Rs 57,600 Crore Dedicated To Clean Energy Diverted To Compensating State Govts For GST Losses

Union Power Minister Piyush Goyal on May 23 had said that the coal sector will likely contribute Rs 35,000-40,000 crore by way of the Goods and Services Tax (GST) compensation cess in 2017-18.

The ‘compensation cess’ is a corpus created to make up for state government’s revenue losses from shifting to the GST regime.

In the last six years, the government of India has collected around Rs 54,000 crore by levying a cess on every tonne of coal mined or imported. From its introduction in 2010 by the then Finance Minister Pranab Mukherjee, the cess was increased from Rs 50 per tonne to Rs 400 per tonne.

This was India’s carbon tax – a source of funding clean projects to combat climate change.

However, reports claim that less than half of the amount collected was given to the National Clean Energy Fund (NCEF) and only about Rs 10,000 crore (18%) of the fund was given out for projects.

Now, under the GST regime, the unspent money will be used to feed the GST Compensation Fund – as mentioned before, a fund meant to protect state governments against any losses arising out of GST.

Under GST, the tax incidence on coal is 5% – a reduction from the previous 11%, which the power minister said will be factored in by state electricity regulators. However, this excludes the cess on coal, which will continue to exist and now fund the GST compensation fund.

“This is a complete let-down. You cannot impose a carbon tax and then use it for compensating states,” said Rajya Sabha member and former Minister for Environment & Forests Jairam Ramesh, reported The Hindu Business Line.

The question that arises here is – ‘If the cess collections are being diverted to compensate state government for losses, where will the NCEF – the primary body for funding clean energy projects in India – get money from?’

Over the next five years, funds amounting to more than Rs 1 lakh for the NCEF will also dry up, reported Scroll.in, and from next year, India will not have a National Clean Energy Fund.

The media house also reported that a senior finance ministry official who did not wish to be named, said, ”Basically, the fund is now dead wood. The concept of non-lapsable pool is a misnomer (inaccurate term) in the Indian system. We have several such funds with dedicated purposes. But there are so many demands on our limited resources and a reassessment of priorities is done each year. The money collected so far in the clean energy fund and remaining unspent will go towards compensating states.”

India has the concept of ‘non-lapsable’ funds dedicated to specific cess; meaning that if a fund collected in a financial year remains unspent by the end of the FY, it is subsumed for future use against the specific purpose. The fund cannot be used by the government at its discretion, however, the ruling BJP government has decided to divert the fund, which stands unspent at Rs 56,700 crore, from NCEF.

Why is coal cess important under National Clean Energy Fund?

The idea behind setting up the coal cess, also known as the Clean Energy Cess, was simple – by imposing an additional tax on coal, the price of the dirty energy goes up, thus renewable sources of energy are promoted. The government taxes coal production because the combustible rock is the main contributor to carbon dioxide emissions, which, in turn, is the main cause of climate change.

Coal cess is crucial because the price of fossil fuels is set traditionally low by the government (since air pollution and public health crisis are not accounted for in the price) and the cess acts as an additional burden to bring up the cost. Not just this, but the fund also supports research and development of clean technologies.

The grim reality

The BJP-led government had won praises from global environmentalists for keeping the coal cess high – from Rs 50 to Rs 100 tonne in 2014, Rs 200 a tonne in 2015 and Rs 400 per tonne in 2016. This helped India, one of the world’s top greenhouse gas emitters, gain pole position at the Paris Climate Change negotiations as well.

In September 2016, Prime Minister Narendra Modi announced in Kerala that India will ratify the Paris climate deal on 2 October of the same year, on the birth anniversary of Mahatma Gandhi. India’s shift towards clean energy had been laudable, with the country emerging as the second-biggest destination for renewable energy and taking monumental strides when it came to solar and wind energy. As the United States of America withdrew itself from the Paris agreement last month, India declared solidarity with the international framework for climate change.

However, India’s praiseworthy efforts towards mitigating greenhouse gas emissions and encouraging usage of renewable energy, fell short of expectations with the introduction of the GST compensation fund.

Coal cess is crucial for India’s commitment to the Paris Agreement and for funding about 55 ongoing clean energy projects.

The government’s fiddling with the fund is nothing new. In the 2016-17 budget, the NCEF was renamed as Clean Environment Cess, and subsequently in March this year, it was renamed as Clean Energy and Environment Fund. This was done in order to back a host of other categories of projects apart from clean energy – Ganga rejuvenation, drinking water and sanitation, green technology in the Smart City Mission and nuclear energy projects under the Department of Atomic Energy, among others.

In conclusion, the death of National Clean Energy Fund will pose a colossal challenge to the Ministry of New and Renewable Energy. Any investment required in this field will mean that the government will have to dig into its general corpus of revenue. It remains doubtful if India will be able to meet its targets under the Paris Agreement without this fund.

The Logical Indian hopes that the government rethinks its decision because as citizens of this world, we have a responsibility toward our environment. Climate change is probably the biggest global problem of our time and without the National Clean Energy Fund, the future has become entirely uncertain.