Carbon, tax credits for green drive

NEW DELHI: Corporates using clean technologies may be in for goods news this Budget. The government is examining a proposal to provide tax benefits to corporates using clean technologies and generating carbon credits.

Sources said the general view within the government is that use of clean technology and generation of carbon credits should be encouraged. While the exact contours of the incentive scheme are being crystallised, the option being looked at is to incentivise the use of clean technology by giving higher depreciation benefits against expenditure incurred on such technology. Moreover, the finance ministry is expected to clarify on the treatment of carbon credits.

At present, there is no clear definition in the tax laws about treatment of carbon credits, which are accounted for as capital assets as well as goods. Industry has pitched for treating them as capital assets and exempting them from capital gains tax.

Under the Kyoto Protocol, companies in developing countries earn certified emission reduction (CER) or a carbon credit for each tonne of carbon dioxide emission they avoid. The carbon credits can be sold to companies or governments in developed countries which are under mandatory obligation to reduce carbon gas emissions. They can then offset their own targets against the CERs they purchase from companies in developing countries under the UN’s clean development mechanism, or CDM.

CER is a growing area which is generating huge interest in the country. According to industry estimates, the industry has invested Rs 60,000 crore into projects that will generate more than four crore carbon credits by 2012 end. A large number has registered with the CDM. A World Bank study has pegged the global market size for carbon trading at $10 billion.

Finance minister P Chidambaram had proposed to set up an expert committee to study the impact of climate change on the country and identify the measures the government may have to take in future. Eminent environmentalist Dr R K Pachauri heads the panel. The panel is understood to have given its recommendations.