India's Coal Tax Would Generate $650 Million Annually for the Clean Energy Fund

June 27th, 2010 by Mridul Chadha

The Indian government has decided to levy the Clean Energy Cess, or coal tax, on all the coal mined in the country or imported from July 1, 2010. The energy cess was announced by the finance minister Mr. Pranab Mukherjee in this year’s union budget which presented in February.

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The Indian government announced the coal tax in order to generate funding for the research, development and deployment of cleaner and renewable energy technologies. A tax of Rs. 50 would be levied on every tonne of coal mined in the country as well as that imported from abroad.

As of April 1 2009, India’s coal reserves stood at 267 billion tonnes. There has been a steady increase in the coal production over the years. The government has a target of mining 461 million tonnes in 2007-08 as against the actual production of 430 million tonnes in 2006-07. Thus the domestic coal mining sector would contribute about $500 million annually while the rest $150 million would be contributed through the import of coal in order to fulfill the demand of 600 million tonnes.

Coal is the primary source of power generation in India with more than 7o percent of the total electricity generated coming from coal-fired power plants. It is also among the cheapest sources of energy as there are vast reserves of this resource in the country and the dependence on foreign suppliers is far less compared to other resources like oil, natural gas and nuclear fuel. Many analysts, and the Indian government itself, sees coal as a major driving force for the electrification of rural areas as it seems highly cost effective.

However, with India already committed to reducing its carbon intensity by 20 to 25 percent by 2020 from 2005 levels, the strategy of using coal for large-scale rural electrification could hamper its efforts to achieve the carbon intensity reduction targets. In order to meet its clean up targets, offset the carbon emissions, it is necessary that the government invests heavily in the renewable energy technologies. Therefore, the need of a National Clean Energy Fund.

Now instead of complicating the process by introducing a cap-and-trade mechanism for coal mining companies or coal-fired power plants, the government took the smart and easier way of generating funds for financing its clean energy projects. A coal tax presents the simplest of solutions given the lack of infrastructure required for carbon trading in India. Coal mining and production is strictly under the control of the Coal Ministry and hence a close eye can be kept on the total production and, in turn, the prospective revenue generation.

This is a wise move on part of the Indian government; the tax would create a substantial amount of financing for clean energy projects like the National Solar Mission without significantly increasing the consumer utilities.﻿

Image Credit: Nostrifikator (Creative Commons License; Wikimedia Commons)

The views presented in the above article are author’s personal views and do not represent those of TERI/TERI University where the author is currently pursuing a Master’s degree.

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