Building the Indian Carbon Market: A Work in Progress
New legislation was passed in 2022 in India to amend the Energy Conservation Act (ECA) of 2001 and create a broader set of legal powers for the government to support its climate goals and the nationally determined contributions (NDCs) in particular. It is expected that the enacted amendments to the ECA will accelerate progress on decarbonization of the Indian economy and enable it to meet the country’s NDC commitments to (i) reduce the carbon emission intensity of its gross domestic product by 45 per cent by 2030 from 2005 levels and (ii) achieve about 50 per cent cumulative electric power installed capacity from non-fossil-fuel-based energy resources by 2030. The amended provisions in the updated ECA, which came into force on 1 January 2023, support India’s climate goals in several ways:
- They enable the central government to impose the use of non-fossil fuels on large energy consumers.
- They enable the central government to implement a carbon trading scheme.
- They confer powers on the central government and state governments to mandate energy conservation standards for buildings, appliances, and vehicles. Previously only large buildings with over 500 kW connected load were subject to energy conservation standards, but now medium-sized buildings with loads of 100 kW and higher must comply.
- They empower the state electricity regulatory commissions to impose penalties, and they specify procedures under which the commissions should discharge their functions. This is likely to increase the prospect of regulatory enforcement by the commissions.
- They expand the governing council of the Ministry of Power’s Bureau of Energy Efficiency (BEE) to include members from six ministries, departments, and regulatory institutions and members from industries and consumer groups. This will improve cross-sectoral coordination and potentially enable joint design of the carbon registry.
This paper examines in detail only one of the ECA amendments listed above, which is the new power to proceed with developing a carbon trading scheme. Rules and procedures for this newest trading scheme in the Indian energy market are currently being worked out, and details will be announced during 2023. For now, the BEE’s effort is primarily to build the domestic Indian Carbon Market over the next three years, to enable the country to fulfil its NDCs. This paper showcases some of the early thinking that has been shared as work in progress by the agencies and ministries that will be responsible for domestic carbon market design, governance, and oversight.