Clean Energy Action

Energy Conservation (Amendment) Bill, 2022 walks the talk on India’s climate goals

In yet another move towards a sustainable energy transition, the Lok Sa­bha, on August 8, 2022, passed the En­ergy Conservation (Amendment) Bill, 2022, which seeks to promote re­ne­wable energy uptake and the adoption of energy efficiency measures ac­ross in­dustrial, commercial and large residential consumers categories.

The new bill has put in place several im­portant provisions by amending the 20-year-old Energy Conservation Act, 2001. These include mandating the consumption of non-fossil fuel sources, including green hydrogen, green ammonia, biomass and ethanol for energy and feedstock by designated consumers; proposing the introduction of carbon credit ma­rkets; bringing large residential buildings within the energy conservation regi­me; and prescribing strict penalties.

These measures are expected to give a huge fillip to India’s decarbonisation ef­f­or­ts and deliver on its ambitious targets, outlined at the 26th Conference of Par­ties of the UN Framework Conven­tion on Climate Change, of meeting 50 per cent of its energy requirements th­ro­u­gh renewables cutting carbon emissions by 1 billion tonnes and lowering the emissions intensity of the GDP by 45 per cent by 2030.

To recall, the Energy Conservation Act, 2001 was enacted to provide an overarching framework for efficient use of en­ergy and its conservation as well as rela­ted matters, especially the establishme­nt and incorporation of the Bureau of En­­­er­­gy Efficiency (BEE). The act was later amended in 2010 to address various new factors that emerged with the development of the energy market over a period of time and to provide for more efficient and effective use of energy and its conservation.

Power Line presents an overview of the key provisions of the Energy Conser­va­tion (Amendment) Bill, 2022 and its ex­pected outcome …

Carbon credit market introduction

One of the key highlights of the new bill is that it empowers the central government to notify a carbon credit trading scheme and allows it (or its authorised agency) to issue carbon credit certificates to registered entities. These entities will be allow­ed to purchase or sell the carbon credit certificates to meet their energy conservation targets. The bill is thus expected to create a deeper and wider carbon market for energy savings and incentivise industries to cut emissions.

Notably, during the discussion on the energy conservation bill in the Lok Sa­b­ha, the power and new and renewable en­ergy minister clarified that there would be no export of carbon credits until In­dia’s commitment to reducing 45 per cent of the emissions intensity of the GDP is achieved. He added that these credits will be both generated and bought by domestic companies. Glo­bally, carbon trading started formally in 1997 under the United Nations’ Kyoto Pro­tocol on climate chan­ge with over 150 nations as signatories. In­dia is an active participant in the global clean develo­pment mecha­nism (CDM) market for carbon credits accumulated th­rough CDM projects.

While the bill does not provide details of the expected framework for the carbon credit market, the BEE had, back in Oc­to­ber 2021, published a draft blueprint for National Carbon Markets, which proposed the development of a voluntary carbon market in three phases. The first phase would involve developing and increasing the supply of carbon credits by converting energy saving certificates and renewable energy certificates (RECs) to tradable carbon credits. The second phase would entail a supply-side push through an increase in project-le­vel registration, validation and verification. The third phase would re­q­uire an ev­entual move to a cap-and-tra­de syst­em, like the one operational in the European Union, wherein sectors and companies have a specific degree of em­i­ssions allowance.

Minimum renewable energy consumption by DCs

Another key highlight of the new bill is the clause that empowers the central go­v­ernment to specify targets for non-fossil fuel energy consumption for designated consumers (DCs). The bill recommends a minimum share of consumption of non-fossil fuel sources as energy or feedstock by DCs, which include industries (such as mining, steel, cement, textile, chemicals and petrochemicals), the tra­ns­port sector (including railways) and co­m­mercial buildings.  These DCs are en­­­ergy-intensive industries and major carbon emitters. The clause also entails pro­visions for specifying a minimum sha­re of consumption of different types of non-fossil fuel sources as energy or feedstock by DCs.

