Energy Conservation Bill, 2022 eyes robust carbon trading in India

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While the Bill is a welcome move to curb climate change via carbon credit trading, analysts are sceptical of the role the Ministry of Power is expected to play in the same.

Carbon trading in India: The Rajya Sabha on Monday cleared the Energy Conservation (Amendment) Bill, a legislation that seeks to promote renewable energy and develop a domestic carbon trading market to tackle climate change. The Bill looks to improve energy efficiency of large power consumers such as industrial units or vessels, and on manufacturers if a vehicle fails to comply with the fuel consumption norms. The overarching objective of the legislation is to help the country meet its international commitments on carbon emissions climate change.

The Energy Conservation (Amendment) Bill, 2022 proposes to amend the Energy Conservation Act, 2001. The larger goal is to ensure that companies switch to clean energy sources. The legislation stipulates that designated consumers meet a proportion of their energy needs from non-fossil sources.

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India was the third largest emitter of carbon dioxide in 2020, although its emissions were lower than the global average in per capita terms, says the UN’s Emissions Gap Report (EGR). The country has set 2070 as the target date to achieve net zero, much later than the dates set by other large emitters. The Paris agreement of 2015 had proposed 2050 as the target date for net zero to limit global warming to 1.5 degree celsius.

What is carbon trading? 

Carbon credits, also known as carbon offsets, is simply a permit which allows the owner to emit a certain amount of carbon dioxide or other greenhouse gases. One credit permits the emission of one tonne of carbon dioxide or the equivalent in other greenhouse gases.

For example, a polluting company is awarded credits that allow them to continue to pollute up to a certain limit, which is reduced periodically. The company is also able to sell any unneeded credits to another company that needs them. Private companies are hence doubly incentivized to reduce greenhouse emissions. These companies can either make money by cutting down on their emissions and selling their excess allowances or they must spend money on extra credits if their emissions exceed the cap.

In India, if the big consumers overachieve their energy targets and get their energy requirements from cleaner sources of energy, then they will be given carbon credits. If they underachieve, or are unable to meet the targets, they will be either penalised for it or will have to buy carbon credits to compensate.

India looks to become world leader in green hydrogen and the ministry has already drafted rules for the same. The industry will set up capacity to produce 25 million tonnes of green hydrogen. It is expected that the country would achieve more than 50% of its power generation capacity from non-fossil fuels by 2030.

The Bill also empowers the Union government to specify Energy Conservation Code for buildings. With this, large residential buildings with a minimum connected load of 100 kilowatt (kW) or contract demand of 120 Kilovolt Ampere (kVA) will be brought under the ambit of energy conservation plans.

Climate change threatens India 

India is one of the most vulnerable countries to extreme weather conditions and a recent report has said that the repercussions of climate change for the nation might be even worse than imagined previously. According to the World Bank, temperatures in parts of India could push beyond what is survivable by humans within the span of a few years. The country already experienced a crushing, weeks-long heatwave earlier this year, where temperatures in several cities crossed 110°F. 

It represented a peak for soaring temperatures worldwide, with parts of the US and Europe also struggling to adapt to high humidity and waves of wildfires. It is expected that if India does not cut down carbon emissions, heatwaves are likely to last 25 times longer by 2036-65, the World Bank report said, citing a 2021 assessment by the G20.

The shortcomings

While the Bill is a welcome move to curb climate change via carbon credit trading, analysts are sceptical of the role the Ministry of Power is expected to play in the same. Further, as of now no market regulator has been specified in the Bill and there may soon arise a need to do that. 

Further, the government may need to ramp up infrastructure as even if consumers are willing to meet certain non-fossil energy use obligations, the limited competition among discoms in any area may pose a problem.

The introduction of a carbon credit system is a “bold” and “ambitious” move by the government according to analysts but the government will now have to invest on training the industrial sector so that the move can be a success.