NEW DELHI India proposed on Friday a small tax on production of coal to raise millions of dollars for a National Clean Energy Fund that could help the world's fourth biggest polluter to shift to a low-carbon economy.
India's growing economy has huge potential to shift to a low-carbon future, given that about 500 million Indians, or about half the population, do not have access to electricity, relying on fossil fuels such as coal to expand the power grid.
With global focus now on how developing countries tackle the use of fossil fuels -- an imperative in the fight against climate change -- measures such as taxing coal could underscore India's actions in the battle against global warming.
Presenting the country's 2010/11 budget, India's finance minister proposed levying a "clean energy cess" of 50 rupees ($1) on every tonne of coal produced in the country or imported.
"While we must ensure that the principle of 'polluter pays' remains the basic guiding criteria for pollution management, we must also give a positive thrust to development of clean energy," Pranab Mukherjee told parliament.
India's coal production is expected at more than 570 million tonnes for 2010/11, raising the possibility of hundreds of millions of dollars for the corpus of the national clean energy fund.
India, the world's fourth largest greenhouse gas emitter though still low on per-capita emissions, is under pressure to cut pollution to battle climate change while demand for power increases as its middle class clamors for more cars, TVs and housing.
India has set a goal for slowing the growth of its greenhouse gas emissions, saying it was willing to rein in its "carbon intensity" -- the amount of carbon dioxide (CO2) emitted per unit of economic output -- by between 20 and 25 percent by 2020, from 2005 levels.
Mukherjee also sought to boost solar energy sector, proposing custom duty cut of five percent and exemption from federal factory gate taxes for solar power generating machinery.
The news buoyed shares in Indian firms, including Moser Baer and XL Telecom & Energy which make solar panels or have plans to do so.
Renewable energy accounts for barely 8 percent of India's total capacity of about 150,000 megawatts but the government aims to double green power generation to 25,000 megawatts in four years.
(Additional reporting by Devidutta Tripathy; Editing by Sanjeev Miglani)