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Context:

Thermal power-producing States bear the pollution burden for electricity consumed by others, experts calling for compensation mechanisms to address environmental impacts.

Details

Dependency on thermal power, mainly coal-based, has created an environmental and economic burden for states hosting these plants. These states supply electricity to others but bear the pollution costs without adequate compensation.

India’s Climate Commitments and Thermal Power Dependency

Climate Pledges:

• In August 2022, India updated its Nationally Determined Contribution (NDC) under the Paris Agreement, committing to:
  • • Reduce GDP emissions intensity by 45% by 2030 (from 2005 levels).
    • Achieve 50% of installed electric power capacity from non-fossil fuels by 2030.
• Despite these goals, thermal power will retain a 50% share in India’s electricity mix under the new regime .

Thermal Power’s Dominance:

• Coal accounts for 59.12% of India’s total energy supply.
• In 2022-23, 73.08% of electricity was generated from coal, oil, and gas, contributing significantly to carbon emissions (20,794.36 kg from electricity generation alone) .

Environmental Burden on Thermal Power-Producing States

Geographic Disparity:

• Coal-rich states (Jharkhand, Chhattisgarh, Odisha) host most thermal plants but have lower per capita electricity consumption than economically prosperous states.
• Tripura (96.96%), Bihar (95.57%), and Chhattisgarh (94.35%) have the highest share of thermal power in their electricity generation .

Net Exporters v/s Importers:

• Chhattisgarh is the largest net exporter (535.29 MW), while Gujarat imports the most (528.17 MW) despite generating minimal power locally (17.7 MW via NTPC) .
• States like Uttar Pradesh, Odisha, and Chhattisgarh consume only a fraction (29.92%–40%) of the electricity they produce .

Lack of Compensation:

• Regulatory Gaps: India’s electricity laws (Concurrent List, Entry 38) prohibit states from taxing power generation, limiting revenue for producing states.
• GST Exemption: Electricity is exempt from GST, denying producing states tax benefits while consuming states levy duties on sales .
• CSR Inadequacy: Thermal plants’ corporate social responsibility (CSR) spending is insufficient to offset environmental damage .

Proposed Compensation Mechanisms

Taxation on Thermal Power Generation:

• States hosting central-sector plants could levy taxes on thermal power generation.
• Alternatively, the Union government could collect generation taxes and redistribute funds to producing states .

Finance Commission Role:

• The Sixteenth Finance Commission should develop a fiscal roadmap to compensate states for pollution burdens, aligning with India’s climate goals.
• Previous Finance Commissions have recommended grants and horizontal devolution for environmental concerns .

Way Forward

Thermal power-producing states face a "resource curse" due to pollution costs without economic rewards. To address the issue, the Government should take policy reforms, which include permitting taxation of power generation, integrating climate compensation into finance commission allocations, and accelerating non-fossil fuel adoption. Fair compensation is essential for achieving climate goals and sustainable development. 

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Source: 

THE HINDU