How the amended Energy Conservation Act could support India’s net zero goals

The Energy Conservation Amendment Act, 2022 (EC Act 2022) mandates the use of renewable energy, and carbon neutral technologies; and the incorporating of sustainability aspects across sectors. (Representative image)

On December 12, 2022, India’s Parliament passed into law, important amendments to the Energy Conservation Act, 2001, which have the potential to structurally shift energy efficiency mandates across sectors and appliances towards a greener future. The Energy Conservation Amendment Act, 2022 (EC Act 2022) mandates the use of renewable energy, and carbon neutral technologies; and the incorporating of sustainability aspects across sectors. The EC Act 2022 also seeks to develop a domestic carbon market and implement a carbon trading mechanism that will contribute to achieving India’s climate mitigation commitments. The UN defines a carbon market as a ‘trading system in which carbon credits are sold and bought, where one carbon credit equals one tonne of carbon dioxide or the equivalent amount of a different greenhouse gas reduced, sequestered or avoided’.

The EC Act 2022 comes a year after Prime Minister Modi announced India’s 2070 Net Zero target (removing as much carbon as has been pumped into the atmosphere due to human induced activities) at Glasgow during COP26.

The two main programmes of the Ministry of Power’s (MoP) Bureau of Energy Efficiency (BEE) - the Perform Achieve and Trade (PAT) scheme for industries, and the Energy Conservation Building Code (ECBC) for commercial buildings will receive significant upgrades with these amendments. The PAT scheme is a market-based mechanism, where excess energy savings over and above targets set by the BEE can be traded. The scheme has been effective in reducing energy intensity among large industries but has seen a decline in energy savings proportion over the past few years. This indicates that while energy efficiency can help reduce emissions, it will need to be supplemented by additional decarbonisation solutions. The EC Act 2022 has opened the doors to these additional solutions by mandating the consumption of non-fossil sources including green hydrogen, green ammonia, biomass, and ethanol for energy use and feedstock applications by industrial facilities.

Mandating consumption of non-fossil sources could potentially reduce India’s fossil fuel imports and enhance energy security. As part of the country’s Green Hydrogen Policy, India aims to produce five million tonnes of green hydrogen by 2030. Mandating its use in industries will boost its demand and could potentially help in achieving the 2030 climate targets. The government plans to mandate the use of green hydrogen in what are called ‘hard-to-abate' sectors like steel, refineries, fertilisers, petrochemicals, and cement, through green hydrogen consumption obligations. In fertiliser manufacturing, green hydrogen can be converted to green ammonia, which is the main feedstock material for fertilisers. However, more investments and infrastructure will be needed for green hydrogen adoption in other sectors.

This EC Act 2022 has incorporated renewable energy and green building requirements into the Energy Conservation Building Code (ECBC) so that it becomes the Energy Conservation & Sustainable Building Code (ECSBC). This revision is likely to incorporate various sustainability aspects like materials and resource efficiency, deployment of clean energy, and circularity. The amendment also requires all residential buildings with a minimum connected load of 100 kW or contract demand of 120 kVA, to now adopt ECSBC norms. With the real estate sector expected to grow at a compounded annual growth rate (CAGR) of 15 percent from $60 billion to $1 trillion by 2030, and account for 13 percent of GDP by 2025, the EC Act 2022 is a timely effort to integrate energy efficiency, renewable energy, and sustainability aspects into all new construction. This could assist India’s net zero journey.

Getting States on Board

With this amendment, the focus now shifts to states and cities, where these measures must be implemented. Existing experience on the adoption of ECBC by states has not been inspiring, with only 20 states and union territories (UTs) notifying the existing ECBC code. An even fewer number of states have ensured compliance and enforcement of the Code. It will be important for the BEE and the MoP to ensure a wider collaboration with state government and local bodies for the adoption of the EC Act 2022. Enabling measures like tax benefits and other incentives may be required for quick adoption of the ECSBC by developers and other real estate players.

The EC Act 2022 also seeks to establish a domestic carbon market enabling the trading of carbon credits. In some jurisdictions, especially in the European Union, carbon markets have been an important tool to reduce greenhouse gas emissions. Establishing a domestic carbon market in India could lead to a growing demand for carbon credits in the coming years, as many Indian companies have committed to reducing their emissions. While several companies will work towards reducing their carbon emissions, for many others, carbon offsets will be a viable option to offset emissions. A robust carbon trading mechanism could be an effective way to encourage decarbonisation. However, it is important to learn from the trading of Energy Saving Certificates (under the PAT scheme) and to ensure better clarity on enforcement, trading mechanism and timelines, and how those certificates interact with the carbon trading instruments. The proposed stabilisation fund to ensure the price of carbon credits remains above a threshold could also become vital to ensure emission reductions do occur.

Emerging technologies like carbon capture, utilisation, and storage (CCUS), electrification of heat, circular economy interventions, and demand reduction among others are important for decarbonisation. Although these approaches are not included in the EC Act 2022, these could be incorporated into policies and schemes that could emerge from here. There are several examples of new technology adoptions among large industries, with one implementing a large-scale carbon capture unit at its cement plant. Another company is driving a circular economy in steel making through scrap processing and has set up a dedicated unit for the same. A third company is adding renewable power to its steel production to reduce its carbon footprint. However, to ensure small businesses and MSMEs can also transition to clean energy, BEE will need to devise new financial models and support programmes.

Additionally, given the enhanced role of the State Designated Agency (SDA), it is important that they be provided additional resources, mandates, and powers to effectively manage compliance and enforcement of the EC Act 2022 to achieve India’s energy targets in a timely manner.

Overall, the EC Act 2022 is an important decision in India’s efforts towards achieving near term 2030 goals, as well as 2070 net zero targets. The success of these initiatives lies in how effectively they are implemented by ministries, central and state agencies, consumers of energy, and other stakeholders.

Bharath Jairaj is the Executive Director of the Energy Program at WRI India. Deepak Tewari is a Research Fellow at the WRI India’s Energy Program and works on urban energy and building sector decarbonisation. Kajol is Senior Researcher with WRI India’s Energy Program and leads the industrial decarbonisation work. Views are personal and do not represent the stand of this publication.