07 April 2010

India Proposes a Coal Tax to Fund Clean Energy Innovation

Pranab Mukherjee, India's Minister of Finance, recently proposed in a speech outlining the government's 2010-2011 budget a tax on coal to fund clean energy technology innovation.
There are many areas of the country where pollution levels have reached alarming proportions. While we must ensure that the principle of "polluter pays" remains the basic guiding criteria for pollution management, we must also give a positive thrust to development of clean energy. I propose to establish a National Clean Energy Fund for funding research and innovative projects in clean energy technologies. . .

Harnessing renewable energy sources to reduce dependence on fossil fuels is now recognised as a credible strategy for combating global warming and climate change. To build the corpus of the National Clean Energy Fund announced earlier, I propose to levy a clean energy cess on coal produced in India at a nominal rate of Rs.50 per tonne. This cess will also apply to imported coal.
Worldwatch observes:

Call it a carbon tax or an example of the “polluter pays principle,” the funds raised by the coal tax will go toward establishing the National Clean Energy Fund (NCEF) for financing “research and innovative projects in clean technologies.” Even though the government has not spelled out these technologies, there is a general understanding that the Fund would be deployed to support renewable energy projects like the ambitious National Solar Mission or innovations to promote more-efficient use of coal.

Given that India is expected to use 600 million tons of coal in the current financial year (April 2010 – March 2011), the tax would raise about 30 billion rupees (US$660 million) for the NCEF. In addition to the coal tax, the budget significantly reduces capital costs for investors in the solar industry by providing a concessional duty of 5 percent on all machinery and technical equipment required for setting up photovoltaic and solar thermal units.

Taxiing today's energy to invest in innovation for tomorrow is a good idea. (Thanks SR)


  1. I like Carbon Taxes better than Cap and Trade. The money collected at least stays where it is collected and does not get sent outside of your economy.

    I'm not sure that using it to fund favorite technologies is a good idea. That fosters other problems (and possibly scams.) Best to just keep the money as taxes, just making the old dirty technologies become less profitable will help move capital into lower taxed cleaner technologies.

  2. We tax gasoline. Why not coal?

    But I agree with #1. Slush funds are political play things. Let the money go into general revenue like gasoline taxes.

  3. "Taxiing today's energy to invest in innovation for tomorrow is a good idea. (Thanks SR) "

    OK, Roger. If a 10% tax is good, maybe a 50% tax is even better. Maybe a sufficient amount of money will actually allow us to repeal the laws of physics! Some policy!!!!

  4. BTW, after many pleas, you still have not explained just how the millions (maybe billions) of $ spent at NREL in your "back-yard" have furthered the "innovation," of which you refer in your last sentence. Are you speaking "bumper sticker platitudes, like the One in the Whitehouse?

  5. This seems like a practical, common-sense approach. Why is the US overthinking this?

  6. "Taxiing today's energy to invest in innovation for tomorrow is a good idea"

    Can't agree.

    For those of us who aren't yet convinced the burning fossil fuels is or will enforce some material cost on society in the form of dangerous climate change it is poor economic policy.

    Playing with relative prices will cause an artifical shift in the factors of production - this is the same problem that Paul Krugman in you more recent post glosses over.

    And publically funded "research" of this nature is invariable a bad idea. Public money invariably gets squandered when governments and their associated bureaucracies (including academic ones) try to pick winners.