The Government of India has enacted a bill that will utilize the Clean Environment Cess (India’s version of carbon tax) collected on coal, to finance the Goods and Services Tax (GST) Compensation Fund, a non-lapsable fund that will form part of the public account of India.

The National Clean Energy Fund (NCEF) was created in 2010 to fund the cost of research and innovative projects using clean energy technologies by public and private sector entities. The fund has evolved under the NDA administration and is been rebranded as the Clean Environment Cess, from the earlier Clean Energy Cess, to include river cleaning and other projects. The Cess, which was Rs.50 (~$0.74)/ton when it was introduced in 2010, was raised to Rs.100 (~$1.5)/ton in 2014 and to Rs.200 (~$3)/ton in the 2015-2016 budget. It was again doubled from Rs.200 (~$3)/ton to Rs.400 (~$6)/ton in the 2016-17 budget.

Since 2010, about Rs.864 billion (~$13.3 billion) has been collected through the Clean Environment Cess out of which only Rs.296 billion (~$4.6 billion) has been transferred to NCEF. Ministry of New and Renewable Energy (MNRE) has only received Rs.171 million (~$2.6 billion) so far.

“It is disappointing that Clean Environment Cess which was originally set up to collect tax from polluting coal industry to fund clean energy is now being diverted to plug budgetary holes. The government must specify where the funds will come from to finance MNRE and clean energy in the future and provide clarity to the investment community,” said Raj Prabhu, CEO of Mercom Capital Group.

Based on our conversations with government agencies, they are aware that cess funds will be diverted to fund the GST compensation fund, but most are confident that the government will find a way to fund clean energy as it is such a big part of the NDA governments’ agenda.