Need to ease carbon taxes to help energy-intensive industries compete globally: NITI Aayog

The observation that steps to discourage use of coal and promote solar and wind power have actually penalized downstream industry by way of high energy costs, comes at a time India is taking a global lead in climate change policies, while the US has turned its attention to easing of overly burdensome environmental protection rules. NITI Aayog’s call to rationalize carbon taxes also echoes chief economic advisor Arvind Subramanian’s warning last August that India cannot allow the narrative of “carbon imperialism" to come in the way of realistic and rational planning for the country’s energy future.

NITI Aayog also proposed a separate energy policy for power-intensive industries like aluminium, a strategic metal critical to infrastructure, automobiles and defence industries and is presently the subject of a global trade war, in the report titled Need for an aluminium policy in India by member V.K Saraswat and economist Aniruddha Ghosh.

The report said that apart from higher power cost, additional burden in the form of power distribution firms’ obligation to purchase renewable power and coal cess of ₹ 400 a tonne, the carbon trading system and electricity duty on power generation (levied by states) have increased the second-most used metal’s overall production cost. These, the report said, together amount to a carbon tax of $9.71 a tonne of carbon dioxide emission.

“From a developing country perspective with low per capita consumption of electricity, this carbon tax seems to be excessive," said the report.

It said that high energy-intensive sectors are being penalized by paying high carbon tax through various cesses and duties and that a separate energy policy for them should ensure power supply at globally competitive rates so that these industries too can compete with global players.

“It is recommended that renewable purchase obligations, coal cess and electricity duty charges may be looked at and rationalized to make these sectors competitive," said the report.

Power distribution firms have to buy a stipulated part of their overall power purchase from solar and other clean energy suppliers. For the current financial year, the target is 17%. Renewable power is unpredictable and the need for battery backup adds to its hidden costs.

Despite having a competitive advantage in coal, India is one of the most expensive places to produce coal-based electricity, the report said. Linking a strong metal industry with export-oriented growth, the report cited the example of how China which gives coal subsidies and cheaper grid tariffs captured global aluminum market while the share of US in global aluminum output reduced from 11% in 2001 to 1% in 2017. Aluminum is now caught in a trade war between the US and China after the Donald Trump administration imposed a 10% tariff on aluminum imports on 23 March to protect local producers.

Energy experts said that considering the recent decline in clean energy prices, it may not be difficult for power distribution firms to meet renewable purchase obligation. “Globally, there is a negative sentiment about coal because of climate change concerns and there is a declining trend in its consumption in most of the major economies, except India. Therefore, it may be practically difficult for India to go back on policies meant to promote clean energy including use of carbon taxes," said Debasish Mishra, partner at Deloitte India.