For a greener future, bring back coal cess

Reintroducing a coal cess should be on the FM's priority list for Budget 2027-28. India's CO2 emissions continued to rise in 2025, even as global emissions growth slowed. India has slipped 5 places to 28th in the latest Climate Change Performance Index, which assesses 64 countries and the EU. This is despite adding a record 55.3 GW of non-fossil capacity in 2025-26, making it the world's 3rd largest in installed RE capacity. Coal's share of installed capacity has fallen from 61% in 2014-15 to 41.7% in 2025-26, but its dominance in generation persists.

Electricity demand is expected to grow 6.4% annually till 2030, making a rapid coal exit near-impossible. A coal cess will signal India is pricing its carbon dependence. It could also reduce carbon costs exporters face at the border. Britain has recognised India's Carbon Credit Trading Scheme (CCTS) for carbon-price relief under its CBAM. The EU is yet to do so. A cess could strengthen India's case for similar relief, while retaining more carbon revenue at home to fund the energy transition.

Unlike a carbon tax, a cess won't require an amendment to tax laws. It can be an interim measure as CCTS expands and a carbon tax is debated. With GST on coal at 18%, an additional Rs 500 a tonne, against the previous Rs 400, is hardly excessive. Cess proceeds are outside Finance Commission's divisible pool, making it possible to earmark them for a 'Just Transition Fund'. Allocation based on effort-sharing could recognise states' differing capacities and transition costs, addressing their resistance to a central cess. In 2024-25, coal cess yielded ?52,500 cr. A revived cess would create a dedicated transition fund and signal India's commitment to a decarbonised development pathway.