Renewable Industry Bemused as Clean Energy Fund Diverted For GST

Tax money generated through the coal cess is being used to compensate states for incurring losses related to GST.

4 min read
Hindi Female

India’s new indirect tax regime is posing a threat to the country’s clean energy mission. In the latest move by the government, tax money generated through the coal cess – a tax meant to fund clean energy projects – is being used to compensate states for incurring losses related to the introduction of the new Goods and Services Tax (GST) system.

The coal cess was used for the National Clean Energy and Environment Fund (NCEEF) to help boost renewable energy, thus compensating for the pollution caused by the use of fossil fuels. Now, it isn’t.


Coal Cess Used as Compensation to States After GST

When it was introduced, the move was was welcomed by environmentalists. In 2014, the BJP led-government doubled the coal cess from Rs 50 to Rs 100 per tonne. Again, from 2015 to 2016, it was increased from Rs 100 to Rs 200.

This fund has now been brought under the purview of the GST and is being used for a policy that has got nothing to do with the environment.

Unfortunately, based on earlier report done by a leading news organisation, there are indications that sources within the ministry have indicated that the fund may lapse, which is a disturbing fact.
Surabhi Rajagopal, analyst, CLEAN, to
A whopping unspent clean energy fund of Rs 567 billion is being spent to smoothen out the consequences of GST, according to reports.

The move has drawn criticism from the India’s trade coalition for the decentralised renewable energy (DRE) sector.

The Clean Energy Access Network (CLEAN), which represents 110 organisations including energy enterprises, community organisations, R&D institutions and policy think-tanks in the DRE sector, has voiced its concern that the decision of diverting clean energy fund for another purpose will impede the growth of DRE, which is to play a vital role in achieving the goal of 24/7 Power For All by 2022 and the last-mile rural electrification in areas that are still not connected to the power grid.


CLEAN Calls For Maintaining of Some Funding From Coal Cess for Clean Energy Development

CLEAN and its members believe that it is not advisable to divert funds and it could directly impact India’s transition to a clean energy future. Recognising that compensation of GST loss is important, we want the government to retain an appropriate percentage of funding from the coal cess toward clean energy development, on a continuing basis. 

According to the Draft National Energy Policy by Niti Aayog, with nearly 304 million Indians without access to electricity, and about 500 million people still dependent on wood and dung for cooking, the country has to still go a long way to meet its energy security objective.

The National Energy Policy has also suggested creation of a central Energy Access Fund to facilitate rural electrification.

But now uncertainty looms over its funding as well.


Diversion of Funds May Impact Electrification

“Where will the money (for Energy Access Fund) come from? Subsidies were being given on selected solar schemes such as solar water pumps and rooftop solar and the money was coming from the Clean Energy Fund since the last two years,” Rajagopal told “Now what will happen to the budget of MNRE (Ministry of New and Renewable Energy)?”

It is feared that with the shortage of the funds, it will be decentralised off-grid solar systems that will be hit the hardest.

‘Need Clarity, What Does the Ministry Have in Mind?’

“In 2015, when MNRE faced financial shortages, it suspended national decentralised off-grid schemes for a year. So with the diversion of funds for clean energy, again decentralised off-grid schemes may suffer which are crucial for last mile electrification and to complement the existing grid infrastructure,” said Rajagopal.

But the government is to continue with the collection of coal cess while there is no clarity or any official statement on if or by when the funds to accelerate deployment of renewable energy will be reinstated.

“We have not heard anything from the government on this. These funds are crucial for capacity building, for innovation and technology, for use of clean power in motor based applications and healthcare equipment. But now aspects of innovation and deployment of rural energy access are going away with it,” added Rajagopal.


Clean Energy Access Important for Environment and Development

There are also concerns that with the funds being packed off, it might become difficult to procure not just the subsidies but also the loans to install solar as well.

“MNRE gives funds to NABARD (National Bank for Agriculture and Rural Development) which in turn disburses to various banks that help people opt for various solar schemes at grassroots level. But when decentralised off-grid solar programme was stopped for a year recently due to financial crunch, it led to banks losing confidence in off-grid solar schemes and a similar situation might get created again,” Rajagopal said.

Also Read: Paris Deal: Environment Min Finally Responds to Trump’s Jibe

(The article was originally published on India Climate Dialogue and has been republished with permission.)

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