Examining the Legal and Regulatory Basis for FGD in Coal-Based Thermal Power Plants

By – Aditya Pratap Singh and Nikhil Anand

Table of Contents

This article examines the legal and regulatory evolution of sulphur dioxide (SO₂) emission control in coal-based thermal power plants (“TPPs”) in India, with reference to the requirement relating to installation of Flue Gas Desulfurization (“FGD”) systems. It outlines the statutory framework, its interaction with the Electricity Act, 2003, the implementation experience, subsequent regulatory and policy developments, and the recalibration introduced under the Environment (Protection) Fourth Amendment Rules, 2025, along with the related implications.

Flue Gas Desulfurization: Technology, Operation, and Environmental Role

FGD is a pollution control technology used to remove sulphur dioxide from the exhaust flue gases of coal-fired thermal power plants before their release into the atmosphere. Sulphur dioxide is a recognised air pollutant with well-documented health and environmental impacts, including contribution to secondary particulate matter formation (PM2.5), and acid deposition.

FGD systems function on the principle of chemical absorption. Inland thermal power plants generally deploy wet scrubber systems using limestone or lime slurry, wherein SO₂ reacts with calcium-based absorbents to form calcium sulphite or calcium sulphate. Coastal plants may deploy seawater-based FGD systems, which utilise the natural alkalinity of seawater to absorb sulphur dioxide. While seawater-based FGDs reduce chemical handling requirements, they necessitate large volumes of seawater intake and discharge infrastructure.

FGD systems are capable of achieving SO₂ removal efficiencies in the range of 90–95%. However, this performance comes with significant trade-offs, including high capital costs, increased auxiliary power consumption, substantial freshwater or seawater usage, generation of solid by-products, and operational complexity. Consequently, international practice demonstrates that the extent to which FGDs are mandated varies across jurisdictions, depending on coal quality, sulphur content, ambient air quality, population exposure, and overall cost-benefit analysis.

Statutory Origin of SO₂ Emission Norms and the FGD Mandate 

The regulatory requirement for controlling sulphur dioxide (SO₂) emissions from coal-based thermal power plants in India was introduced by the Ministry of Environment, Forest and Climate Change (“MoEF&CC”) vide notification dated 7 December 2015, issued under the Environment (Protection) Act, 1986. The said notification introduced revised standards for emission of environmental pollutants to be followed by thermal power stations and, inter alia, prescribed specific emission norms for sulphur dioxide (SO₂). The notification stipulated that thermal power plants were required to comply with the prescribed SO₂ emission norms within a period of two years from the date of publication of the notification.

Although the 2015 notification did not mandate any specific pollution control technology, compliance with the prescribed SO₂ limits, particularly for existing coal-based thermal power plants commissioned prior to the notification, in practical terms necessitated installation of Flue Gas Desulfurization systems. This necessity arose as a matter of technical feasibility rather than express regulatory prescription. The introduction of SO₂ emission standards in 2015 marked a significant departure from the earlier environmental regulatory approach, under which sulphur dioxide control was addressed primarily through dispersion-based mechanisms such as minimum stack height requirements, rather than end-of-pipe emission control technologies.

The 2015 notification thus imposed a qualitatively new compliance obligation on the thermal power sector. Unlike incremental upgrades to electrostatic precipitators or stack modifications, FGD installation required extensive plant modification, procurement of large-scale equipment, integration with existing systems, and extended unit shutdowns. These obligations had direct implications for plant availability, operational efficiency, and financial viability, and necessarily intersected with the electricity regulatory framework governing tariff and cost recovery.

Intersection with the Electricity Act, 2003 and Tariff Regulation

While the mandate relating to sulphur dioxide emission control and installation of FGD systems arose under environmental law, its implementation necessarily intersects with the electricity regulatory framework governed by the Electricity Act, 2003. The Act lays down a detailed statutory scheme on matters relating to tariff, cost recovery, power procurement, and regulatory oversight, with functions distributed between the Central Electricity Regulatory Commission (“CERC”) and the State Electricity Regulatory Commissions (“SERCs”) depending on the nature of generation and supply.

Part VII of the Electricity Act contains the statutory framework governing tariff. Section 61 sets out the guiding principles that are required to inform all tariff-related regulation under the Act, including the requirement that electricity generation and supply be conducted on commercial principles, that efficiency and optimum investment be encouraged, that consumer interest be safeguarded, and that recovery of costs be ensured in a reasonable manner. These principles form the basis on which tariff regulations are framed by regulatory commissions.

