Government centralises environmental penalties under new fund to improve transparency and accountability.
States receive majority share while Centre monitors collections, disbursements and audits nationwide.
Fund restricts spending, prioritises pollution control, remediation, clean technology research activities nationwide.
The Indian government has launched a new Environmental (Protection) Fund which centralises the collection of penalties and compensation under India’s primary pollution laws. The Rules of the new fund were notified by the Ministry of Environment, Forests, and Climate Change on January 15, in consultation with India’s Comptroller and Auditor General.
Citing the notification, Mongabay reported that levies collected under the Air, Water and Environment (Protection) Act are to be deposited with the Environmental (Protection) Fund and then redistributed to states by the Fund’s administrator under the new rules. The Administrator is the Union Environment Ministry “or anybody as notified by the central government,” the notification added.
3 February 2026
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In the past, the Central Pollution Control Board received a quarter of the levies collected and retained by State Pollution Control Boards, such as environmental compensation and environmental penalty charges. Penalties must be deposited directly into the centralised Environmental (Protection) Fund under the new Fund, with the remaining 25% going to the Center and the remaining 75% going to the State's Consolidated Funds.
“On receipt of the fund from the Administrator, the respective Department dealing with environment issues of each State or Union territory shall credit the amount in a reserve fund under the Public Accounts of the State,” the new rules say.
The funds can be used for 11 activities, ranging from taking measures for prevention, control and mitigation of pollution to remediation of environmental damage at contaminated sites and research on clean technology.
The rules also allow limited payments towards administrative expenses, like payment of salaries for contractual staff, but not exceeding 5%. It explicitly prohibits expenditure towards medical expenses, taking foreign trips, construction work and buying office equipment.
Previous reports have suggested a gross underutilisation of funds from environmental levies by the State and Central Pollution Control Boards. In 2024, the CPCB told the National Green Tribunal that 80% of funds collected through environmental compensation and other levies had remained unspent. Guidelines issued in 2019 had outlined how States and Central Pollution Control Bodies should spend these funds. Many of the same activities find mention in the new rules.
Under the new rules, the Environmental (Protection) Fund will be monitored by the Comptroller Auditor and General of India, with reports laid down in Parliament or State legislatures.
Implementation and Accountability Framework
According to The Indian Express and Mongabay, the new framework is expected to improve transparency and consistency in how environmental penalties are managed across the country.
While guaranteeing that states receive the majority share for on-the-ground action, centralising the funds enables the Union government to monitor collections and disbursements more methodically. The reserve fund mechanism under the Public Accounts is designed to prevent funds from being diverted for unrelated purposes, according to environmental law experts cited by The Hindu. According to the ministry, in order to guarantee accountability and compliance, the Comptroller and Auditor General will conduct audits on a regular basis.
