Clean Energy Cess

The Clean Energy Cess was a tax imposed by the Government of India on the production and import of coal, lignite, and peat, introduced as a fiscal measure to promote clean energy and environmental sustainability. The cess was first announced in the Union Budget of 2010–11 and came into effect on 1 July 2010.
The main objective of the cess was to generate revenue for financing clean energy and environmental projects, particularly through the National Clean Energy Fund (NCEF). It reflected India’s commitment to addressing climate change by supporting renewable energy initiatives and reducing dependency on fossil fuels.

Objectives of the Clean Energy Cess

1. Environmental Protection:
   • To reduce carbon emissions and mitigate the effects of coal-based pollution.
2. Promotion of Clean Energy:
   • To encourage investment in renewable energy sources such as solar, wind, hydro, and biomass.
3. Revenue Generation:
   • To raise funds for the National Clean Energy Fund (NCEF), which finances research, innovation, and projects promoting cleaner energy technologies.
4. Internalising Environmental Costs:
   • To make coal-based energy more expensive and reflect the true social and environmental cost of fossil fuel use.
5. Climate Action Financing:
   • To support India’s efforts toward achieving sustainable development and its international commitments under the Paris Agreement.

Legal Framework

The Clean Energy Cess was introduced under the authority of:

• The Finance Act, 2010, and
• Administered by the Central Board of Indirect Taxes and Customs (CBIC) (earlier CBEC).

It was collected as an excise duty on:

• Coal (including raw coal, washed coal, and lignite),
• Peat, and
• Imported coal equivalents.

Rate of Clean Energy Cess

The rate of the cess was revised several times since its inception:

• By 2016–17, the cess stood at ₹400 per tonne, reflecting the government’s increased emphasis on clean energy funding.

Collection and Administration

• The cess was levied on both domestic producers and importers of coal and its derivatives.
• The Ministry of Finance was responsible for its collection.
• The funds collected were transferred to the National Clean Energy Fund (NCEF).
• The Comptroller and Auditor General (CAG) monitored the utilisation of the fund.

National Clean Energy Fund (NCEF)

Established: 2010–11Purpose: To finance and promote research and innovation in clean energy technologies and support projects that aim to reduce carbon intensity in the economy.
Utilisation:

• Funding for solar power projects under the Jawaharlal Nehru National Solar Mission (JNNSM).
• Support for wind and hydroelectric power, energy efficiency, and clean coal technologies.
• Research and development in carbon capture and storage and biofuels.

However, several reports, including by the CAG, observed that a significant portion of the NCEF funds remained unutilised or were diverted to unrelated purposes such as compensating states for losses due to the implementation of the Goods and Services Tax (GST).

Transition to GST and the Carbon Tax Framework

With the introduction of the Goods and Services Tax (GST) in July 2017, the Clean Energy Cess was subsumed into the GST framework.
It was replaced by the:

“GST Compensation Cess” — levied on coal at the same rate of ₹400 per tonne.

The proceeds from this cess are now used to compensate states for revenue losses arising from GST implementation, rather than for clean energy projects.

Economic and Environmental Significance

1. Fiscal Contribution:
   • Between 2010 and 2017, the Clean Energy Cess generated thousands of crores of rupees for clean energy funding.
2. Environmental Signalling:
   • Served as a carbon pricing mechanism, encouraging energy efficiency and alternative energy sources.
3. Encouragement of Renewable Energy:
   • Helped fund programmes under the Ministry of New and Renewable Energy (MNRE), contributing to India’s growing renewable energy capacity.
4. Alignment with Global Goals:
   • Represented India’s early step towards meeting UN Sustainable Development Goals (SDG 7: Affordable and Clean Energy) and its Nationally Determined Contributions (NDCs) under the Paris Agreement.

Limitations and Criticisms

1. Underutilisation of Funds:
   • Large sums collected were not effectively channelled into clean energy projects.
2. Diversion of Purpose:
   • After the implementation of GST, the revenue was redirected to compensate states, undermining the environmental intent.
3. Narrow Base:
   • The cess was levied only on coal and related products, excluding other fossil fuels like petroleum and natural gas.
4. Limited Impact on Consumption:
   • The tax was too small to significantly discourage coal usage or reduce emissions.
5. Implementation Gaps:
   • Lack of transparency and inefficiencies in project selection under NCEF reduced its overall effectiveness.

Significance in Environmental Geography and Policy

In the context of environmental and economic geography, the Clean Energy Cess illustrates:

• How fiscal tools can be used to internalise environmental costs and guide behaviour towards sustainability.
• The role of policy instruments in balancing economic growth with environmental protection.
• Regional implications for coal-dependent states (Jharkhand, Chhattisgarh, Odisha) and the need for transition strategies toward cleaner energy economies.