A Suggestive Framework For National Clean Energy And Environment Fund – Analysis

The National Clean Energy and Environment Fund was established in 2011 by the Ministry of Finance in order to fund research initiatives directed towards finding cleaner sources of energy.

Heralded as a revolutionary step towards an environmentally aware development plan, this Fund has been under pressure to perform – and repeatedly disappointed. However, the initiative, the vision and the potential of the Fund cannot be easily dismissed at this juncture. Considering the national environmental funds of several countries around the world – such as Laos, China, Poland, New Zealand etc. – one can see the extent of possibilities offered by such a scheme. Funds across the globe have been established with distinct governing mechanisms, for a variety of purposes, and often different avenues of contributions.

In this paper I seek to scrutinize the Fund in order to evaluate its true potential. In Part 2, I examine the functioning of the Fund, in order to understand the administrative aspect of it. In Part 3, I lay out the major problems with the Fund’s manner of functioning. In Part 4, I analyse the best practices of Poland (4.1), New Zealand (4.2) and Kenya (4.3). I also analyse the present regime of India, in order to offer two ancillary suggestions (4.4). Finally, I discuss the possible impact of the usage of the Fund, in order to fully comprehend the gravity of the benefits of wise usage (5).

2. The National Clean Energy and Environment Fund (NCEEF)

According to the Guidelines issued by the Ministry of Finance in 2011, the National Clean Energy Fund,1 is created for ‘funding research and innovative projects in clean energy techniques’.2 Therefore, the Guidelines state that any research for developing environmentally cleaner technology would be eligible for funding under this scheme.3 Paragraph 2.1 of the Guidelines include an indicative list of projects which are so eligible, although today, environmental initiatives are also eligible for funding.4 These include broad yardsticks – such as projects for developing cleaner fossil energy, projects for finding alternate sources of energy, etc.5

2.1 Financing the Fund

A special clean energy cess collected by the Central Board of Excises and Customs on coal produced and imported is the revenue which is directed towards the fund, essentially implementing the polluter pays principle.6 Since 2011, this cess has increased from INR 50 to INR 400 according to the 2016 budget.7 By virtue of the increased coal production in recent times, the NCEEF has therefore grown by mammoth proportions.8 However, according to noted journalist Aruna Chandrasekhar:

‘Only 32% of the cess collected in 2016-’17 will go to the National Clean Energy Fund. Questions regarding this large quantum of unspent funds went unanswered by the Ministry of Finance’s Department of Expenditure at the time of publishing.’9

Therefore, pet projects that the Government finds suitable are financed by the Fund, although they are not strictly research oriented.10 Subsequently the usage of the fund has now officially been extended to also fund environment initiatives, such as those pertaining to nuclear power, Project Tiger, Project Elephant etc.,11 thereby moving beyond the purview of research initiatives only.12 To be in sync with the objectives, the Clean Energy Cess on Coal has now been renamed the Clean Environment Cess in 2017.13

2.2 Assessment of Proposals under NCEEF

The Preliminary examination of an application for funding goes through the Administrative Department, after which the Department of Expenditure of the appropriate ministry incorporates its comments on the Draft.14 Thereafter, the Administrative Department addresses these comments and forwards it to the Inter- Ministerial Group (IMG) – which approves of the scheme.15

3. Problems with the Fund

At present, there exist several problems with the manner of usage of the Fund.

First, as explained by Srinivas Raman,16 the brunt of the tax is being faced by the consumers, with producers’ profit still intact.17 Ergo, the cess does more harm than good at this juncture, by virtue of the widespread usage of coal as a fuel in Indian households, which is directly affected by the increased cost of the fuel. The purpose of the cess – to deter coal consumption and explore other sources of energy – has not been realised significantly, as despite increasing costs, coal continues to be the popularly used household fuel.

Second, the Fund should not rely exclusively on the cess from importation of coal or lignite, and instead, look for other avenues for remuneration. Funds of other countries such as Poland and New Zealand allow for other contributors.18 An example of such other contribution is in the press release of the Ministry of Mines.19 According to it, a District Mineral Foundation would be set up to work for the ‘persons and areas affected by mining related operations’.20 It is to be funded by contributions made by the holders of the mining lease given by the State government.21 The Press Release made on August 1, 2017 also refers to the Pradhan Mantri Khanij Kshetra Kalyan Yojana (PMKKKY), which is exclusively for the benefit of the people who are detrimentally affected by mining activities.22 The fund created by the PMKKKY scheme is based on the contributions made by the miners. These institutional mechanisms display the working of the polluter pays principle and its viability. A similar exercise would greatly benefit the NCEEF as it would reduce the burden on the consumers paying the coal cess currently.

