In his annual budget speech, Indian Finance Minister Arun Jaitley announced that tax on coal production will double starting April 1.
The revenues generated by this increased tax will feed $2 billion annually into the National Clean Energy Fund. The fund promotes clean energy and electric vehicles.
At present, however, only 6% of fuel consumed in India is renewable.
Jaitley argues that this move is an effort to display India’s strong commitment to tackling climate change.
The Indian government is keen to show that it wishes to reach a solid agreement at the UN climate negotiations in Paris this December.
India is the world’s third-biggest emitter of greenhouse gases, and international pressure has been mounting on Prime Minister Narendra Modi to address climate change as the government prepares ambitious expand electricity access in the country.
As it stands now, coal drives approximately 60% of India’s electricity capacity and is a cheap and plentiful source of power for the country. India has the world’s fifth-largest coal reserves.
But the energy deficit in India is staggering.
About a third of India’s population, an estimated 300 million people, do not have access to electricity at all. This is a population that is roughly equal to the United States.
Navroz K. Dubash, a senior fellow at the Center for Policy Research in New Delhi said:
The growth of coal is inevitable, India is still an energy-scarce society that is not able to keep the lights on in many parts of the country and still needs to build up much of its infrastructure. Given the energy needs, it is likely coal will grow — for how long and how much, it’s hard to say.
Despite these problematic tensions, Modi has called for a “saffron revolution” of renewable energy expansion to “meet India’s growing energy demand.”
Modi’s government have already set highly ambitious targets for clean energy since his party came into power in May.
Modi has already raised taxes on coal, petrol and diesel. Furthermore, India plans to add 175 gigawatts of renewable energy generation capacity by 2022, 100 gigawatts of which will come from solar.