The Energy Conservation (Amendments) Bill, 2022, passed by the Rajya Sabha recently, mandates the use of non-fossil energy sources such as biomass, ethanol and green hydrogen to ensure faster decarbonisation of the Indian economy.

The Act has several significant features. First, it will foster a carbon market in India, through the creation of a National emissions trading system (National ETS). It empowers the central government to specify a trading scheme for carbon credits. Under this, the central government or any authorised agency may issue carbon credit certificates to entities registered and compliant with the scheme. The entities can trade the certificates. Anyone can purchase a carbon credit certificate on a voluntary basis.

Second, the Act will encourage the use of non-fossil sources of energy. It empowers the government to direct ‘designated consumers’ to meet a minimum share of energy consumption from non-fossil sources. Different consumption thresholds may be specified for different non-fossil sources for the designated consumers who comprise (i) industries such as mining, steel, cement, textile, chemicals, and petrochemicals; (ii) transport sector including railways; and (iii) commercial buildings, as specified in the schedule.

Third, it brings even large residential buildings within the scope of the Energy and Sustainable Building Code. The new code will provide norms for energy efficiency and conservation, use of renewable energy, and other requirements for green buildings. Under the Bill, the new Energy Conservation and Sustainable Building Code will also apply to office and residential buildings meeting the above criteria.

Fourth, energy consumption standards may be specified for equipment and appliances that consume, generate, transmit, or supply energy. It expands the scope to include vehicles (as defined under the Motor Vehicles Act, 1988), and vessels (includes ships and boats).

Carbon credit quality

The current trading schemes in India — energy saving certificates (ESCerts) and renewable energy certificates (RECs) will be merged into a single commodity called ‘carbon credits certificate’ (CCC) and operate under the ‘cap and trade’ system of the National ETS. With the implementation of the National ETS, the domestic carbon credits market will enable the development of higher quality sources of carbon credits, benefiting both buyers and sellers and, ultimately, supporting progress toward a low-carbon future.

In conjunction with international carbon markets, India’s domestic market can play a key role in reducing global greenhouse gas emissions.

A new ‘registered entity’ — the National Carbon Registry, under the central government or an agency authorised by it, has been proposed for registering new projects with ‘measurement, verification and reporting’ protocols in line with international registry systems.

‘Designated consumers’ and other consumers deemed appropriate will be part of the scheme — the ‘obligated entity’ will be allowed to sell and purchase CCCs. Other entities (non-obligated) can participate as purchaser.

A national carbon registry under the Bureau of Energy Efficiency (at present) or a future ‘carbon regulatory commission’ will be formulated and linked to the Centralised Accounting and Reporting Platform (CARP) of the Article 6 supervisory body of the United Nations Framework Convention on Climate Change (UNFCCC).

India’s voluntary carbon market (where companies that have voluntarily committed to reducing their carbon footprint buy carbon credits) will witness a surge in growth with the National ETS. The annual demand for voluntary carbon credit in India is expected to touch 500-plus million units by 2030.

Rules of operation

The government should introduce measures to establish a transparent and vibrant carbon market, which will help provide indexing facilities that can be leveraged for green or carbon finance instruments, facilitating India’s carbon-neutral growth path and attaining its nationally determined contributions or NDC goals under the Paris Agreement.

Respective line ministries — which may include the Ministry of Environment, Forest and Climate Change, Ministry of Power, Ministry of Finance, and Ministry of Commerce and Industry, among others — must formulate a policy for the creation of a national carbon market, making it effective beyond the energy production and usage sectors, such as forestry, agriculture, animal husbandry and so on.

Regulations should be brought in urgently to formulate the rules for the operation of such a carbon market. The market should be effectively synced with the national carbon registry.

There is need for a level playing field to encourage private sector participation in carbon emission reductions and international voluntary carbon trading, which, in turn, can attract foreign direct investments.

With the introduction of operational modalities under the Article 6 supervisory body of UNFCCC and its administered international carbon registry, the Indian national carbon registry should be linked to it on a real-time basis.

(The writer is President, Carbon Markets Association of India)