India May Raise $535 Million From Coal Tax Meant to Encourage Alternatives

India expects to raise $535 million from a levy on coal producers starting today, the first step by Asia’s third-largest energy consumer to charge companies for fossil fuel pollution.

“This will give 25 billion rupees ($535 million) this year alone,” Environment Minister Jairam Ramesh said in Mumbai, calling it “a carbon tax that will be used for clean energy.”

The European Union, South Korea and Japan are considering taxing carbon-dioxide emissions from burning fuels such as coal and oil to slow climate change. Australia’s new prime minister Julia Gillard said June 24 she would “re-prosecute the case for a carbon tax” at home and abroad after her predecessor shelved plans for an emissions-trading plan.

A domestic tax should come before a global carbon tax, and India has imposed one while others debate the issue, Ramesh told reporters June 28.

Coal, used to fire more than half of India’s electricity generation, will be taxed at 50 rupees a metric ton to help fund clean-energy projects. Coal producers nationwide will be charged the tax starting July 1, the Central Board of Excise and Customs said in a notice on its website after the levy was proposed in the federal government budget in February.

“It’s putting a price on pollution for the first time” in India, Ashutosh Pandey, chief executive officer of Emergent Ventures India Pvt., which has worked on carbon projects with the government and World Bank, said by telephone from Gurgaon near New Delhi.

Imported Coal

The clean-energy levy will also apply to imported coal, Finance Minister Pranab Mukherjee said in his budget speech. Coal emits more carbon dioxide per unit of energy than other fossil fuels, according to the U.S. Energy Information Administration.

India’s total coal production is estimated to reach 571.87 million tons in the year ending March, the government said on Feb. 24. In addition, Coal India Ltd., the world’s largest producer, expects the country will import close to 100 million tons this year, Chairman Partha Bhattacharyya said May 19.

Chief executive officers including Rex Tillerson of Exxon Mobil Corp. and Paolo Scaroni of Italy’s Eni SpA have advocated a flat tax over carbon-trading systems like the European Union’s, saying a levy allows companies to plan for a simpler, more stable cost of pollution.

EU permits for December, the allowances in the European Union’s emissions trading system, declined 0.5 percent to 15.19 euros per metric ton of carbon dioxide today on London’s European Climate Exchange.

Carbon Intensity

India has set a voluntary target to cut its carbon intensity, or the amount of carbon dioxide released per unit of gross domestic product, by as much as 25 percent from 2005 levels by 2020.

The South Asian nation is also exploring market-based solutions to combat global warming. The government plans to introduce a domestic market starting this year for trading environmental credits. Businesses will face renewable energy and energy-savings targets and be issued credits that will trade on the country’s two power exchanges.

The coal tax was announced on Feb. 26 along with a decision to impose duties on crude and oil products that were withdrawn after record oil prices and the global recession.

To contact the reporter on this story: Natalie Obiko Pearson in Mumbai at npearson7@bloomberg.net.

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