The Act recognises two routes in relation to tariff. Section 62 provides for tariff to be regulated or determined by the Appropriate Commission in cases where tariff is not discovered through competitive bidding. Section 63, on the other hand, applies where tariff is discovered through a transparent process of competitive bidding in accordance with guidelines issued by the Central Government, in which case the role of the Commission is to adopt the tariff so discovered. In cases governed by Section 62, the process for consideration and approval of tariff is carried out in accordance with Section 64, which contemplates a public process involving notice, consideration of objections, and issuance of a tariff order.

These provisions together constitute the statutory framework within which any cost having tariff implications, including costs arising from statutory compliance, must be examined under the Electricity Act.

In the case of generating stations supplying power under inter-State arrangements, the jurisdiction of CERC is attracted by virtue of Section 79 of the Act. Section 79(1)(a) applies to generating companies owned or controlled by the Central Government, while Section 79(1)(b) applies to generating companies having a composite scheme for generation and sale of electricity in more than one State. In such cases, tariff-related issues are required to be examined by CERC within the framework of Part VII of the Act.

For intra-State generating stations and procurement of power by distribution licensees within a State, the State Commissions exercise jurisdiction under the Act. In addition to matters relating to tariff under Sections 61, 62, and 63, State Commissions are vested with regulatory powers under Section 86(1)(b) to regulate the electricity purchase and procurement process of distribution licensees, including approval of power purchase agreements and the price at which electricity is procured under such agreements.

Accordingly, where compliance with environmental norms such as FGD installation gives rise to financial or contractual implications, those implications necessarily fall to be examined within the tariff and procurement framework under the Electricity Act, either by CERC or by the relevant State Commission, as the case may be.

The statutory scheme under the Electricity Act does not provide for automatic pass-through of all costs incurred by generating companies, including costs incurred pursuant to statutory mandates. The principles set out in Section 61 require regulatory commissions to strike a balance between encouraging efficiency and investment on the one hand, and safeguarding consumer interest on the other. This framework necessarily involves scrutiny of whether the costs sought to be recovered are prudent, necessary, and reasonable.

This aspect assumes particular importance in the context of FGD-related expenditure, which involves significant capital investment and recurring operational costs with long-term tariff implications. Even where such expenditure arises from statutory environmental requirements, its treatment under tariff remains subject to examination within the framework of the Act.

In the context of power projects governed by power purchase agreements (“PPAs”), the Electricity Act framework interacts with contractual provisions dealing with change in law. Generating companies have invoked change-in-law provisions in PPAs to contend that the SO₂ emission norms notified by MoEF&CC in December 2015 constituted a change in statutory requirements after the contractual cut-off date. Procurers, on the other hand, have contested such claims on various grounds, including the timing, necessity, and scale of the expenditure.

These disputes, arising at the intersection of environmental mandates, contractual arrangements, and tariff-related provisions under the Electricity Act, have been considered by regulatory commissions and the appellate tribunal. The resulting jurisprudence reflects the complexity of aligning environmental compliance obligations with the tariff and procurement framework under the Act, and highlights the central role played by tariff-related provisions in shaping the treatment of FGD-related costs.

Implementation Experience and Progressive Extensions of Timelines

Following the notification dated 7 December 2015, compliance with sulphur dioxide (SO₂) emission norms across the coal-based thermal power sector was slow and uneven. Several structural and practical constraints contributed to this outcome, including limited availability of experienced FGD technology providers, supply-chain bottlenecks, escalation in equipment prices due to clustered demand, and the technical complexity associated with retrofitting FGDs in operating power plants without prolonged shutdowns. These challenges were further exacerbated by disruptions arising during the COVID-19 pandemic.

In view of these constraints, MoEF&CC periodically revisited the compliance framework and extended the timelines originally envisaged under the 2015 notification. In 2021, the Government of India constituted a Task Force for categorisation of coal-based thermal power plants, which, vide its Memorandum dated 13 December 2021, issued a detailed list categorising thermal power plants into Category A, Category B, and Category C, based on proximity to densely populated areas, critically polluted areas, and non-attainment cities.

Pursuant to the categorisation exercise, MoEF&CC issued a notification dated 5 September 2022, extending the timelines for compliance with SO₂ emission norms for non-retiring thermal power plants. As per the said notification, Category C plants were required to comply with SO₂ emission norms, including installation of FGD systems, by 31 December 2026, while differentiated timelines were prescribed for Category A and Category B plants. Consequent to the issuance of the said notification, several generating companies-initiated steps towards FGD implementation, including issuance of work orders to vendors.

