Compensating Thermal Power-Producing States for Pollution Burden

Context:

The article discusses the environmental impacts of thermal power plants faced by the power-producing states in India.

Thermal power plants are a major source of carbon emissions. However, the pollution burden is unevenly distributed.
Power-producing states bear the environmental cost, while consuming states benefit from the electricity.

Relevance:
GS-03 (Conservation)

Dimensions of the Article:

India’s Climate Commitments
India’s Thermal Power Landscape
Disparity Between Generation and Consumption
Who Bears the Pollution Burden?
Lack of Compensation Mechanisms

India’s Climate Commitments

In August 2022, India submitted its first updated Nationally Determined Contribution (NDC) under the Paris Agreement to the United Nations Framework Convention on Climate Change (UNFCCC).
India committed to:
- Pursuing a climate-friendly and cleaner path to economic development.
- Reducing the emissions intensity of its GDP by 45% by 2030 (from 2005 levels).
- Achieving 50% cumulative electric power installed capacity from non-fossil fuel sources by 2030, among other commitments.
Currently, thermal power dominates India’s electricity sector. Under the new regime, it will still retain a 50% share, highlighting its continued importance.

India’s Thermal Power Landscape

India’s total installed electricity capacity stands at 4,56,757 MW, with sectoral distribution as follows:
- Central sector: 22.9%
- State sector: 23.7%
- Private sector: 53.4%
Of the total 2,37,268.91 MW thermal power capacity:
- Private sector plants contribute 85,899.10 MW (36.2%)
- State sector plants contribute 75,991.91 MW (32.03%)
- Central sector plants contribute 75,377.91 MW (31.77%)
India’s electricity generation emits 20,794.36 kg of carbon, according to NITI Aayog.

Disparity Between Generation and Consumption

Many states generate more electricity than they consume, leading to an unequal distribution of pollution burdens:
- Uttar Pradesh, Odisha, and Chhattisgarh—three major thermal power producers—consume only 40%, 38.43%, and 29.92%, respectively, of the electricity generated in their states.
- Gujarat is the largest consumer of NTPC-generated electricity (4,612 MW) despite producing just 17.7 MW under NTPC.
This means that states producing the most electricity do not necessarily benefit from it, but they suffer from the environmental damage caused by coal-based power generation.

Who Bears the Pollution Burden?

Some states have an overwhelming reliance on thermal power:
- Tripura: 96.96%
- Bihar: 95.57%
- Chhattisgarh: 94.35%
- Jharkhand: 92.69%
- Delhi: 87.96%
- West Bengal: 87.72%
- Uttar Pradesh: 81.84%
However, many of these states export electricity to others. Bihar, for example, sold 16,529.62 MW in 2022-23.
Top Electricity Exporters (2022-23) (MW)
- Chhattisgarh: 535.29
- Madhya Pradesh: 379.19
- Himachal Pradesh: 153.43
- Rajasthan: 135.14
- Odisha: 95.40
Top Electricity Importers (2022-23) (MW)
- Gujarat: 528.17
- Haryana: 212.63
- Maharashtra: 187.50
- Delhi: 162.97
This highlights an inequitable system, where exporting states endure pollution without financial compensation.

Lack of Compensation Mechanisms

India’s regulatory framework does not compensate states for pollution caused by centrally operated thermal power plants. Key issues include:
- No tax on thermal power generation: States can tax electricity consumption and sale, but not its generation.
- Electricity is GST-exempt: Neither the central nor state governments collect GST on electricity production.
- CSR spending is inadequate: Thermal power companies invest small amounts in community development under Corporate Social Responsibility (CSR), but this does not offset environmental damage.
In October 2023, the Ministry of Power barred states from imposing additional taxes on electricity generation, further limiting compensation options.

Way Forward:

Thermal power-producing states must be financially compensated for their disproportionate pollution burden. Two possible mechanisms include:

Generation Tax:
- States could impose a thermal power generation tax, ensuring that consuming states contribute to pollution mitigation.
- Alternatively, the Union government could levy and redistribute this tax to affected states.
Finance Commission Transfers:
- The 16th Finance Commission should integrate a compensation framework based on environmental costs, similar to previous commissions’ approaches to climate change and resource allocation.
- This can be done through grants or adjusted devolution criteria.

Conclusion

India’s commitment to cleaner energy must also address the inequities in thermal power generation. Without a fair compensation mechanism, power-producing states will continue to suffer environmental damage without adequate economic benefits. A taxation or fiscal transfer model can help balance economic growth with environmental justice.