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After PMO’s Intervention, Power Ministry Drops the Idea of Decentralising Carbon Markets in India

After PMO’s Intervention, Power Ministry Drops the Idea of Decentralising Carbon Markets in India

Photo: Npl-User1234/CC BY-SA 4.0

New Delhi: On May 11, the Union power ministry stated that its agency Bureau of Energy Efficiency, along with the Union environment ministry, are developing the Carbon Credit Trading Scheme to decarbonise the Indian economy. Earlier in March, the ministry released a draft ‘Carbon Credit Trading Scheme’ and sought feedback from stakeholders by April 14.

The draft comes close on the heels of the recent amendments to the Energy Conservation (Amendment) Act (EC Act), which came into force on December 19, 2022. It lays down the legal foundation for India to set up a carbon market. A carbon market is a market-based solution to reduce greenhouse gas emissions in order to meet the country’s commitments under the Paris Agreement. Carbon credits are certifications for emitting greenhouse gases and are traded in such a market.

However, just before these policies for trading carbon in India are being finalised, a crucial proposal from the power ministry was dropped after the intervention of the Prime Minister’s Office (PMO). This particular proposal could have ensured a more decentralised regulation of the market, with greater authority going to the state governments.

In the absence of a domestic carbon market, carbon credits generated by Indian industries are traded in international voluntary carbon markets. Between 2010 and 2022, India issued 278 million credits accounting for a substantial 17% of credits traded globally. A recent report estimates that by regulating carbon markets, India will have economic potential or energy savings to the tune of $11 trillion over the next 50 years.

Besides legalising carbon markets, the new law, made after amending the 2002 Energy Conservation Act, increases India’s focus on energy conservation to meet its updated Nationally Determined Contribution (NDC) target. The law follows on the commitments India made at COP26 in Glasgow, to reduce emissions by 45% by 2030 and achieve net zero by 2070.

However,  since at least October 2021, the power ministry held multiple consultations and internal meetings to discuss the amendments with various stakeholders including state governments and Union ministries.

Exclusive internal documents, accessed and reviewed by the author, show that the amendments proposed by the ministry were cleared after dropping one critical proposal which the PMO shot down.

Power ministry document shows SEEA proposal being dropped after discussion with PMO.

Against the idea to decentralise

The power ministry wanted the law to ensure each state establishes a State Energy Efficiency Agency (SEEA) for administering carbon markets and other energy conservation schemes. Several states were on board with this idea as well. They had backed the idea during consultations in October 2021.

The move would have helped decentralise the implementation of schemes under the Act and bring the carbon markets under the purview of the states.

The SEEAs were to replace existing state designated agencies or SDAs, but for more than two decades they had failed to deliver against  the mandate of the EC Act. The SEEAs were supposed to have their own budgets and act as independent authorities exclusively for implementing the EC Act. The power ministry expected this would allow these agencies to have more capacity to deliver.

The Bureau of Energy Efficiency (BEE), an arm of the power ministry, remains the nodal agency for implementing the EC Act. With its powers, it frames policies and schemes for reducing energy consumption and increasing energy efficiency activities.

Targets set by the BEE have been too steep for SDAs to achieve. For instance, SDAs are tasked with implementing BEE’s Perform, Achieve and Trade (PAT) scheme, to make larger industries energy efficient and consequently reduce greenhouse emissions. Reports suggest that the scheme remains ineffective and participating industries underperform in meeting their emission reduction targets.

The SDAs depend on BEE for financial assistance in implementing energy conservation schemes. This hampers their functioning, often causing delays in implementation. These agencies are also burdened with other activities as they are a part of other power sector departments.

The structure of the state designated agencies or SDAs varies from state to state. With SEEAs, the ministry wanted to change this so that all states could have a uniform structure for implementing the schemes under the EC Act.

The PMO’s intervention in February 2022, however, foiled these plans of the power ministry.

Experts and state officials believe the idea was shot down to curtail the Union government’s expenditure.

“If the Centre had insisted on the states to create SEEAs through a law, then states would have put pressure upon Centre seeking funds for the purpose. This could be one reason for dropping the idea of SEEAs,” said R. Harikumar, director of the Energy Management Centre Kerala, the agency implementing the schemes under the EC Act.

