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How Modi govt’s new energy bill aims to bring carbon trading to India, promote non-fossil fuels

An amendment to 2001 Energy Conservation Act, the bill was passed by Lok Sabha Monday. Govt says bill will help India achieve climate goals, including emissions reduction.

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New Delhi: Introducing a domestic carbon market to India, making it mandatory for energy-intensive industries to use non-fossil energy sources, and bringing large residential buildings under the ambit of the law for energy efficiency — these are some of the key features of the Energy Conservation (Amendment) Bill that was passed in the Lok Sabha Monday.

The government says the bill will help India achieve its climate goals, which include reducing the emissions intensity of GDP (that is, the volume of emissions per unit of GDP) by 45 per cent below 2005 levels, as well as ensuring that about 50 per cent of installed electric power capacity is from non-fossil sources. 

The bill is an amendment to the 2001 Energy Conservation Act, which was last amended in 2010.

“With the passage of time, and in the context of energy transition with special focus on promotion of new and renewable energy and National Green Hydrogen Mission, a need has arisen to further amend the said act,” the bill’s statement of objects and reasons reads. 

Before the bill was passed, several opposition leaders voiced their concerns about how the carbon-trading mechanism would operate and how the bill would mitigate India’s growing energy needs.

Carbon trading is the buying and selling of carbon credits —  a permit that allows its owner to emit a certain amount of carbon dioxide or other greenhouse gases.  The aim of such a mechanism is to gradually reduce carbon emissions to help mitigate climate change.

Vaibhav Chaturvedi of the Council on Energy, Environment and Water, a Delhi-based think tank, says this is India’s first step into pricing carbon and, in the long term, disincentivising the use of fossil fuels. 

“Another way to price carbon is by taxing it, but trading is preferred because it makes limiting emissions to a particular level a certainty, through an emission cap,” he said.

India is currently the third largest carbon emitter in the world, behind the US and China. 

ThePrint explains all you need to know about the Bill, which will now have to be passed by the Rajya Sabha.

Also Read: ‘Higher capacity turbines, strengthening infra’ — how India can meet its wind energy targets

Use of non-fossil sources of energy

The bill makes it mandatory for energy-intensive industries like steel and cement “and other establishments” to use a share of non-fossil sources for energy and feedstock (raw material to supply or fuel a machine or industrial process), such as green hydrogen, green ammonia, biomass, and ethanol.

It also proposes bringing large buildings — which are significant consumers of energy — under the law, alongside enhancing the scope for their energy efficiency.

Commercial and residential buildings currently account for around 37 per cent of India’s annual energy consumption. 

“Earlier, the buildings covered were those that consumed 500kW (kilowatts) or more. Now the bill has brought it down to those that have a minimum connected load of 100 kW,” Deepak Sriram Krishnan, associate director of energy at World Resources Institute India explained to ThePrint.

“What this means is that when seeking approvals, builders will have to show that they have brought in energy efficiency in their plans,” Krishnan said.

These standards, however, would not be enforceable across all states since power is a subject that both states and the central government have jurisdiction over. This means that both central and state governments have jurisdiction over it.

Krishnan says that for the changes to be truly effective, they need to be enforced by state governments at the local level.

The 2001 act set up the Bureau of Energy Efficiency (BEE) — an agency tasked with developing programmes for energy efficiency and conservation — and came up with energy efficiency standards that would apply to various appliances, such as air conditioners and refrigerators. 

The bill proposes including other products within this energy efficiency standard as well, such as vehicles and ships.  Additionally, according to the bill, manufacturers, builders, and industries found not complying with the law are liable to pay fines of up to Rs 10 lakh, with an additional Rs 10,000 for every day of non-compliance after that.

Carbon markets

According to the bill, the central government or any other authorised agency is empowered to grant “carbon credit certificates” to a registered entity. These credits can then be sold in the market. 

The idea is to reduce carbon emissions by capping how much certain sectors can emit. Polluting industries will have to buy permits and must emit only as much as they are permitted to. Permits can be bought and sold — for a price determined by market forces — depending on the progress industries make in meeting their mitigation targets.

Scientists have said that limiting carbon emissions is key to slowing down global warming. If there is no reduction in global emissions within this decade, temperatures could cross 1.5 degrees above pre-industrial levels and lead to climate catastrophe, scientists have warned

While this will be India’s first brush with a domestic carbon market, the BEE has experience with a similar scheme, called Perform Achieve and Trade (PAT). PAT incentivises industries to become more energy efficient and allows for the trade of excess energy saved. 

Although PAT has been operational since 2008, its effectiveness has been unclear. According to the government, the scheme has led to energy savings of about 17 million tonnes of oil equivalent and resulted in the mitigation of about 87 million tonnes of carbon dioxide per year. A tonne of oil equivalent is the amount of energy released by burning a tonne of crude oil.

An analysis by the Centre for Science and Environment (CSE), a Delhi-based a public interest research and advocacy organisation, however, found that the scope of these reductions could have been far greater if industries were given higher targets and the scheme were implemented more thoroughly.

For example, in the thermal industry, the CSE found that energy savings were only 3 per cent of the industry’s total annual emissions.

According to an undated blueprint published by the BEE, the introduction of carbon markets in India should happen in three steps, “which would primarily involve increasing demand (of credits) first, increasing supply in the market in the second phase and then progress towards a cap & trade system in its final phase.”

Chaturvedi says it’s impractical to expect stringent caps on emissions in the initial stage since India is still developing, and development and carbon emissions are intertwined. 

“This is an instrument that’s here to stay, and ultimately, we will reach a mature and stable stage. This may take 8-10 years,” he said.

Addressing India’s cooling needs

During discussions on the bill, Trinamool Congress MP Mahua Moitra argued that the bill doesn’t adequately address India’s future cooling needs as global warming accelerates. 

She said the emphasis on fuels such as green hydrogen and ammonia took away from enhancing technologies that are already at our disposal, such as solar thermal power. 

Solar thermal power involves using energy from the sun to heat a fluid, which turns into a superheated steam used to turn turbines to generate electricity.  

“Right now, we’re still building the infrastructure for green hydrogen and ammonia. It might be a lot easier for industries to harness solar thermal energy since the supply chain for it already exists,” said Krishnan.

He added, “Our cooling needs are going to increase hugely, and ACs are very energy intensive. It might be useful to bring in a design thinking approach that would allow us to bring in passive cooling that incorporates temperature control right from the design stage. The bill doesn’t address this”.

(Edited by Uttara Ramaswamy)

Also Read: Green hydrogen — why cheaper production of this alternative fuel is high on govt agenda


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