The clean energy cess on coal proposed by finance minister Pranab Mukherjee, in his budget speech, yesterday, may well be part of series of green taxes that the government is planning. The Union environment ministry is thinking about other such taxes in coordination with other ministries. The cess may hike costs of coal.

Keeping in mind India’s commitment of cutting its emission intensity by 20-25 per cent cuts by 2020,Mukherjee talked about setting up of a National Clean Energy Fund (NCEF) to harness renewable energy sources to reduce dependence on fossil fuels for combating global warming and climate change. To build up the NCEF’s corpus, he proposed to levy a clean energy cess on both the coal produced in India and imported at a rate of Rs 50 per tonne.

The cess, is being considered a green tax by the industry and the environment ministry itself, that is mulling similar taxes in coordination with other ministries.

“This coal cess is a major green initiative and it will not be out of place if the ministry thinks of more such taxes. The idea of the NCEF was thought of before also as not only does coal itself cause pollution but the transportation of fly ash is another pollution generating source. If coal is being taxed then its benefits should also go to the coal mines,” said an official of the ministry of environment and forests.

The immediate implication of the cess, experts said, will be a hike in coal costs.

“This cess in effect is a tax and we are moving to some form of green taxes. On an average, the coal cost is expected to rise by 3 paise per kWh,” said Arvind Mahajan, sector leader, Energy and Natural Resources at KPMG. Another expert pegs the coal costs to increase by 2.5 per cent due to this cess.

Incidentally, this cess on coal is not the first green tax to be levied in the country. Water cess is levied and collected by the State Pollution Control Boards for prevention and control of water pollution. Differential rates of cess are collected depending upon the use of water, the rate being higher where pollution load is expected to be more, which results in higher cost of pollution abatement and varies from 2 paise per 1000 litres for domestic purposes to 30 paise per 1000 litres for industrial purposes.

“Though this is a step in the right direction, the cess will not immediately impact common man as it is not being directly levied. Moreover, a green tax is always expressed in terms of carbon dioxide activity. So, it is equivalent to the taxing of the polluter,” noted S Raghupathy , Senior Director & Head, CII-Sohrabji Godrej Green Business Centre.

The impact of this tax is yet to be seen as Mahajan explained, “If the burden of the cess is not passed on to the final consumer then industries will end up paying more. So, before the government mulls of similar green taxes, it must demonstrate the effect of this.”

Analysts reasoned that high energy consuming industries should be taxed while the efficient ones should be incentivised. “Even in case of solar energy, feed-in-tariffs exist but they are not direct taxes but a higher charge than a normal one,” added Mahajan.

In addition, Mukherjee announced a series of customs and excise duty cuts for photovoltaic and solar thermal power units. He said this in keeping with the government's resolve to implement the National Solar Mission. As part of this thrust, he proposed reducing central excise duty on LED lights from 8 per cent to 4 per cent. Central budgetary allocation for the environment ministry has risen by about 10 per cent, from Rs 2,129 crore in 2009-10 to Rs 2,351 crore in 2010-11.