Harikumar claims that the SEEAs would have contributed to a focused approach — unlike existing state agencies that are burdened with other responsibilities — for implementing energy conservation activities.

Ministry’s change of mind

On December 16, 2021, the power ministry introduced a draft note for the cabinet proposing amendments in it. In the note, one of the objectives was to  “decentralise the implementation of the EC Act and offer larger participation to the state level entities” and “strengthen the Bureau of Energy Efficiency (BEE) while creating SEEAs”.

Justifying the creation of SEEAs, the ministry said they will “accelerate” implementing energy conservation or efficiency schemes.

Another amendment that the ministry pushed for was an attempt to empower states to charge industries for the services provided by the SEEAs for “promotion of efficient use of energy under the act”. In the new amendment, states can only charge for the services of existing SDAs.

But then on February 8, 2022, a meeting on the amendment bill was held with the PMO.

By the time the meeting was over, the power ministry had to change its mind and drop mandating the creation of SEEAs.

It revised the amendment bill based on discussions with the PMO and prepared a new draft bill along with another draft note and submitted it to the cabinet on July 7, 2022.

With this, the objectives in the new note changed to “facilitates implementation of the EC Act at the state level” and “strengthens the mandate and actions of BEE”.

That is, the newly framed law does not talk about ‘decentralisation’ of the implementation of the EC Act as earlier proposed, while reducing the role that states play in it.

File notings show the benefits of proposed amendments in the first draft of the cabinet note.
File notings show the benefits of proposed amendments that made it to the final draft of the cabinet note.

Two other proposals were also dropped after discussions with the PMO. They are removal of a ‘National Energy Efficiency Procurement Policy’ and  removal of ‘penalty on residential buildings’ from the amendment bill proposed as per the first draft.

The procurement policy was expected to promote energy efficient appliances procurement by government agencies. While the first proposed amendments talked about revision of penalties on heavy industries, electrical appliances and buildings, in the revised amendments, provision with penalty on residential buildings was removed.

While it is still speculation that the PMO asked the power ministry to remove the proposed SEEA-related amendments — to do away with the associated financial burden — a memorandum, however, mentioned in the final cabinet note suggests so.

Titled ‘Financial Memorandum’, it stated that there “is no additional financial implication for the Government of India”. Financial memorandum is prepared in consultation with the Finance ministry after estimating expenditure to be incurred to the proposed bill.

Emails sent to secretaries in the Ministry of Power and the PMO asking for rationale behind dropping the idea of SEEAs remain unanswered.

Failing state conservation agencies

With SEEAs out of the question, the states will again be left dependent on inadequately staffed SDAs which are now expected to oversee the carbon markets besides existing schemes under the EC Act.

P. Ratnakar Rao, chief engineer at TS Genco, believes that the management of carbon markets could have been eased by the creation of SEEAs. Rao, who is also a general secretary of the All India Power Engineers Federation, said, “The officials in existing SDAs are burdened with other department’s tasks apart from implementing energy conservation schemes.”

Only Andhra Pradesh and Kerala have dedicated SDAs for implementing such activities. Other states have designated existing Renewable Energy Development Agencies, Electrical Inspectorates, Distribution Companies and Power Departments as SDAs.

According to a March 2020 report titled ‘Review of energy efficiency programme implementation in India and Support to the SDA in Kerala’ by the World Institute of Sustainable Energy, a Pune-based non-profit, SDAs are lacking dedicated staff for overlooking energy efficiency activities.

“The existing staff in many SDAs has limited opportunity for skill upgradation and this may affect the programs. Requirements for training and skill upgradation should be assessed keeping in mind the newly added EE programs,” noted the report.

Being aware of the lapses in the implementation of energy conservation schemes in states, the power ministry might have proposed the idea of SEEAs to fix them, said D. Raghunandan of Delhi Science Forum. “Dedicated state agencies could have increased the day to day capacities of states in addressing energy conservation concerns,” he said.

Prudhviraj Rupavath is a researcher on land and forest governance at Land Conflict Watch, an independent network of researchers studying land conflicts, climate change and natural resource governance in India.

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