An Overview of the Energy Conservation (Amendment) Bill 2022

• The bill is designed to facilitate the growth of a domestic carbon market in India. This market is expected to incentivize efforts to reduce emissions, encouraging more investment in clean energy and energy efficiency by the private sector in residential, commercial, and industrial areas.
• The bill mandates the creation of agencies for issuing carbon credit certificates domestically and prohibits companies from exporting their carbon credits outside India.
• The Act is intended to bolster India’s commitment to reducing carbon emissions under international agreements such as the Paris Agreement and the commitments made at COP 26 and COP 27.
• The bill introduces two types of institutional mechanisms for regulating carbon emissions, modelled after the mechanisms developed by the European Union in 2005 – "cap-and-trade" and "command-and-control".
• The cap-and-trade mechanism is a market-based approach where permits or allowances for emissions or pollution are issued up to a maximum or capped amount. This cap is then gradually reduced year on year.
• Companies that exceed their permitted emission limits can buy permits from others who have unused permits for sale.
• According to the International Carbon Action Partnership (ICAP), there are currently 25 effective emissions trading schemes (ETSs) in place in countries such as Japan, the UK, the US, Canada, and Mexico.
• In 2019, Surat implemented a pilot emissions trading scheme (ETS) for particulate matter pollution. This scheme led to a 24% reduction in particulate matter pollution for the industries involved. Cities like Ludhiana and Ahmedabad are planning to adopt a similar model.
• The command-and-control mechanisms impose a uniform cap on all industries from the top. This approach has generally been unsuccessful due to the inability of traditional industries to quickly generate climate finance for the transition to green practices.
• It's crucial to institutionalize carbon markets not only in government and businesses but also within broader communities. This can be achieved by forming community-based organizations (CBOs) or self-help groups (SHGs) and participating in the voluntary carbon market framework to achieve net-zero effects.
• Improved management and processing of waste at the village level can lead to better implementation of the 3Rs (reduce, recycle, reuse) and a reduction in methane emissions.

Concerns about the Energy Conservation (Amendment) Bill 2022

• The Bill currently does not provide for the participation of local communities in the carbon credit market. This exclusion prevents them from raising funds through carbon credit certificates.
• The Act does not include regulations that are needed to address market failures caused by large players who are significant contributors to carbon emissions but do not make efforts to transition to low-carbon business models.
• Carbon trading should include caps on individual players’ carbon emissions and focus on reducing the use of fossil fuels across the board. The use of deceptive means to produce carbon permits for short-term profit should be prohibited, as this can perpetuate the fossil fuel industry.
• The bill empowers State Electricity Regulatory Commissions to regulate and monitor the electricity sector, but the specific details of how this will be done effectively remain unclear.
• The bill does not provide for the conversion of carbon certificates into other financial instruments, such as cash, bonds, equities, or securities, if the certificate holder wishes to do so.

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