Low carbon refund scheme can boost climate friendly growth: CII report

A low carbon refunding scheme for the power sector and larger industrial enterprises can facilitate climate friendly industrial development in Odisha and West Bengal, says a report by the Confederation of Indian Industry (CII).

Low carbon refund scheme is an instrument that levies a cess on the carbon content of fuels used at power plants which is refunded back to the power sector based upon the amount of electricity generated. It provides a dynamic incentive for the industry to reduce the carbon content of electricity generation by increasing efficiency of generation, switching to fuels with lower carbon content and switching from high carbon to low carbon generation.

“Some of the points to be taken into account while implementing the instrument are technology, type of coal and also type of power plant. The cess should go to a separate fund rather than to the state exchequer so that it becomes easy to administer,” says the report produced by CII in association with UK-based Eunomia Consulting and Jadavpur University, Kolkata.

For larger industrial enterprises, the study says the low carbon refunding scheme has the potential to deliver considerable benefits through a novel and efficient incentive mechanism though it might be administratively complex.

For such enterprises, the report has suggested a levy on the amount of electricity used. The revenue so generated is then refunded back to the sector based on a useful measure of output such as gross profit. “A policy that promotes the installation of waste heat recovery at sponge iron plants should be considered although the negative costs indicate that this should be an activity which is already profitable under current conditions. A low level of feed-in tariff, but more preferably, a revolving loan fund, or loan guarantee fund, could be used for this purpose. The funds for the mechanism could be repaid by the industry as energy is generated in order to minimise the burden on state governments”, the report added.

The report has suggested fiscal measures to incentivise the greening of new commercial buildings such as reduced registration duties. “Ideally, such mechanisms would be implemented in such a way that the overall revenue take is not significantly diminished. This would require higher registration duties for those who do not implement the targeted measures to compensate for the offer of lower fees for those who do,” the report said.