Budget 2017: Tax cut on gains from carbon credit sales won’t benefit much

KOLKATA: Renewable energy producers say they have nothing to gain from the Budget’s reduction of tax on income from selling carbon credits to 10% from 30%.

They say the market for carbon credit is almost non-existent and new projects in India cease to be eligible for carbon credits since 2012.

“Carbon credit is a concept developed by the European Union and it applies to countries that form part of the least developed countries list. India ceases to be part of this list since 2012 hence any project set up after 2012 are not eligible for receiving carbon credits,” said Kuldeep Jain, managing director, CleanMax Solar.

In the Budget, the government said carbon credits were an incentive for companies to cut of the emission of greenhouse gases. The Kyoto Protocol commits certain developed countries to reduce their emissions and for this, they will be given carbon credits.

A reduction in emissions entitles the entity to a credit in the form of a Certified Emission Reduction (CER) certificate. The CER is tradable and its holder can transfer it to an entity which needs Carbon Credits to overcome an unfavourable position on carbon credits.

Sabyasachi Majumdar, group head, corporate sector ratings at ICRA, said: “While reduction in income tax on carbon credit is a positive development, the renewable segment will not gain much as the market for carbon credit has crashed several years ago. Income from majority of renewable companies from carbon credit is marginal and hence there won’t be any significant.”

Prabhat Mishra, VP and head distributed solar & offtake at Re-New Power, said: “Very few companies that entered into agreements with European buyers more than five years ago could still be earning some revenue from carbon credits, however, bulk of the capacity addition in renewable happened in the last three-four years by which time the market for carbon credits had already crashed globally.”

Sujoy Ghosh, country head, First Solar, said: “This would not have any significant impact for Indian solar developers given the current pricing of carbon credit certificates.” Santhosh Jayaram, head of sustainability at KPMG, said: “Since the market has crashed the effect of income tax reduction would be negligible.”

ET View: Needed, A Wholistic Policy
It is entirely possible that the demand for carbon credits would rise going forward. The Budget move would proactively incentivise supply of carbon-reduction strategies across sectors and industries. We do need to rev up environmentally benign systems and processes. There is huge potential globally to generate certified emission reduction units. Given that one carbon credit is equivalent to one tonne of carbon dioxide mitigated, it does make sense not to carry on business as usual but to purposefully put in place holistic policy, of which tax measures can only be one – albeit vital – aspect.