2019-05-30 / Regulatory & Industry Trends
Exploring Renewable Consumption Obligation
The world has its limit. The countries have their targets. And the companies have their concerns. We are moving towards a cleaner future at an impressive speed indeed but given our situation, it’s still not fast enough. To speed this up even further, several governments across the world have introduced Carbon Tax. The results have not been particularly impressive, as the tax comes with both pros and cons. And thanks to its infancy in India, we have the option to consider other alternatives as well.
India is the world’s fastest-growing economy and this growth poses some challenges unique to our nation. For instance, the population curve is only going to go up and as lifestyles improve, so will the demand for power consuming devices. According to the World Economic Forum, the demand for air conditioners in India will grow 40-fold between 2016 and 2050. Coupled with the rise in EVs and power consumption, higher carbon emissions per capita are inevitable. A solution to that can be Renewable Consumption Obligation (RCO).
The carbon tax is a per-ton tax on a company’s carbon dioxide emissions that is levied by the government. The more pollution they create, the higher they pay. This acts as a huge incentive for companies to adopt renewables and save not only on power bills but on carbon tax as well. However, for MSEs, it can be a roadblock to growth as well. Shifting to renewables is often a large one-time investment – an investment small businesses may not have the resources to make. Caught between a high carbon tax and lack of resources, they might struggle.
A way around this problem is to impose a carbon tax as well as an RCO. Renewables supplying a certain percentage of power will lower the tax burden on MSEs. To aid them even further, we can follow the example of Sweden. One of the countries where Carbon Tax has aided the economy and lowered emissions, Sweden uses the revenue collected to lower other taxes – a model which can help our MSEs. Moreover, the country also had different tax slabs for different industries. These learnings can be vital for a nation like India, which is trying to be a startup hub.
While imposing a carbon tax is a challenge, so is adopting renewables. As we learn from RE100 companies, the lack of proper renewable infrastructure is a big challenge for companies trying to switch to clean energy. Secondly, flexible policy support is required so that both small and big industry players can adopt renewables. But there are starting points for companies willing to make the change. For instance, setting fact-based public targets and reporting on progress is necessary. One should also be prepared to innovate and collaborate with other companies.
The government has already taken some steps for promotions of EVs in India. Incentives like no road tax and registration cost under the second phase of FAME are commendable and similar incentives can be introduced for renewable adoption as well. These will act as an encouragement for companies to stand by their RCO and even aim for beyond. The added expense of the Carbon Tax will add another layer of motivation to shift to clean energy.
Our situation today demands all possible measures to be deployed and something as effective as Renewable Consumption Obligation needs to be weighed properly. If opted against, other incentives to encourage the shift to renewable energy need to be promoted even more heavily. If opted for, it needs to be accompanied by other valuable initiatives like the carbon tax, subsidies, and exemption from certain other taxes. The goal is to achieve our targets – if RCO is the way to go, let’s get started with it; if not, let’s find a better fit right away.
Contributed by Sunil Jain, CEO, Hero Future Energies