Third, as delineated by Mr. Sunil Mitra,23 the fund at present is being used to fill the gaps in the budgetary requirements of approved Plans.24 This is essentially because a clear budgetary structure of projects to be financed by the fund, as well as a residuary fund to fund large-scaled initiatives are lacking. The pronounced absence of a system of accountability, enforcement, and transparency of initiatives continues to be the basic problem in the functioning of the Fund. If the Polish system, (as subsequently analysed) is to be taken as a prototype, then using the funds as a stopgap measure for lapses in budgets of other ministries will cease.

Fourth, at present, the fund is used towards research projects that the IMG approves. The IMG constitutes of the Finance Secretary who serves as the Chairperson, the Expenditure secretary (member), a revenue secretary (member), and finally representatives from the Ministries of Power, Coal, Chemicals & Fertilizers, Petroleum & Natural Gas, New & Renewable Energy and Environment & Forests.25 Conspicuously, no experts are mandated in the panel to approve of these research initiatives, with the discretion left to the IMG.26 Furthermore, no yardsticks to measure the viability of the project, the expectations or goals it is proposed to achieve, and whether they are in sync with long term agendas of the government, have been decided. Therefore at present, a research project can be approved without any reasons and solely at the discretion of the IMG. Furthermore, the progress of these projects has as of yet not been tracked, and continues to be dubious.27 Aside from these issues, the specific reasons for which the fund has been used by the researchers or organisations also needs to be made publicly available.

Fifth, the fund need not only be used for research projects. Although an umbrella term of ‘environmental initiatives’ has been added to the purposes for which the fund may be used, proper identification and earmarking of the initiatives needs to be done, in order to ensure that corrupt practices don’t dilute it. In such a scenario, identification of the differences in the groups involved as stakeholders including vulnerable groups based on age, sex, caste or disability is necessary. Without such a clear delineation, the desired objective of developing and implementing clean energy practices may not achieved.

Sixth, until recently, the working of the NCEEF was under a shroud which was unraveled by the Centre for Budget and Governance Accountability with the filing of an RTI in 2012.28 Since then although greater transparency has existed, it has not done enough to assuage the concerns of the stakeholders.29 Improper, unstructured manner of approving budgets, lack of publicly available particulars regarding eligibility criteria, as well as a remarkable silence on the progress made by these initiatives make this fund’s functioning disappointing.

Finally, as pointed by Mr. Pandey,30 the NCEEF does not encourage research initiatives, and continues to remain a non-promoted endeavour.31 Marketing the benefits of the Fund to the appropriate audiences, would go a long way in funding and incentivising the numerous environmentally sustainable initiatives undertaken in the country. Keeping a cap of 40% of the project cost as the maximum contribution to be made by the NCEEF is also discouraging,32 as large scale initiatives often need a more flexible ceiling.33 Furthermore, tie-ups with non-governmental organisations, as well as academic institutions would go a long way in raising awareness about the fund as well as motivating individual researchers.

4. Lessons without borders

This Part of the paper explores the Environmental Funds of different regimes in order to compile some of the best practices to implement in India.

4.1 A Comparison with the Polish Environment Fund

At this juncture, perhaps the Polish system of environmental funding offers takeaways to work out a better method of financing environmental projects as well as research initiatives. Presently, the Environmental Funds of Poland (the National and Voivodeship Funds) are financed by the charges paid by users of the environment – i.e. companies – and ‘fines as well as revenues from interest on granted loans’.34 In such a model, revenues aren’t hinged exclusively on importation, and come from varied sources.35 Furthermore, the two predominant funds are supplemented with District Funds on Environment Protection, and are managed by the district government units.36

Although some aspects of the Polish system are already in place in the Indian regime, two distinct practices can still be borrowed. First, the fund includes revenues and charges by companies, and not just a cess on importation. Although the PMKKKY and the DMF both receive contributions from miners, a range of industries – such as industries releasing toxic effluents, conducting deforestation activities, etc – are left out of the scope of such funds, since these are administered by the Ministry of Mines. Industry-specific funds financed by the companies/establishments causing environmental damage could also aid in solving the allocation problem. Funding research towards improving the environment damaged by the activities of a particular industry becomes easier if funds are collected on an industry-specific basis. Ergo, aside from the funds created by mining activities, funds must be separate for other activities which lead to environment degradation.

Second, the district level creation of funds further narrows down the usage of the fund. As per this model therefore, fund must be based on a district or state level (whichever is more suitable to the Indian situation), and the scope must be further narrowed down to an industry specific usage.

As per the suggested model thus, state level funds are created instead of the burgeoning NCEEF. However, in order to mitigate the risks and associated damages of projects that operate beyond the state level, the funds collected by environmental charges and fines may be transferred to the central NCEEF. Furthermore, instead of levying a cess of INR 400, a reduced amount may thereafter be levied in order to assuage the ‘First’ and ‘Third’ problems indicated previously.

