Indian Finance Minister Pranab Mukherjee said a clean energy tax of $1 per metric ton would be applied to domestic and imported coal. The minister also proposed tax incentives to boost investment in solar, wind and geothermal power generation.
The National Clean Energy Fund, Mukherjee said, is being created to fund research and innovative projects in clean energy technologies.
Mukherjee did not specify a target for the fund but climate change consulting firm Emergent Ventures said the tax could raise about $543 million.
"That's a good-sized fund that will help encourage the development of cleaner energies and impose some kind of cost on users of coal," Ashutosh Pandey, head of the firm's advisory practice told Bloomberg News from New Delhi.
Mukherjee, in his annual budget speech to Parliament in New Delhi Friday, noted that coal is the "mainstay of India's energy sector" and 75 percent of the country's power generation is coal-based.
"Harnessing renewable energy sources to reduce dependence on fossil fuels is now recognized as a credible strategy for combating global warming and climate change," he said.
The country's demand for coal in 2008-09 reached about 550 million tons, said Sriprakash Jaiswal, Indian minister of state for coal during the weekend at a global summit in New Delhi on coal gasification. While India achieved 5.4 percent growth in production in the last 35 years, he said production would need to increase to more than 7 percent. He predicts India's coal demand will exceed 2 billion tons by 2031.
To implement the government's ambitious National Solar Mission launched in January, Mukherjee proposed to slash customs and excise duties as well as service taxes on a range of solar-related projects.
India, the world's fourth largest polluter and Asia's third largest energy consumer, set a target of installing 20,000 megawatts of solar power capacity by 2022. To attain that target, Mukherjee said the government plans a concessional import tax rate of 5 percent on machinery and equipment needed to set up solar power plants.
Such initiatives will help policy and funding for renewable energy, Sumant Sinha, chief operating officer of Suzlon Energy Ltd., India's biggest maker of wind-turbine generators, told Bloomberg News. Solar power in India costs about 2 1/2 times more than power from coal.