Thereafter, MoEF&CC, vide notification dated 30 December 2024, further extended the timelines for compliance with SO₂ emission norms for non-retiring thermal power plants, permitting Category C plants to achieve compliance up to 31 December 2029, while retaining revised timelines for Category A and Category B plants. The notification did not alter the underlying emission standards but recalibrated the timelines in recognition of continued implementation constraints.

Ultimately, MoEF&CC notified the Environment (Protection) Fourth Amendment Rules, 2025, vide notification dated 11 July 2025, which substantially recalibrated the regulatory approach. Clause 2(c)(iv) of the said amendment expressly provides that sulphur dioxide emission standards shall not be applicable to all Category ‘C’ thermal power plants, subject to the condition that such plants ensure compliance with the minimum stack height criteria notified vide notification dated 30 August 1990. The amendment thus marked a substantive regulatory shift by removing the applicability of SO₂ emission standards to Category C plants altogether, while retaining stack height-based compliance as the applicable environmental requirement.

Despite multiple extensions and regulatory interventions over nearly a decade, compliance levels remained limited. Official disclosures indicate that only a small proportion of coal-based thermal power units had installed and operationalised FGD systems, with a significant number of units yet to place orders. This implementation experience, characterised by repeated extensions and low installation progress, played a critical role in prompting the reassessment of the regulatory approach culminating in the differentiated framework notified in 2025.

The following table depicts the developments concerning SO₂ emission control norms and FGD compliance:

Key Developments on SO₂ / FGD Compliance

Year / Date	Development	Key Features / Impact
23.05.1986	Environment (Protection) Act, 1986	Statutory framework empowering the Central Government to prescribe environmental standards, including emission norms for industries.
30.08.1990	Stack Height Notification (G.S.R. 742(E))1	Prescribed minimum stack height requirements for thermal power plants as a dispersion-based pollution control measure; no plant-specific SO₂ emission limits prescribed.
07.12.2015	Emission Standards Notification (S.O. 3305 (E))2	Introduced revised emission standards for thermal power plants, including specific SO₂ emission norms; compliance envisaged within two years from the date of publication (i.e., by 2017).
2021 (Task Force Memo dated 13.12.2021)	Categorisation of TPPs(B-33014/7/2021/IPC-II/TPP/)	Task Force constituted by Government of India categorised thermal power plants into Categories A, B and C based on proximity to NCR, million-plus cities, critically polluted areas, and non-attainment cities.
05.09.2022	MoEF&CC Notification(G.S.R. 682(E)3	Extended SO₂ compliance timelines for non-retiring plants to 31.12.2024 (Category A), 31.12.2025 (Category B), and 31.12.2026 (Category C); introduced an environmental compensation mechanism for non-compliance beyond prescribed timelines.
30.12.2024	MoEF&CC Notification(G.S.R. 787(E).4	Further extended SO₂ compliance timelines for non-retiring thermal power plants to 31.12.2027 (Category A), 31.12.2028 (Category B), and 31.12.2029 (Category C); no change to the underlying emission standards.
11.07.2025	Environment (Protection) Fourth Amendment Rules, 2025(G.S.R. 465(E))5	Introduced a differentiated regulatory framework: SO₂ emission standards made inapplicable to Category C plants subject to compliance with stack height criteria notified on 30.08.1990; applicability for Category B plants to be determined on a case-by-case basis; revised compliance timeline retained for Category A plants.

Scientific and Policy Inputs: NITI Aayog and Allied Studies

The regulatory recalibration reflected in the Environment (Protection) Fourth Amendment Rules, 2025, notified on 11 July 2025, must be viewed in the context of evolving scientific and policy inputs, prolonged implementation challenges, and the categorisation exercise undertaken by the Task Force in 2021, which collectively led to a departure from a uniform, technology-agnostic compliance expectation and culminated in the express statutory exclusion of Category C thermal power plants from the applicability of sulphur dioxide emission standards under Clause 2(c)(iv) of the amended Rules.

Under the amended framework, thermal power plants were categorised based on location and surrounding air-quality sensitivity:

• Category A plants, located within a 10 km radius of the National Capital Region or cities with a population exceeding one million, are required to comply with the prescribed SO₂ emission standards by 31 December 2027.

