What Is Energy Conservation (Amendment) Bill. How It Will Create Carbon Trade Market In India

Parliament last week passed the Energy Conservation (Amendment) Bill, 2022, giving sweeping powers to the central government to create a carbon credit trading mechanism. Union Power Minister RK Singh called the Bill futuristic and said it would give a boost to India’s efforts to go for greener sources of energy.

Amendments brought into the 2001 Act aim to create an EU-style carbon market in India to meet the country’s Nationally Determined Contributions (NDCs) agreed upon during the 2015 Paris Agreement.

What’s in the Energy Conservation (Amendment) Bill, 2022

The Energy Conservation Act, 2001 provided a framework for regulating energy consumption and promoting energy efficiency and energy conservation. The Act set up the Bureau of Energy Efficiency (BEE) which recommends regulations and standards for energy consumption in appliances, vehicles, and commercial establishments. These regulations do help in reducing greenhouse gas emissions by lowering the energy generation requirements but it’s not enough to meet the NDC targets. 

With the new amendments, the central government will specify a carbon credit trading scheme. Through this scheme, the government or any authorised agency will issue a carbon credit certificate to entities for reducing a specified amount of carbon dioxide or other greenhouse emissions. This can be done either by using renewable energy sources or by offsetting their emissions. 

As the power minister clarified in his speech in parliament, if the big consumers overachieve and meet more of their energy requirements from such 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.

Carbon Credit and Carbon Trading Market

Carbon Credits are essentially a kind of permit that can be traded and are equivalent to one tonne of carbon dioxide removed, reduced, or sequestered from the atmosphere, as per United Nations standards. In the 2015 Paris agreement, nearly 170 countries submitted NDCs according to which many have decided their emission reduction targets. In order to meet those countries put emission caps on industries. To comply with this companies either shift to a cleaner energy source or buy carbon credits. Carbon credits can be bought either from an entity engaged in projects that reduce, remove, capture, or avoid emissions or from companies that have overachieved their emission targets. 

Most notably EU launched its emissions trading system (ETS) launched in 2005, under which member countries set a cap for emissions in different sectors, such as power, oil, manufacturing, agriculture, and waste management. This cap is determined as per the climate targets of countries and is lowered successively to reduce emissions. If companies emit more than the capped amount of emission they have to purchase additional permits, either through auctions or from companies that kept emissions below the limit. Companies can also save up excess permits to use later. This kind of carbon trading system is called ‘Cap and trade.’ Since the emission caps get revised companies are forced to employ clean energy technologies or to purchase additional allowances.

Who Comes Under the New Amendment?

Emission limits and consumption thresholds for different non-fossil sources and consumer categories may be specified when the law is enacted. Although the bill includes industries such as mining, steel, cement, textile, chemicals, and petrochemicals, and the transport sector including Railways, some commercial buildings as designated consumers. For them, failure to meet this obligation will be punishable with a penalty of up to Rs 10 lakh. It will also attract an additional penalty of up to twice the price of oil equivalent of energy consumed above the prescribed limits.

Energy Consumption Standards for Residential Buildings and Vehicles 

The new amendment gives the government additional power to make an ‘Energy Conservation and Sustainable Building Code’ for residential and commercial buildings. It will apply to residential and commercial buildings erected after the notification of the Code, and having a minimum connected load of 100 kilowatts (kW) or contract load of 120-kilo volt-ampere (kVA). The state government will have the power to lower the load thresholds.

The bill also gives authorities power to make energy consumption standards for vehicles and vessels like ships and boats. Failure to comply with standards will be punishable with a penalty of up to Rs 10 lakh and in the case of vessels an additional penalty of up to twice the price of oil equivalent of energy consumed above the prescribed norm. If vehicle manufacturers are in violation of norms, they will be liable to pay a penalty of up to Rs 50,000 per unit of vehicles sold.

Concerns Regarding the Bill

One of the major concerns the opposition raised during the debate was regarding the ministry under which the law has come. The power ministry will be the nodal ministry for the regulation of the scheme, and the Bureau of Energy Efficiency under the Ministry of Power will be the implementing agency, as per the Act. The opposition raised questions if the bill encroaches upon the jurisdiction of the environment ministry. 

There are also questions regarding the issuance of carbon credit certificates during the debate, Manoj Kumar Jha of the RJD said it is not clear who will be responsible for the carbon credit certificate and who will regulate it. 

Similarly, S Niranjan Reddy of the YSRCP highlighted the lack of a regulator for carbon trading, cautioning that this could leave a loophole. Many Opposition members had demanded that the government should have brought the legislation after consultation through a standing committee of Parliament.