In a major thrust to the development and harnessing of clean and renewable sources of energy, the government on Friday proposed the creation of a special fund to finance research and development in this area and several other incentives to promote the use of environment-friendly technologies.

Finance Minister Pranab Mukherjee, while presenting the annual Budget for 2010-11, said the government proposed to establish a National Clean Energy Fund for "funding research and innovative projects in clean energy technologies". This fund would be created by levying a cess of Rs 50 per tonne on the production of coal.

Annual coal production in India is upwards of 500 million tonnes. Mukherjee said the cess would also be levied on imported coal as well.

"Harnessing renewable energy sources to reduce dependence on fossil fuels is now recognised as a credible strategy for combating global warming and climate change," the Finance Minister said.

Simultaneously, the Finance Minister also increased the plan outlay of the Ministry of New and Renewable Energy by 61 per cent, from Rs 620 crore to Rs 1,000 crore. This has been done keeping in mind the operationalisation of the ambitious Jawaharlal Nehru National Solar Mission that targets production of 20,000 MW of solar power by 2022.

Mukherjee also announced a slew of tax incentives for machinery and equipment used in the production of solar or wind energy, as also for the innovative solar-powered rickshaw developed by the CSIR.

To address energy deficiency in Ladakh, the Finance Minister proposed to set up solar, small hydro and micro power projects at the cost of Rs 500 crore in the area.

"For the first time, the government has placed real focus on the renewable energy sector, this is a major step forward in balancing the nation's energy mix and creates a sound environment for the growth of renewable sector in the country," said Tulsi Tanti, CMD of Suzlon Energy.