Hike in coal cess to Rs 500 to sharply cut carbon emissions: Economic Survey

New Delhi: There should be a five-fold hike in coal cess to around Rs 500 per tonne from the existing level of Rs 100 per tonne in order to bring down carbon emissions drastically, according to the Economic Survey 2014-15. This would still be within the range of keeping most coal power plants profitable given the current tariff structure, it added.

Recently, coal cess was revised from Rs 50 per tonne to Rs 100 per tonne. The survey, tabled in Parliament today, said that calculations using certain emission actors and assuming a(-0.5) price elasticity of demand for coal, suggest that a three-fold increase from current cess would lead to an annual CO2 emissions reduction of 129 million tonnes annually.

"To bring domestic (coal) prices on par with the international prices would require an increase of cess to USD 9 per ton or Rs 498(a 5-fold increase)," the official document said. The survey said that coal price reforms of this magnitude could potentially contribute to annual carbon emission reduction of 214 million tonnes which is 11 per cent of the country's annual emissions, or half the entire emissions of Indonesia in 2012 compared to the baseline.

When translated into a carbon tax equivalent, it is around USD 1 per tonne (an increase from USD 0.5 per tonne in 2014). The government has cut subsidies and increased taxes on fossil fuels (petrol and diesel) turning a carbon subsidy regime into one of carbon taxation. This move has significantly increased petrol and diesel price while reducing annual carbon emissions.

"But there is still a long way to go with potential large gains still to be reaped from reform of coal pricing and further reform of petroleum pricing policies," the survey observed.