New Delhi: As part of India’s strategy to reduce greenhouse gas emissions, the Union government may announce a scheme in the Budget allowing companies to monetize efficient energy consumption practices in their industrial projects.
If implemented, the scheme would not only reduce coal consumption and greenhouse gas emissions by India, it would also strengthen the country’s negotiating position ahead of the key annual climate change discussions due in December in Copenhagen.
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“The scheme will be mentioned in the budget... The financial requirement is not that high comparatively,” said a senior government official involved in the development. He did not want to be identified.
Mint could not independently confirm the development with the finance ministry.
The scheme will be available for all sectors but the focus will be on coal-based power projects. “We immediately need to improve the efficiency of the thermal power projects by setting benchmarks,” said another government official also involved in the process. He too did not want to be named.
The scheme, titled “Perform, achieve and trade”, will be market-based. The mechanism will be similar to trading in carbon credits, wherein companies that are unable to restrict their greenhouse gas emissions within prescribed limits buy carbon credits from companies that do.
Part of a national action plan announced by Prime Minister Manmohan Singh’s council on climate change on 30 June, it will work like this: Electricity regulators such as the Central Electricity Regulatory Commission and state electricity regulatory commissions will prepare an energy efficiency benchmark, and projects that meet these standards will be issued energy efficiency certificates. Projects that are unable to meet the efficiency criteria will have to buy these certificates from those that have them.
Trading in these certificates, however, will be restricted to each sector. India cannot set up a carbon trading scheme—or a cap and trade system—because that would mean implicitly benchmarking and capping its greenhouse gas emissions, and this would counter the country’s stand in international negotiations.
India argues that any such restriction in its emissions will jeopardize its development needs and economic growth, and has hence made out its case based on per capita emissions.
The new energy efficiency certificate scheme will also include projects in sectors such as railways, aluminium, cement, chlor-alkali, pulp and paper, fertilizers and steel.
The Bureau of Energy Efficiency is currently undertaking baseline studies for these sectors. At least 750 industrial establishments will be covered under the scheme and each of them will be given three years to reach their targets.
The government plans to incorporate the new scheme under the National Mission for Enhanced Energy Efficiency (NMEEE). Of the eight missions announced, NMEEE is the most advanced in terms of implementation.
“This mission doesn’t need as much financial resources as some of the other missions will require (in subsidies), but it does need capacity upgrade. The benchmarking will have to be done very carefully to include adequate number of buyers and sellers or the market won’t work,” the first government official said.
Aimed primarily at coal-based power generation projects, the new scheme envisions that any improvement in plant efficiency will also lower India’s annual coal consumption and help reduce greenhouse gas emissions and fly ash. To generate 1MW of power, around 5,000 tonnes of coal is required every year. India has 256 billion tonnes of coal reserves, of which about 500 million tonnes (mt) is mined every year.
The country currently imports around 40mt of coal.
“As carbon trading works, this should also work, provided that the scheme is structured properly,” said Shubhranshu Patnaik, executive director at audit and consultancy firm PricewaterhouseCoopers.
India is the eighth largest producer of greenhouse gas emissions. The power sector accounts for half of India’s carbon-dioxide (CO2) emissions that are blamed for climate change. While the country’s CO2 emissions are low on a per capita basis, they are high in absolute terms.
Almost 70% of the power generated in the country is from coal; 78% of the coal used in the country goes to power plants. India has a power generation capacity of 147,000MW. It plans to add 78,577MW by 2012. Of this, around 46,600MW is expected to come from coal-fired plants.