India to let market curb emissions

India’s greenhouse gas emissions are very likely to keep rising as the country tries to lift millions out of poverty and connect nearly half a billion people to electricity grids. But India is also trying to curb emissions growth in its own way, fearing the effects of climate change and spiralling energy costs.

The government is betting big on two market-based trading programmes to encourage energy efficiency and green power across the country of 1.2 billion people, sidestepping the kind of emissions trading programmes that have poisoned political debates in the United States and Australia. One is the world’s first national market-based mechanism, called Perform, Achieve and Trade. It would set benchmark efficiency levels for 563 big polluters, like power plants, steel mills and cement plants, which account for 54 per cent of the country’s energy consumption.

The programme would allow businesses that use more energy than stipulated to buy tradable energy-saving certificates, or Escerts, from those that use less, creating a market that the government estimates will be worth about $16 billion in 2014, when trading is to start. The number of Escerts would depend on the amount of energy saved in a target year.

“The policy road map India is adopting to curb emissions is innovative — something that will make industries look at making efficiency the centrepiece rather than some step that follows an ineffective carrot and stick policy,” said Srinivas Krishnaswamy, chief executive of the green policy consultant Vasudha Foundation India.

A three-year rollout phase for the Perform, Achieve and Trade programme is set to start in September and is expected to help India cut about 100 million tons of carbon emissions, the government estimated. The rollout is meant to work out problems in the process for companies to measure and report their energy use.

The other programme has already been set up. Under it, India has established a renewable energy certificate trading programme for wind, solar and biomass power plants. Green power makes up about 8 per cent of energy production in India, while coal generates more than 60 per cent, leading to hefty coal import bill.

Trading of renewable energy certificates, which currently occurs once a month, has picked up as more projects participate, underpinning a government plan to increase solar power from near zero to 20 gigawatts by 2022, about one-eighth of current power generation.

During the session on May 25,14,002 renewable energy certificates valued at 207.8 million rupees, or $4.6 million, were traded on the Indian Energy Exchange, compared with 260 units at the previous session in April.

But concerns remain about how both initiatives could evolve because of a lack of data and trained manpower, as well as weak penalties for companies that refuse to comply.

“India has an issue of manpower and data,” said Girish Sant, energy analyst at the nonprofit research house Prayas. Hiring people and building up capacity and institutions “is a long-term game,”  Sant said. Some analysts also pointed to technical gaps in the Perform, Achieve and Trade programme, including the way various units of one company are graded and curbs that allow the green certificates to be traded only once, limiting the entry of intermediaries or market makers.

“In order to have an effective cap-and-trade or market mechanism that aids desired reduction in energy use, it is necessary to have targets that are neither too easy nor too difficult to achieve,” said a report on the programme by Emergent Ventures, a leading Indian clean energy project developer and adviser. But industry observers said it still made sense for India to choose a national energy efficiency programme, rather than carbon emissions trading, which requires an absolute emissions cap that would force companies to invest in expensive clean technology quickly.

India has already said it does not want to establish an emissions cap. In a programme focusing on energy efficiency, “the target is intensity, so you are basically asking people to reduce their intensity, and that matches the overall target,” said Sant of Prayas. The government has pledged to cut carbon intensity — the amount of carbon dioxide emitted per unit of economic output — by 20 to 25 per cent by 2020, from 2005 levels.

India’s approach differs from that of its rival, China, which is also looking at promoting energy efficiency but is focusing more on carbon emissions trading. The Chinese government is also considering a cap-and-trade program for energy savings in its buildings sector, which accounts for 30 to 40 per cent of the country’s overall emissions.

“As Chinese industry is much more organised and the political system allows stringent monitoring, it becomes a little easier for them to use emissions trading,” said Siddharth Pathak, Greenpeace India’s policy officer for climate and energy.

Adapting to the national policy and creating a unique market are functions of time and communication, said Vishwajit Dahanukar, managing director of Managing Emissions, a clean energy project developer, adviser and asset manager. “That’s basically it. It’s just early days,” he said.