As of 2022, Sri Lanka has been reclassified as an IDA country, to allow for concessional financing. MIC=middle-income country under the World Bank's country income and lending group classification. LULUCF= Land Use, Land-use Change and Forestry. CO2e = carbon dioxide emissions-equivalent; BAU = Business-As-Usual; NDCs = (voluntary) NDCs for COP26, at most consistent with 2.5-3 degrees Celsius warming above pre-industrial levels.

> 5 See Parry, Black and Vernon (2021) for a definition of explicit subsidies.

> 6 Bhutan is already a net negative carbon emitter, Maldives contributes a miniscule amount to global warming, and Afghanistan faces major fragility and conflict-related challenges that impede playing an active role in the Paris Agreement. See also Jha (2021) for a succinct analysis of the Paris Agreement pledges of South Asian economies.

> 7 See: https://unfccc.int/NDCREG.

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