Japneet Chadha and Amitabh Sharma[1]
The Energy Conservation Amendment Bill, 2022 (Bill) was introduced in the Lok Sabha on August 03, 2022 and passed in the lower house on August 08, 2022. The Bill suggests a variety of improvements to the Energy Conservation Act 2001 (Act) in order to promote energy efficiency and conservation.
Brief Background
The Bill aims to establish legislative guidelines for the minimum amount of non-fossil fuels that the designated consumers must consume as energy or feedstock. This is crucial because it will reduce the amount of energy derived from fossil fuels along with the associated carbon emissions that are released into the atmosphere. Examples of such energy and feedstock sources include biomass and ethanol, as well as the use of green hydrogen and green ammonia.
The Ministry of Power stated that in order to facilitate the climate targets set at the Conference of Parties – 26 Summit in Glasgow on gas emissions while ensuring transparency and accountability, additional amendments to the aforementioned Act have become necessary over time. In the context of the energy transition, it is necessary to focus on the promotion of new and renewable energy and the National Green Hydrogen Mission. Further the Bill seeks to accelerate the decarbonization of the Indian economy. It will also contribute to the achievement of sustainable development goals in line with the Paris agreement (a legally binding global agreement on climate change that aims to reduce global greenhouse gas emissions while ensuring transparency and accountability).
Key amendments to the Bill includes:The Bill empowers the central government to specify a carbon credit trading scheme[2]. Carbon credit implies a tradeable permit to produce a specified amount of carbon emissions. To companies registered under the system and in compliance with its requirements, the central government or any authorised agency may issue certificates for carbon credits. Simply put, a unit of industry that emits significantly less carbon than its target values are entitled to obtain carbon credits, and an industry that does not achieve the target can then buy such credits and show compliance.
The Bill adds that the government may require the designated consumers to meet a minimum share of energy consumption from non-fossil sources. Different consumption thresholds may be specified for different non-fossil sources and consumer categories. Designated consumers include: (i) industries such as mining, steel, cement, textile, chemicals, and petrochemicals; (ii) transport sector including railways; and (iii) commercial buildings.
The Bill also proposes to enhance the scope of the Energy Conservation Building Code and bring large residential buildings within the ambit of the energy conservation regime. Bill among other things, requires large residential and commercial buildings to use a certain amount of clean energy for their energy demands. These buildings must have a minimum of one hundred (100) kilowatts of linked load or reduce demand to one hundred twenty (120) kilovolt Ampere (KVA). Previously, commercial buildings with a minimum connected load of five hundred (500) KW were subject to the requirement. The Bill also gives governments the authority to change building regulations to make these structures more sustainable and energy efficient.
The Bill further said that state governments should constitute a fund known as the ‘State Energy Conservation Fund’ for promoting the efficient use of energy and its conservation within the state.
The Act empowers the State Electricity Regulatory Commissions (SERCs) to adjudge penalties under the Act. The Bill adds that SERCs may also make regulations for discharging their functions.
The Bill expands the scope to include vehicles (as defined under the Motor Vehicles Act, 1988), and vessels (includes ships and boats). The failure to comply with standards will be punishable with a penalty of up to Indian Rupees Ten Lakhs only (INR 10,00,000). In the case of vessels, non-compliance will result in an additional fine of up to double the cost of the oil equivalent of the extra energy consumed. Vehicle makers that violate the fuel consumption standards may be fined up to Indian Rupees Fifty Thousand only (INR 50,000) for each sold unit.
The Bill also provides for increase in the members of the Governing Council of Bureau of Energy Efficiency (Bureau). The Bureau has a governing council with members between twenty (20) and twenty-six (26) in number. These include: (i) secretaries of six (6) departments, (ii) representatives of regulatory authorities such as the Central Electricity Authority, and the Bureau of Indian Standards, and (iii) up to four (4) members representing industries and consumers. The Bill instead provides that the number of members will be between thirty-one (31) and thirty-seven (37). It increases the number of secretaries to twelve (12). It also provides for up to seven (7) members representing industries and consumers.
[1] Japneet Chadha is an associate with NorthExcel Associates and has authored this paper along with Amitabh Sharma, partner of the firm.
[2] ‘carbon credit trading scheme’ means the scheme for reduction of carbon emissions notified by the Central Government.
Takeaways
A minimal quantity of non-fossil fuel energy must be used to meet the energy requirements of both residential and commercial facilities, which may include apartments and buildings, according to the new Bill. However, even though this is a welcome move, the building costs for these dwellings will go up if more clean energy is installed to power them, but there are long-term advantages. As the Bill allows the state authority to establish building by laws, the states and local municipal entities may also take into account offering discounts on local taxes and duties to encourage owners and builders to transition to clean energy through these incentives.
Further, we understand that Bill also aims to create and use green hydrogen and green ammonia domestically to lessen India’s dependence on fuel imports, which is still a net importer of oil, natural gas, and fuels to meet its energy needs. While the Bill itself does not specify green hydrogen and green ammonia, the amended bill proposed changes to the definition of word ‘energy’ which would now mean any form of energy ‘derived from fossil fuel, non-fossil fuel and renewable energy’.
Green hydrogen could be the fuel of the future as this has the capability to help in decarbonising the hard to abate sectors like cement and steel. Green hydrogen, in contrast to other renewable energy sources like solar and wind, has the advantage of producing heat at extremely high temperatures, which is required in these businesses. This is due to the higher energy density of hydrogen as a fuel than that of fossil fuels. As a result, green hydrogen has a promising future, and investments in the field are probably just going to grow.