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Creating An Architecture For Net Zero Emissions – Renewables

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As per a recent report published by the International Institute
for Sustainable Development, fossil fuels account for around 76% of
India’s total primary energy supply. 18% of the total revenue
of the Government is derived from fossil fuels. Against this
backdrop, India is set to take a giant leap by the passing of the
Energy Conservation (Amendment) Bill, 2022 (Bill)
by the Lok Sabha on August 8, 2022.

The Bill seeks to amend the provisions of the Energy
Conservation Act, 2001 (Act) and ensure faster
decarbonization of the Indian economy. This move is an endorsement
of the “Panchamrit” or the five nectar elements
presented by India in COP-26 (Conference of Parties -26) in Glasgow

Carbon Market

Currently, Energy Savings Certificates
(ESCerts) and Renewable Energy Certificates
(REC) are traded in the energy market in

ESCerts are certificates issued under the Perform Achieve Trade
scheme (PAT Scheme) implemented by the Bureau of
Energy Efficiency (BEE). The Act empowers the
Central Government and in some instances the State Governments, in
consultation with BEE to notify energy intensive industries, other
establishments, and commercial buildings as designated consumers.
Designated consumers who overachieve the energy consumption norms
and standards individually allocated to them by a technical
committee of the BEE are issued ESCerts. ESCerts are then traded on
energy exchanges where designated consumers who underachieve their
consumption norms can purchase ESCerts. As on October 6, 2021,
there were 509 such designated consumers from industries ranging
from aluminium, iron and steel, zinc units, copper units, mines,

RECs are regulated by the Central Electricity Regulatory
Commission (Terms and Conditions for Renewable Energy Certificates
for Renewable Energy Generation) Regulations, 2022. Under the
Electricity Act, 2003 (Electricity Act), the
Ministry of Power prescribes a Renewable Purchase Obligation
(RPO)trajectory. The RPO regime is enforced by
State Electricity Regulatory Commissions who mandate that certain
obligated entities purchase renewable power. These obligated
entities include energy generators, distribution licensees and open
access consumers.

Renewable energy generating stations are eligible to receive a
REC if the tariff for the renewable energy generated is not
determined or adopted under the Electricity Act or if the renewable
energy generated is not sold for RPO compliance of the obligated
entity. RECs are then traded on energy exchanges or through
electricity traders and purchased by obligated entities to meet
their RPO compliance.

The Bill introduces the concept of a carbon credit trading
scheme which intends to combine the ESCerts and the REC scheme into
one. The Central Government has been empowered to issue the carbon
credit trading scheme pursuant to which carbon credit certificates
would be issued. Such certificates can be purchased on a voluntary
basis by any person and not just designated consumers.

This move is consistent with the Draft Blueprint on a National
Carbon Market for India released by BEE in 2021 for stakeholder
consultation. The draft emphasized the need of moving towards a
voluntary carbon market in India.

Other Measures

The Bill seeks to meet India’s climate change commitments
by mandating the use of non-fossil sources, including Green
Hydrogen, Green Ammonia, Biomass and Ethanol for energy and
feedstock by certain energy intensive industries. The Central
Government has been authorized to specify the minimum share of
consumption of non-fossil sources by designated consumers. Such
share would vary depending on the nature of the consumers. Given
India’s high dependency on fossil fuels, one would need to
wait for the Central Government’s proposals in this regard to
ascertain whether this move will indeed help reduce India’s
carbon emissions.

With regard to decarbonisation of energy intensive industries,
the Power Minister, R.K. Singh cited the example of the European
Commission’s proposed carbon border adjustment mechanism. The
mechanism proposes that a carbon tax would be levied on the imports
of products such as steel which are not green. The Minister
indicated that if an industry does not adopt green measures, it
will no longer be competitive.

Significantly, the Bill has also expanded the requirement of
conformation to energy consumption standards to include vehicles,
vessels, residential and office buildings in addition to equipment
or appliances. Specified industrial units would be required to
close their operations unless they conform to the norms for
processes or energy consumption standards that are laid down by the
Central Government.

Bill for the Future

While the Bill was up for discussion before the Parliament, the
Power Minister observed that it was the “bill for the
future”. Energy conservation and energy transition is
undeniably the need of the hour. However, the manner of
implementation of the Bill would really unfold the tale. Although
India does not currently intend to export carbon trading
certificates, in the long run, the national market could be
integrated with the framework for international trading of
mitigation outcomes, pursuant to Article 6 of the Paris Agreement.
However, this may lead to fears of non-availability of carbon
credits domestically that could in turn result in challenges in
meeting India’s decarbonization commitments.

This article has been published in Times of India

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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