Coal Tax in India

While India has not given up its right to develop large new electricity power capacities using coal, the government is consistently increasing the cost of this power using a clean cess. The coal tax which started 2 years ago at Rs.100/  ton ($1.5 ton) was first doubled last year to $3/ton. This tax has again been doubled to $6/ ton. All these funds will go into a National Clean Energy Fund (NCEF), which will be used to fund green projects especially renewable energy. The Indian government has been aggressively building large new RE projects, especially solar and has a very ambitious plan of increasing RE capacity by almost 400% in the next 5 years. This means a huge amount of funding will be required not only from private sources, but also government to provide subsidies till RE becomes fully sustainable on its own.

The clean coal cess will not only increase the prices of coal for steel and cement users, but also the power users. It is expected that most of the power producers would pass through the higher costs of coal. Even Coal India, which is Indian’s monopoly coal producers is expected to sharply increase its price to pass on the costs.

I think it’s a great move on the part of the Indian government. Renewable energy costs do not reflect the advantages and positives effects on environment. It is necessary not only to make fossil fuels expensive, but dissuade them from using these. Clean cess is a double whammy against the use of fossil fuels. They not only increase their costs, but decrease the costs of competitive RE sources. The Indian government has drastically increased the budget of its RE ministry, from around $40 million to around $700 million. This will allow the government to implement many policies, which were announced earlier such as setting up of 5000 MW of rooftop solar capacity using MNRE funds.