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Energy Conservation Act 2022 – IMPRI Impact And Policy Research Institute

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Energy Conservation Act 2022

Policy Update
Riya Pawar

Abstract

Synergy and collaborative growth is essential for sustained climate impact. Targeting carbon emissions has been on the agenda of many nations. The introduction of Energy Conservation Act (ECA) Amendment 2022 is premised upon India’s climate mitigating commitment to net zero economy by 2070. ECA amendment seeks to create an equilibrium in emissions by setting benchmark limits on emission and facilitate trading of the surplus via carbon credits.  This article delves into the advent of the carbon credits trading market and hinged structural and regulatory reforms to facilitate carbon trading. 

Introduction and Background

Amidst climate change emerging as a humanitarian, socio-economic and development emerging hazard, it is crucial for the global south to consciously embrace resilient development. Energy availability and management constitutes a major chunk of energy resilience effort. Developing modern energy sources to eliminate the emission tradeoff is essential to stimulate resilient development. 

The triad of energy source availability, their costs and resultant emissions are three factors that need to be in equilibrium. Capacity building or upscaling energy efficiency are ways to fulfil this equilibrium. In the case of the Global South, energy conservation is a viable trade off. Subsequently, we must adopt Renewable energy to avoid threats to ecological barriers. 

In alignment with India’s Nationally Determined Contribution for carbon emission reductions and commitment at Cop 26 Panchamrit goal of net zero economy by 2070, Government of India has undertaken initiatives to curb carbon emissions by efficient energy usage.

The amendment in ECA 2022 was a constructive step in this direction. ECA 2001 mandated Testing, certification and promotion of energy efficient equipment and appliances. It also facilitated establishment of the Energy Efficiency Bureau with appliance standards. The 2010 amendment established for the very first time Energy Saving Markets through the issuance and trading of Energy Saving Certificates (EScerts).

ECA Amendment 2022 is a stepping stone in transforming the energy saving-based market to a carbon saving-based market. The Government of India envisions a benchmark for emissions by industries and residential units and trade to create equilibrium.  The 2022 amendment remarks the initiation of the Indian Carbon Market (ICM) and subsequent measures to ameliorate energy efficiency. 

Major Amendments in the Energy Conservation Act

Establishment of Indian Carbon Market (ICM): The ECA Amendment 2010 facilitated issuance of Energy Saving Certificates (EScerts). The surplus  energy saved could be traded. The 2022 amendment in ECA transformed the energy saving market to Carbon Markets in India. With the help of the carbon market we can directly tackle emissions instead of focusing on energy consumption and savings. The market mechanism will be developed under the carbon credits trading. Similar cap-and-trade system has been previously adopted by the EU, UK, Sweden and China. 

Carbon Credits Trading Scheme: The Carbon Credits Trading Scheme was notified on 28th July 2023 under ECA 2001. It designates State Electricity Regulatory Commissions as the regulatory body for carbon credits trading. The Bureau of Energy Efficiency will be responsible for designing the overall emission trajectory. The Grid Controller of India Limited will be responsible for maintaining transaction records and other functions.

Promotion of Non-fossil Energy: Recognising the potential of non-fossil Energy sources, designated consumers are liable to meet a minimum share of non-fossil energy consumption.

Inclusion of Residential Buildings: The ‘Energy Conservation Building Code’ previously targeted commercial structures only. But the rising luxury housing market makes it necessary to regulate residential structures.  The ‘Energy Conservation and Sustainability Building Code’ now specifies that all commercial and residential buildings which have a minimum connected load of 100 Kilowatt (kW) or contract demand of 120 Kilovolt Ampere (kVA). States have a scope of setting rigorous targets.

Governing Council: The members of Governing council are extended from 21-26 to 31-37 now including secretaries/member from ministries and bodies of: Environment, Forest and Climate Change, Housing and Urban Affairs, Road Transport and Highways, Steel, Civil Aviation, Ports, Shipping and Waterways, Railway board (Incharge of Energy), Ministry of Railway, National Productivity Council, Department for Promotion of Industry and Internal Trade, Ministry of Commerce and Industry, Energy and power saving departments from five power regions. 

Issuance of Certificates: Government or other assigned agencies will be in power to issue carbon credit certificates and registered entities shall be liable to purchase these certificates. By this amendment in force, any delegate agency can issue certificates on behalf of the government. 

Voluntary Individual Access to ICM: Any individual can purchase carbon credit certificates or EScerts on a voluntary basis. This provision will allow inclusion of individuals into the carbon market as opposed to keeping it centralised and institutional. The structure and nature of individual certificates is not clearly defined yet. 

