View from India: India to develop domestic carbon market to fight climate change

The Bill, recently cleared by the Union Cabinet, is expected to facilitate the state electricity regulatory commissions to go ahead with tariff revisions on a timely basis. By way of explanation, amendments to the Energy Conservation Act, 2001 have been tabled at the Lok Sabha recently. Lok Sabha, constitutionally the House of the People, is the lower house of India's bicameral Parliament; with the upper house being the Rajya Sabha, constitutionally the Council of States.

The Energy Conservation Act, 2001 was enacted for efficient use of energy and its conservation and for matters connected therewith or incidental thereto. The Act has enabled the establishment and incorporation of the Bureau of Energy Efficiency (BEE) and has conferred certain powers upon the Central Government, the State Government and BEE to enforce measures for efficient use of energy and its conservation. BEE sets consumption targets for energy-intensive industries.

As the energy market grew, the Act was amended in 2010 for effective energy use, but now renewable energy and the National Green Hydrogen Mission are driving a need for further amendments. Also, Prime Minister Narendra Modi pledged at COP26 to achieve net zero carbon emission by 2070. So, capping emissions is understandable. It’s also intended to develop a domestic carbon market to fight climate change.

As per the amendment, carbon certificates will be introduced for trading. Green fuels across industries are to be mandated and there will be penalty provisions. This will extend to include the automotive sector as well.

Non-fossil sources including green hydrogen, green ammonia, biomass and ethanol for energy and feedstock are being promoted. This is to ensure faster decarbonisation of the Indian economy, and help achieve sustainable development goals in line with the Paris Agreement.

Every sector requires energy. In practical terms, the process of energy transmission and distribution may involve energy wastage. In that sense, there could be ample scope for chalking out conservation and energy efficiency solutions.

The fact that the country aims to transit to a low-carbon economy is an opportunity that could be capitalised. The Governing Council of BEE will increase its members to enable the roll-out of low-carbon initiatives. Carbon markets, effective drivers of reducing emissions, will be established and large residential buildings will be brought within the fold of an Energy Conservation Regime. Increasing energy-efficient buildings and avoiding deforestation could help make the country’s low-carbon journey a reality.  

Let’s try to figure out what that means. It could be that all companies need to be compliant with the carbon legislation. Carbon credits could be seen as a market-based mechanism. Carbon credits by their very nature, may lead to a demand for lowering greenhouse emissions. This could happen by attaching monetary value to the cost of polluting the air. That means to say businesses may treat carbon like a raw material. Industries could also purchase low-carbon solutions. Given its intrinsic value, it would be nice if these solutions are protected through intellectual property (IP) rights. Climate-related issues, which extend to carbon footprint, generally affect agriculture. So then we may need some tech solutions to lower carbon emissions. Energy consumption targets may be set for energy-intensive industries. Maybe deployment of clean technologies could be incentivised. Perhaps we could have carbon funds for small-scale industries.

Globally as per the Kyoto Protocol and the Paris Agreement, nations have chalked out measures to reduce greenhouse gas emissions. India is also part of these global missions. The increasing heatwaves, rising sea levels, droughts and floods, and habitat loss are among India’s concerns.  Let us hope India goes along the low-carbon trail and develops carbon markets. Private equity and investors could provide the necessary encouragement. Procedures could be simplified for getting credits and incentives.