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 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. 

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 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

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