• Category B plants, located within a 10 km radius of critically polluted areas or non-attainment cities, are not subject to automatic applicability of sulphur dioxide (SO₂) emission standards. The applicability of SO₂ emission standards to such plants is to be decided by the Central Government, based on the recommendations of the Expert Appraisal Committee (Thermal Power Projects) constituted under the Environment Impact Assessment Notification, 2006, following a case-specific review process, in accordance with Clause 2(c)(iii) of the Environment (Protection) Fourth Amendment Rules, 2025.

• Category C plants, which constitute a substantial majority of India’s coal-based thermal power fleet, are not required to comply with SO₂ emission standards, provided they meet the minimum stack height requirements notified on 30 August 1990. The timeline prescribed for compliance with the stack height criteria for such plants is 31 December 2029.

In addition, the amended Rules retain an environmental compensation mechanism for operation beyond the prescribed timelines in cases where SO₂ standards remain applicable. The compensation is structured on an escalating basis linked to the duration of non-compliance, reinforcing regulatory accountability while recognising differentiated compliance obligations.

Overall, the Fourth Amendment Rules reflect a shift towards a more calibrated regulatory approach that balances environmental objectives with implementation feasibility, resource considerations, and the potential impact on electricity consumers, while continuing to apply stricter controls in densely populated and air-quality-sensitive regions.

Tariff, Change in Law, and Consumer Interest Implications

The Fourth Amendment Rules have materially altered the regulatory context in which FGD-related expenditure is assessed. For plants to which sulphur dioxide (SO₂) emission standards are no longer applicable, the regulatory basis for any future requirement of FGD installation stands substantially modified. At the same time, in cases where generating companies have already incurred or irrevocably committed expenditure under the earlier regulatory framework, questions arise regarding the appropriate regulatory treatment of such costs in light of the revised norms.

Under the Electricity Act, regulatory commissions are required to ensure recovery of legitimate costs while safeguarding consumer interest. The differentiated framework introduced by the Fourth Amendment Rules reinforces the need for a case-specific assessment of FGD-related claims, rather than any assumption of uniform tariff pass-through. This approach assumes particular relevance in pending and future change-in-law proceedings, where regulators are required to examine FGD-related expenditure in the context of the revised regulatory position, contractual provisions, and the overarching requirement of consumer protection.

Policy Rationale and Emerging Criticism

The current regulatory framework reflects a shift in the manner in which sulphur dioxide (SO₂) control obligations are structured for coal-based thermal power plants. The differentiated approach embodied in the framework corresponds with factors such as ambient SO₂ levels generally remaining within prescribed standards in many regions, the low sulphur content of Indian coal, and the substantial economic and tariff implications associated with universal deployment of FGD systems. The framework also indicates an attempt to balance environmental regulation with considerations of electricity affordability, implementation feasibility, and efficient use of resources.

At the same time, the differentiated approach has been subject to criticism in public and expert discourse. Concerns have been raised regarding the consistency of the framework with the polluter-pays principle, the potential for dispersion of emissions over longer distances notwithstanding compliance with stack height norms, and the implications of a location-specific regulatory approach for broader clean air objectives. These critiques underscore the policy trade-offs inherent in differentiated environmental regulation and highlight the continuing debate on the appropriate balance between environmental controls, economic considerations, and regulatory proportionality.

Conclusion

The evolution of the FGD mandate in India illustrates the complex interaction between environmental regulation, scientific evidence, and electricity sector law. From the uniform expectations introduced in 2015, the regulatory framework has evolved towards a differentiated, location-based approach informed by implementation experience, fuel characteristics, and ambient air quality considerations.

From a legal perspective, this evolution carries significant implications for tariff determination, change-in-law jurisprudence, and regulatory certainty under the Electricity Act, 2003. As regulators and courts continue to address FGD-related disputes, careful calibration will be required to ensure that environmental objectives are pursued through measures that are legally sustainable, proportionate, and consistent with consumer interest.

FAQs

References –

1. Ministry of Environment and Forests, Notification dated 30.08.1990, G.S.R. 742(E).
2. Ministry of Environment, Forest and Climate Change, Notification dated 07.12.2015, S.O. 3305(E).
3. Ministry of Environment, Forest and Climate Change, Notification dated 05.09.2022, G.S.R. 682(E).
4. Ministry of Environment, Forest and Climate Change, Notification dated 30.12.2024, G.S.R. 787(E).
5. Ministry of Environment, Forest and Climate Change, Notification dated 11.07.2025, G.S.R. 465(E), Environment (Protection) Fourth Amendment Rules, 2025.

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