The Rajya Sabha on Monday approved the Energy Conservation (Amendment) Bill, 2022, which empowers the Centre to specify a domestic carbon credit trading scheme and makes it mandatory for big power consumers to meet a portion of their energy needs from renewable sources.
The domestic carbon market scheme will be a key step in achieving India’s nationally determined contributions under the Paris climate pact, according to the power ministry, which had tabled the bill. The bill was passed by the Lok Sabha on August 8.
There was a lengthy debate in the Rajya Sabha on various issues related to the carbon trading scheme. Opposition MPs asked why the carbon market scheme was envisaged under the power and not the environment ministry, which is the key nodal agency to implement India’s climate commitments. There were also questions on the structure of the trading scheme and benefits accruing from it.
Some MPs also said the bill has a centralised structure, despite the fact that each state has its own dynamics of energy production and consumption. The legislation places the onus of regulation on the Bureau of Energy Efficiency, a centrally governed organisation.
The trading scheme will function just like the existing schemes for renewable energy credits and energy savings certificates, power minister RK Singh said in response to these concerns. “It will obligate consumers of power like distribution companies, big consumers like industries with captive power plants to reduce carbon emissions,” he said. “Those who reduce a lot more than asked to will get carbon credits, those not able to achieve will have to buy credits or pay a penalty.”
The bill is futuristic and will play a critical role in achieving India’s climate goals, Singh said. “We should be proud that we are discussing this issue today. There is no country that is not impressed by our effort. Developed countries are now defensive because of our progress on climate action and energy transition,” he said.
“The passing of the Electricity Amendment Bill by the upper house of the Parliament gives legislative teeth to India’s domestic carbon credits trading market,” said Vaibhav Chaturvedi, fellow at the Council on Energy, Environment and Water, a think tank. “Carbon pricing as an instrument will be critical for India to achieve its net-zero target and this has been a bold and ambitious move by the government of India.”
“The next step should be to train industry participants on the operational aspects of the market to ensure success of this intervention and institutionalise it in the Indian ecosystem,” he added.
“The new bill provides scope of efficiency increase in both direct and indirect manner,” said Tirthankar Mandal, head, policy governance at the World Resources Institute’s India energy programme. “We hope that the line ministries and the private stakeholders work together with BEE to ensure a smooth implementation of the Act in future.”
“Proponents (of carbon markets) claim that such instruments can offer the most cost-effective means of reducing emissions by unleashing innovation, spurring investment in new technologies, and concentrating action on the least cost solutions,” Aman Srivastava and Ashwini K Swain of Centre for Policy Research wrote in Ideas For India, an online analysis portal, on October 18.
However, critics contend that “carbon markets serve to sustain the status quo… interest groups mobilize around carbon pricing schemes to render them ineffective or even counterproductive,” they wrote.
“Although such market mechanisms can offer cost-effective means to reduce emissions, this will depend on whether they are underpinned by a robust institutional structure and shaped for the local political economy, and how they complement other existing sector policies. It is also important to consider the various possible distributional impacts, including on growth, jobs, costs, and trade and fiscal balances,” Aman Srivastava added.