Expansion of the building code to include large residential buildings

Another significant provision in the bill modifies the “Energy Conservation Buil­ding Code” to “Energy Conservation and Sus­­tainable Building Code”. The code provides norms and standards for energy efficiency and conservation, use of re­n­ew­able energy and other green building requirements.  The bill expands the scope of the act to include large residential, com­­­mercial and office buildings – with a minimum 100 kW connected load or a contract demand of 120 kVA. Earlier, the energy conservation codes were only applicable to commercial buildings with a minimum 100 kW connected load or a contract demand of 120 kVA. Notably, the bill also empowers the state governments to lower load thresholds. Fur­ther, the scope of the act has been expan­ded to in­clude appliances, vehicles, vessels, industrial units, buildings and es­tab­lishments. The bill prohibits the manufacture or import of any equipment, appliance, vehicle or vessel un­less it conforms to the energy cons­u­mption standards. An industrial unit would have to close its operations unless it conforms to the norms for processes or energy consumption standards.

Stricter penalties

As per the amendment bill, failure to com­ply with Sections 14 and 15, which per­­tain to the energy conservation co­des, would attract a penalty of up to Rs 1,000,000. In case of continuing failures, an additional penalty, which may extend to Rs 10,000 per day, would be imposed. In the case of non-compliance on matters relating to an industrial unit or vessel, an additional penalty, which would not exceed twice the price of every metric tonne of oil equivalent consumed in ex­cess of the prescribed norms, will be ap­p­licable. Meanwhile, in case the manufacturer of a vehicle fails to comply with the fuel consumption norms, an additional penalty per unit of vehicles sold in the corresponding year will be imposed.

Expansion of BEE Governing Council’s scope

For improved inter-ministerial coordination, the bill expands the scope of the BEE Governing Council from 20-26 me­m­bers (including six secretaries of various departments, regulatory authorities and the Bureau of Indian Standards, and four members from the industry and con­sumer sectors) to 31-37 members (in­cluding 12 secretaries and seven mem­bers from the industry and consumer sectors). With this, the secretaries of the Ministry of Environment, Forest and Climate Change; the Ministry of Ho­using and Urban Affairs; the Ministry of Road Transport and Highways; the Mi­nistry of Steel; the Ministry of Aviation; the Ministry of Ports, Ship­ping and Water­ways; as well as the member (in charge of energy) of the Railway Board; the director general of the Natio­nal Pro­ductivity Council, Department for Pro­mo­tion of Industry and Internal Tra­de; and one official each from the en­ergy or power department of the five states from the five power regions will be a part of the council.

Conclusion

The Energy Conservation (Amendment) Bill, 2022 has received a positive respon­se from the industry. Vishnu Sudarsan, partner, JSA, explains that the two major proposals of the bill are specifying the minimum quantum of renewable energy in the overall consumption by establishments and industrial units, and en­co­uraging the use of clean technology through the issuance of carbon savings certificates. These amendments are a te­sta­ment to India’s position as a frontrunner in implementing actions to achieve low-carbon, climate-resilient and sustainable pathways, he adds.

As per ICRA Research, the amendments in the Energy Conservation Bill, passed in the Lok Sabha recently, are a positive step. Rohit Ahuja, head of research and outreach, ICRA, remarks, “Heavy penalties and widening the scope of the types of vehicles and buildings covered will help restrict carbon emissions. The bill has also increased the manpower of the BEE Governing Council and empowered the state electricity regulatory commissions with better control over energy tra­nsition goals. The amendments are a step in the right direction, but execution and quantifying the results to meet the climate goals will be key monitorables.”

Overall, the Energy Conservation (Am­en­­d­­ment) Bill, 2022 is expected to take the country’s energy conservation measures up several notches. The enforce­me­nt of legal provisions to prescribe a mi­nimum consumption of non-fossil fuel sources as energy or feedstock by DCs is expected to aid in the reduction of fossil fuel-based en­ergy consumption and the resultant carbon emissions. Besides, a carbon credits market will go a long way in incentivising actions for emissions reduction, lea­ding to increased investments in clean energy and energy efficiency.

That said, while carbon trading has been introduced in the bill, the industry ea­gerly awaitng the blueprint of the fra­mework to operationalise this market in the country. With two energy trading mechanisms – Perform, Achieve and Trade for energy efficiency and RECs for renewable energy – alrea­dy in place, a common carbon currency is expected to be in­troduced, going forward. The new national carbon market is expected to link these existing market-based mechanisms and create one common carbon currency. Besides this, a robust system for monitoring, reporting and verifying carbon emission reductions will be paramount for successful and transparent market operations. How the roll-out of the carbon credit ma­rket takes place and what the details of its implementation are, will be clo­sely watched in the coming months.

Priyanka Kwatra

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