Recently in Delhi, I got an insider’s perspective on plans for India’s trading system for industrial energy efficiency. Formally announced in July, the Perform, Achieve, and Trade (PAT) scheme is designed to enable major Indian industries, such as aluminum, cement, power plants, paper, textiles, and railways, to save some 19GW of energy and reduce emissions by 98 million tons a year.
NRDC colleagues Shravya Reddy and Christopher Bennett and I got a preview of the phases for PAT and heard lively debate about the program at the Emergent Ventures hosted roundtable. Experts at the roundtable explained that the Bureau of Energy Efficiency (BEE) is still working on the methodology and implementation of this ambitious program. As an initial step, industrial facilities will submit baseline energy data to establish targets. Then, each company will need to reduce their future use in order to meet a more efficient target. Those that over-perform relative to their targets will receive Energy Savings Certificates (ESCerts) that might be sold on the market, while those that underperform must purchase them to reach their target.
The discussions at the workshop confirmed reports that PAT will formally begin on April 1, 2011 and continue through 2014. Before then, comprehensive baseline and target setting activities must be completed. Because India has huge variation in efficiency, the program will attempt to develop an intensity-based indicator- Specific Energy Consumption- and normalize it. Target setting will be done modestly and take into account payback periods so that industry productivity is not compromised by costs in the near-term. Even if all of this is completed successfully, market-based mechanisms require verification, validation, and the issuance of certificates once they are up and running. BEE has signaled it will collect data and issue ESCerts online, which will help in cutting down on bureaucracy.
As with most policies, the devil is very much in the details. Some experts predicted that the sheer detail of work that would go into cataloging the 700 industry sources under PAT between now and April seems unrealistic. Some roundtable participants suggested that BEE would only focus on the most energy intensive industries first- power, steel, cement and fertilizer plants. Beyond the initial targets, a functioning market for ESCerts is critical. It remains unclear whether a third party might issue them and regulate trading, and what the lifetime of the first set of permits might be. Analysis by Confederation of Indian Industry cautions that the designers of PAT should be careful to structure the market in a way such that ESCert prices are reliable attractive. If they fall too low, they entire process runs the risk of being ignored by industrial stakeholders.
India need not reinvent the wheel, and can take many interesting lessons from countries that have attempted this before. For example, Italy, France, and the UK have all implemented “white certificate” reduction schemes as early as 2005 (these are also used in Australia and regions in the US). For instance, these lessons suggest that credits should have a short lifespan in order to create an experimentation period. This will be crucial to seeing how the market operates without jeopardizing it in the long-term.
Despite these complications and uncertainties, PAT remains an unparalleled investment in building a sustainable economy in India. The difficulties in implementation should not dissuade government and business from working together to find creative solutions as well as learning lessons from existing trading programs in other countries. Efficiency is a new direction for India’s industry, and they will benefit their nation and the planet by taking the lead on it.
(Co-authored by Christopher Bennett, NRDC MAP Fellow)