Amendments in Penalty Rules: Penalties set the regulatory fabric of any policy. Penalties for continuous failure are aggravated in ECA Amendment 2022. Additional penalties are applicable for manufacture or sale of labels that do not conform to energy consumption standards. or failure of display. Additional penalties to be paid for non compliant vehicles and vessels.

Emerging Issues

Supplementary Measures: Regulating individual behaviour is crucial to successfully mitigate emissions.  Non-price interventions  and some combination of information, attention, and social norms can cause substantive changes in consumer behaviour at population scale. Hence awareness programs must be actively propagated to supplement the reforms. 

Issue of Certificates: BEE is already issuing EScerts under the PAT scheme and renewable energy certificates. With the advent of Carbon Credit Certificates, it is unclear whether the certificates will be interchangeable with Carbon credits or not. 

Trading Structure: Government intervention is crucial to ensure that carbon credits gain a justified value. The European Carbon Credit System makes it mandatory for the carbon credits to be auctioned. The predicted revenue through auction mechanism is 19 Billion. However no such mechanism is specified regarding sale of carbon credits under ECA Amendment 2022. 

Conflict of Domains: Multiple ministries and bodies are involved in the regulation, implementation and planning of this Act. For instance, the Carbon Credit Trading Scheme involves State Electricity Regulatory Commissions, Grid Controller India Ltd, Ministry Bureau for Energy Efficiency etc., leaving a scope for potential conflict of interest or dysfunctional coordination. Assigning appropriate tasks to ministries is also necessary. For example, the Ministry of Environment, Forest and Climate Change is a better body to set carbon benchmarks by proper surveillance and unbiased reporting. Moreover, the Environment Ministry is generally initiating carbon credits movements in other countries. 

Feeble targets: Thermal industry has had less stringent targets in the Perform Achieve Trade (PAT)  era and the cheaper energy certificates made it easier to achieve the targets (CSE, 2021).EScerts made it way less expensive to demonstrate compliance. Hence the PAT reportedly failed in Thermal Power Plants. Hence stringent targets must be set in every sector. 

Outsourced Production: India has already done a good job at tackling emissions in the production and consumption (final good) process by synchronising the energy consumption at manufacturing to sale stage. However, we must consider the possibility of outsourced/fragmented production and imports to maintain minimum production cost.

Foreign Investments: In Europe, fragmented production was observed as a result of its cap-and-trade system for carbon. While India has reportedly benefited from inadequate environmental regulations in terms of foreign investments, carbon credits might seem less attractive. With India striving to boost its manufacturing sector, such schemes must not act disincentivizing to foreign investors. 

Need for Border Adjustment: The European Carbon Trading Scheme was flawed due to outsourced production of emission intensive commodities. This is an example of the prevalent loopholes in the implementation system. This was eventually corrected with the help of Carbon Border Adjustment Mechanisms. The domestic trading of carbon credits is a loophole in this system. In such scenarios, we need to be visionary by adopting such mechanisms in advance. 

Transparency Mechanisms: There is no provision to the problem to ensure transparency and accountability in the amendment. The lack of transparency led to many operational dysfunctionalities and anomalies. One instance can be feeble targets for Thermal Sector.

Way Forward 

ECA Amendment 2022 is a remarkable step towards India’s transition towards a Net Zero Economy. The initiation of the scheme was lauded and no major resistance was raised in the parliament. 

However the problems of corruption mechanism, inclusivity, and trade repercussion are not addressed satisfactorily. Additionally measures to evaluate success of the scheme must be established and transparently displayed to track our carbon trajectory. 

Along with these measures, habitual delinquency and ignorance are major concerns among Indian masses calling attention. Successfully tackling fundamental inefficiencies is essential for  measures like ECA to function efficiently. 

References

  1. https://www.cseindia.org/perform-achieve-and-trade-pat-scheme-of-thermal-power-plants-a-critical-analysis-11070
  2. https://www.ceew.in/blogs/decoding-new-bill-amendments-to-energy-conservation-act-india
  3. https://www.pwc.in/assets/pdfs/news-alert/regulatory-insights/2023/pwc_regulatory_insights_6_july_2023_ministry_of_power_notifies_carbon_credit_trading_scheme_2023.pdf
  4. Allcott, H. (2011). Social norms and energy conservation. Journal of public Economics, 95(9-10), 1082-1095. 

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Acknowledgment: This article was posted by Aasthaba Jadeja, a visiting researcher at IMPRI.

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