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 the industrial, commercial and large residential consumer 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 (DCs); 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.
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 UN’s 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 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.
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.
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 front runner 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 is eagerly awaiting 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