4.2 The Environment Funds of New Zealand: An objectives-based approach

Under the aegis of the Ministry of Environment of the New Zealand government, several funds for specific environmental projects exist. These include the Freshwater Improvement Fund, the Community Environment Fund, the Waste Minimisation Fund, the Contaminated Sites Remediation Fund, and the Environmental Legal Assistance Funds.37 As discussed in point ‘Second’ above, industry specif funds may be useful, as will funds which identify specific objectives. Currently, the funds are utilised on an ad hoc basis, depending on who applies for the fund. Instead of such extensive discretion placed on the IMG, either objectives or industries must be identified, based on which the fund may be spent. In fact, as per the eligibility criteria set out to award funding from the Community Environment Fund, successful applications must be in sync with the Ministry of Environment’s key priorities, as laid out in ‘A generation from now – Our long-term goals’.38 Such a comprehensively laid out plan for environment protection would be extremely useful in deciding the best uses of the fund. Identification of objectives, and methods of fulfilling them would go a long way in finding the best areas for using the NCEEF.39

4.3 Ideas from the National Environment Trust Fund Green Environment Fund (NETGEF), Kenya

The NETGEF of Kenya has a different outlook for promoting sustainable enterprises – by offering low interest loans to small and medium green enterprises.40 In order to assess which enterprises are eligible for such a subsidy, the applicant enterprises must specify the climate mitigation impact undertaken by them.41 In fact, as per the Concept Note of the NETGEF released on 31st August 2016,42 the applicant enterprises must also provide estimates of the social benefits.43 Ergo, the Concept Note identifies the need to lay out sustainable programs for women, youth and other vulnerable groups in collaboration with groups such as Women Enterprise Fund, the National Council for Persons with Disabilities, etc.44

Understanding the needs of different groups as stakeholders in sustainable development is perhaps the pivotal difference between the NETGEF and the NCEEF. Furthermore, a subsidy on interest paid for loans especially to incentivise small and medium enterprises to go green, and adopt environmentally sustainable practices would go a long way in starting eco-friendliness at the grassroots of India. It addresses the ‘Fifth’ problem indicated above.

4.4 Other suggestions

As the General Circular No. 21/2014 released by the Ministry of Corporate Affairs suggest,45 contributions made to trusts/societies/ Section 8 companies for purposes enshrined in Schedule VII of the Companies Act 2013 would also count as corporate social responsibility. Environmentally sustainable initiatives by companies are included as part of corporate social responsibility as per this Schedule.46 If the proposal of district or state level funds is implemented, it would be advised that corporate social responsibility also include contributions made to the Environmental Fund of the particular district/state. In fact, several companies direct their CSR funds to achieving environmental sustainability, and Guidelines have been issued at prior instances to manage such CSR contributions.47

Just as the project for the development of the ‘Intra-State Transmission System under the Green Energy Corridor Project in the States of Andhra Pradesh, Himachal Pradesh, Gujarat, Karnataka, Madhya Pradesh, Maharashtra, Rajasthan and Tamil Nadu’48 indicates, a systematic method of assessing projects would be vastly beneficial. The methodical disbursement of fund in this case includes – disbursement in installments, photographic periodical reviews of progress of the projects, monthly reports on the activities conducted, return of money not utilised, etc.49 A similar exercise for all projects for which funding has been granted, must be undertaken, in order to tackle the ‘Fourth’ and ‘Sixth’ issues raised above.

5. Conclusion

The potential of the NCEEF is vast, with its ever-growing flow of revenue, and the broad eligibility criteria established in the 2011 Guidelines. However, decisive measures must be taken in order to optimally realise this potential. Considering the suggestions made by comparing policies across jurisdictions, identifying a utility framework for the fund is the primary task at hand. In addition to this, allocating a part of the funds for creating awareness so as to motivate communities and researchers to develop environmentally sustainable practices is pivotal. Unlike many other developing countries with a similar environment fund, India does not face a dearth of money supply. Additionally, the layout as given for the Intra-State transmission corridor proves that appropriate management of such a fund would possibly achieve the objectives for which the fund was established.

