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Carbon market

  • Published
    5th Aug, 2022

A Bill to amend a 20-year law, the Energy Conservation Act, was introduced in Parliament recently.


About The Energy Conservation (Amendment) Bill, 2022:

  • The Bill seeks to amend the Energy Conservation Act, 2001.  
  • The Act promotes energy efficiency and conservation.  It provides for the regulation of energy consumption by equipment, appliances, buildings, and industries.  
  • Need: to facilitate the achievement of more ambitious climate change targets and ensures a faster transition to a low-carbon economy
  • Main objectives:
  • It seeks to make it compulsory for a select group of industrial, commercial and even residential consumers to use green energy. A prescribed minimum proportion of the energy they use must come from renewable or non-fossil fuel sources.
  • It seeks to establish a domestic carbon market and facilitate trade in carbon credits.

Key provisions of the Bill:

Key proposals under the Bill are:

  • Obligation to use non-fossil sources of energy
  • Carbon trading: The Bill empowers the central government to specify a carbon credit trading scheme.
  • Carbon credit implies a tradable permit to produce a specified amount of carbon emissions.
  • Energy conservation code for buildings: The Act empowers the central government to specify energy conservation code for buildings.
  • Standards for vehicles and vessels:  Under the Act, the energy consumption standards may be specified for equipment and appliances which consume, generate, transmit, or supply energy.  
  • The Bill expands the scope to include vehicles (as defined under the Motor Vehicles Act, 1988), and vessels (includes ships and boats).  
  • Regulatory powers of SERCs:The Act empowers the State Electricity Regulatory Commissions (SERCs) to adjudge penalties under the Act.  

Energy conservation and efficiency in India:

  • The 2001 law defined standards for energy conservation and efficiency to be followed by a select group of industries and commercial complexes.
  • Efficiency standards were also prescribed for equipment and appliances like air conditioners or refrigerators.
  • This law set up the Bureau of Energy Efficiency (BEE) to promote the use of more efficient processes and equipment in order to save energy.
  • The star ratings on various household appliances and the large scale shift to LED bulbs were some of the successful initiatives of BEE that have resulted in massive energy savings over a period of time.

Carbon Markets:

  • The creation of a domestic carbon market is one of the most significant provisions of the proposed amendment Bill.
  • Carbon markets allow the trade of carbon credits with the overall objective of bringing down emissions.
  • These markets create incentives to reduce emissions or improve energy efficiency.
  • For example, an industrial unit which outperforms the emission standards stands to gain credits.
  • Another unit which is struggling to attain the prescribed standards can buy these credits and show compliance to these standards.
  • The unit that did better on the standards earns money by selling credits, while the buying unit is able to fulfil its operating obligations.

Concept of Carbon Trading globally:

  • Under the Kyoto Protocol, the predecessor to the Paris Agreement, carbon markets have worked at the international level as well. 
  • Europe: Domestic or regional carbon markets are already functioning in several places, most notably in Europe, where an emission trading scheme (ETS) works on similar principles.
  • Industrial units in Europe have prescribed emission standards to adhere to, and they buy and sell credits based on their performance.
  • China, too, has a domestic carbon market.
  • India: A similar scheme for incentivising energy efficiency has been running in India for over a decade now.
  • This BEE scheme, called PAT, (or perform, achieve and trade) allows units to earn efficiency certificates if they outperform the prescribed efficiency standards.
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