PMO Proposes Waiving Carbon Tax On Coal

Over half of India's coal-fired plants are already set to miss a phased deadline starting December 2019 to cut emissions of sulfur oxides, which have been proven to contribute to lung disease

December 31, 2019. By Darshana Daga

Indian Prime Minister Narendra Modi's office has proposed waiving a tax on coal to help finance pollution-curbing equipment, according to documents, but the move would also make coal more competitive in price with solar and wind energy. Modi's office has proposed waiving the carbon tax of 400 rupees ($5.61) per tonne that was levied on the production and import of coal, as per reports.

The documents say the savings would improve the financial health of utilities and distribution companies, and help the power producers to install pollution-curbing equipment. The prime minister's office and the power ministry did not respond to requests seeking comment on the proposals and when a decision was likely to be made. Despite struggling with some of the world's worst air pollution levels, India has already pushed back a deadline to cut emission levels to up to 2022.

Over half of India's coal-fired plants are already set to miss a phased deadline starting Dec 2019 to cut emissions of sulfur oxides, which have been proven to contribute to lung disease. The proposal is a big win for India's coal industry, which has lobbied for government help, citing high debt levels and burgeoning payment dues from government-owned power distribution companies. Distribution companies owed power producers more than $11 billion in dues as of October, according to government data.

Hardik Shah, deputy secretary at Modi's office, advocated waiving the carbon tax on coal in an October note to the top bureaucrat at India's power ministry, seen by Reuters. "A possible solution is to waive the goods and services tax (GST) compensation cess..on coal," Shah said in the note on the installation of equipment to cut emissions of sulfur oxides.

Shah argued for a waiver saying even if India ensured adequate financing to power plant operators to install the equipment, it would lead to higher electricity tariffs that would further burden distribution companies which buy power from utilities.

The prime minister's office says installation of pollution cutting equipment would cost companies 0.30-0.35 rupees per unit and hence removal of the carbon tax would help companies meet emissions targets while ensuring electricity costs do not rise. But it will be a one-time cost and going forward, coal-fired utilities would be able to compete better with renewable energy.

The proposal, if implemented, would cost India over 3% of its total indirect tax collection, which has been falling due to a broader economic slowdown. An abolition of the cess could also subject the federal government to further criticism from state governments, since they received the realized revenue from the government to compensate for shortfalls due to the implementation of a new tax structure in 2017.

Modi's office says if no waiver is given, some form of government subsidy would have to be given by states to keep the power producers functioning and the carbon tax abolition would make up for some shortfalls.

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