1. http://finmin.nic.in/sites/default/files/Guidelines_proj_NCEF.pdf (Last visited on January 29, 2018).
2. Ibid
3. National Clean Energy & Environment Fund, available at http://doe.gov.in/sites/default/files/NCEF%20Brief_post_BE_2017-18.pdf (Last visited on January 29, 2018).
5. Supra note 2.
6. Dinesh C Sharma, Clean energy tax for India (quoting William Gracias), available at http://www.jstor.org.ezproxy.nujs.ac.in/stable/pdf/20696445.pdf?refreqid=search:abcc8038c5657fcaf70b8239bd1e9c9d (Last visited on January 29, 2018).
7. Budget 2016: Govt doubles Clean Energy Cess on coal to Rs. 400 per, available at https://timesofindia.indiatimes.com/budget-2016/industry/Union-Budget-2016-Govt-doubles-Clean-Energy-Cess-on-coal-to-Rs-400-per-tonne/articleshow/51191619.cms (Last visited on January 28, 2018).
8. Press Information Bureau, Government of India, Ministry of New and Renewable Energy, National Clean Energy Fund, available at http://pib.nic.in/newsite/PrintRelease.aspx?relid=124495 (Last visited on January 28, 2018).
9. Aruna Chandrasekhar, How the Ganga and GST are hijacking India’s clean energy fund, available at https://scroll.in/article/841910/how-the-ganga-and-gst-are-hijacking-indias-clean-energy-fund (Last visited on January 29, 2018).
10. Ibid
11. Ibid
12. Ibid
13. Ibid
14. Framework and Performance of the National Clean Energy Fund, available at http://www.cbgaindia.org/wp-content/uploads/2016/03/Policy-BriefFramework-Performance-of-National-Clean-Energy-Fund-NCEF.pdf (Last visited on January 29, 2018).
15. Ibid
16. Srinivas Raman, Climate Finance in India: A Case of Policy Paralysis – Analysis, available at http://www.eurasiareview.com/30082017-climate-finance-in-india-a-case-of-policy-paralysis-analysis/ (Last visited on January 27, 2018).
17. Ibid
18. See Part 3.
19. Ministry of Mines, Payment of Mineral Royalty to Districts, available at http://pib.nic.in/newsite/PrintRelease.aspx?relid=169339 (Last visited on January 28, 2018).
20. Ibid
21. Ibid
22. Ministry of Mines, Pradhan Mantri Khanij Kshetra Kalyan Yojana (PMKKKY) launched by Government of India: Ministry of Mines & Steel calls it a revolutionary and unprecedented scheme, available at http://pib.nic.in/newsite/PrintRelease.aspx?relid=126983 (Last visited on January 28, 2018)
23. Supra note 16.
24. Ibid.
25. Cabinet Committee on Economic Affairs, Creation of National Clean Energy Fund, available at http://pib.nic.in/newsite/PrintRelease.aspx?relid=71517 (Last visited on January 29, 2018).
26. Supra note 2.
27. Supra note 2.
28. Gyana Ranjan Panda & Narendra Jena, Evaluating the Performance of the National Clean Energy Fund, available at http://www.epw.in.ezproxy.nujs.ac.in/system/files/pdf/2012_47/37/Evaluating_the_Performance_of_the_National_Clean_Energy_Fund.pdf (Last visited on January 29, 2018).
29. Ibid
30. Ibid
31. R. Pandey, Existing Framework and Operation of NCEF: A Review, available at http://www.springer.com/cda/content/document/cda_downloaddocument/9788132219637-c2.pdf?SGWID=0-0-45-1467922-p176797351 (Last visited on January 29, 2018).
32. Ibid
33. Supra note 28.
34.The System of Financing Environmental Protection in Poland, available at https://nfosigw.gov.pl/download/gfx/nfosigw/en/nfoopisy/1/5/7/the_system_of_financing_environmental_protection_in_poland.pdf (Last visited on January 28, 201).
35. Ibid
36. Ibid
37. Funding, available at http://www.mfe.govt.nz/more/funding (Last visited on January 28, 2018).
38. Community Environment Fund application and funding process, available at http://www.mfe.govt.nz/more/funding/community-environment-fund/funding-and-application-process (Last visited on January 28, 2018).
39. A Generation from now: our long term goals, available at http://www.mfe.govt.nz/publications/about-us/generation-now-our-long-term-goalsa (Last visited on January 28,. 2018).
40. Concept Note, National Environment Trust Fund Green Environment Fund (NETGEF), available at https://www.greenclimate.fund/documents/20182/893456/15750_-_AfDB_-_National_Environment_Trust_Fund_Green_Environment_Fund__NETGEF_.pdf/8b4c6c2b-e6f3-4e99-9aaa-7f15c159a21f (Last visited on January 28, 2018).
41. Ibid
42. Ibid
43. Ibid
44. Ibid
45. Ministry of Corporate Affairs, General Circular No. 21/2014, available at http://www.mca.gov.in/Ministry/pdf/General_Circular_21_2014.pdf (Last visited on January 29, 2018).
46. Schedule VII, Companies Act, 2013.
47. Draft Guidelines for Afforestation for Banking Institutions under Corporate Social Responsibility Funds, available at http://naeb.nic.in/Reports/CSR_gl.pdf (Last visited on January 29, 2018).
48. Ministry of New and Renewable Energy, dated June 27, 2017, available at http://mnre.gov.in/file-manager/UserFiles/Revised_guidelines_for_GEC_2706
49. Ibid