Budget 2010 – how climate-friendly was it?
India’s Finance Minister Pranab Mukherjee, announced the Union Budget for 2010-2011 in Delhi on 26 February 2010. With global attention on climate change and India having announced its own voluntary commitment to reduce emissions intensity by 20-25 per cent by 2020, the question many were asking was: is the government going to put its money where its mouth is? The Minister’s speech signaled the government’s intention to transform India’s energy mix and meet the twin challenges of energy security and climate change. The Budget 2010 did contain some important announcements and initiatives – perhaps the most significant of which was the National Clean Energy Fund and the energy cess on coal (domestic and imported).
Here’s a look at some of the key measures:
Direct Funding
1. To establish a National Clean Energy Fund for funding research and innovative projects in clean energy technologies and harnessing renewable energy sources to reduce dependence on fossil fuels.
2. A doubling of the budget for the Ministry of New and Renewable Energy (MNRE) – largely to fund the Government’s flagship Jawaharlal Nehru National Solar Mission. (The Solar Mission has an ambitious target of reaching 20,000 MW of solar power by the year 2022, effectively making India a leading player in solar energy in years to come.) MNRE’s budget rose by 61 percent – from Rs 620 crore in 2009-10 to Rs.1000 crore in 2010-11.
3. An allocation of Rs 200 crore for launching the Climate Resilient Agriculture Initiative. This seeks to sustain gains made in the green revolution but strengthen conservation farming, which involves soil health, water conservation and biodiversity preservation.
Tax Proposals
1. Clean energy cess on coal produced in India at a rate of Rs.50 per tonne. The cess will also apply to imported coal to build the corpus of the National Clean Energy Fund.
2. Concessional customs duty of 5 per cent on machinery, instruments, equipment and appliances etc. required for the initial setting up of photovoltaic and solar thermal power generating units and also exempt from Central Excise duty. Ground source heat pumps used to tap geothermal energy would be exempt from basic customs duty and special additional duty.
3. Exempt a few more specified inputs (some were already exempt in last year’s budget) required for the manufacture of rotor blades for wind energy generators from Central Excise duty.
4. Halve Central Excise duty on LED lights from 8 per cent to 4 per cent. This now places LEDs on par with Compact Fluorescent Lamps (CFLs).
5. Provide concessional excise duty of 4 per cent to CSIR-developed ‘Soleckshaw’ – the solar version of a hand-pulled cycle rickshaw which runs on solar-powered batteries. The Soleckshaw’s key parts and components would also be exempt from customs duty.
National Clean Energy Fund and cess on coal
The National Clean Energy Fund (NCEF), a provisional title for this initiative, and the cess on coal are arguably the most interesting innovations in the budget. The former is intended to provide a source of investment for entrepreneurial ventures and research into clean energy technologies. The bulk of the funds for the NCEF are to be raised through a clean energy cess on coal produced in India as well as imported coal at a rate of Rs 50 per tonne. This cess on coal is not the first such ‘green tax’ to be applied in the India. The water cess has been levied and collected by the State Pollution Control Boards for prevention and control of water pollution for some time.
How large is the fund likely to be? The estimated demand for coal in India in the Budget period is likely to be 440 million tonnes (2010-11) and 518 million tonnes (2011-12) respectively. An extrapolation from this suggests that the size of the NCEF could be anything in the range of INR 22,000 million to INR 25,900 million respectively for FY 2010-11 and 2011-12. This will increase as India’s appetite for coal increases, but the revenues generated could build a core funding base for the Missions under the National Action Plan on Climate Change (NAPCC).
By making the tax environment less friendly for fossil fuel firms and by providing fiscal relief for companies in the renewable energy sector, the government has provided a helping hand. This is to be welcomed but will need to be built on aggressively if the scale of the ‘greening India’ challenge is to be met effectively. For now, though there is at least something for those in the renewable energy industry to capitalise on.
Looking across the Budget, it can be seen that energy security concerns and environment have been further embedded with some fiscal incentives and budgetary support for green measures. An allocation has been made for the Solar Mission but the remaining seven Missions of the NAPCC are still left stranded, and the mitigation and adaptation challenge faced by the country has been inadequately addressed. The Government has not made good on its promises to put budgets next to programmes.
For example, the National Mission on Enhanced Energy Efficiency (NMEEE) was supposed to be one of the two priority Missions in the NAPCC. The NMEEE is supposed to be implemented from April 1 2010. The Government says that it is aiming at building a market worth Rs 74,000 crore for energy efficient products and accrue avoided capacity addition of over 19,000 MW, however, no budget has been announced for this. One can only surmise that as the Ministry of Power will be overseeing the MNEEE, and as the Ministry of Power’s budget allocation has more than doubled from Rs 2,230 crore in 2009-10 to Rs 5,130 crore in 2010- 11, that we will see baseline funds for the MNEEE. But in the absence of clarity from the Government, this remains speculation.
More worryingly, the status of the six other missions of the NAPCC continues to be in limbo. The table below provides an update of where things are presently at. (Budgetary updates 2010-11 have been indicated in square brackets.)
Status of NAPCC’s Eight Missions (February 2010)
1. Jawaharlal Nehru National Solar Mission – Approved by Prime Minister’s Council on Climate Change (PMCCC); to be coordinated by M/o New & Renewable Energy. [Funds approved in Budget 2010-11]
2. National Mission for Enhanced Energy Efficiency – Approved by PMCCC and to be implemented from 1 April 2010; to be coordinated by M/o Power.
3. National Mission for Sustaining the Himalayan Ecosystem – Draft dated 26 October 2009 approved by PMCCC in principle.
4. National Mission on Strategic Knowledge on Climate Change – Final draft (15 October 2009) considered by PMCCC but decision unknown.
5. National Mission on Sustainable Habitat – Final Draft Mission document prepared by M/o Urban Development, under consideration by PMCCC.
6. National Water Mission – Mission document prepared by M/o Water Resources, under consideration by PMCCC.
7. National Mission for Green India – Mission document prepared by M/o Environment & Forests, under consideration by PMCCC.
8. National Mission for Sustainable Agriculture – Mission document prepared by M/o Agriculture, under consideration by PMCCC.
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