Cap and Trade in India

‘Perform Achieve and Trade' (PAT), the flagship programme of the Indian Government’s National Mission for Enhanced Energy Efficiency (NMEEE), is intended to stimulate energy efficiency investments that would enable industries to save at the minimum 5 per cent of their energy cost, estimated at 9.8 million tonnes of oil equivalent. The PAT scheme and NMEEE are an integral part of the National Action Plan on Climate Change (NAPCC) which was released by the Prime Minister in June 2008. NAPCC outlined eight national missions for multi-pronged, long-term, and integrated strategies for achieving the key goals of sustainable development while balancing the concerns of climate change. The PAT energy efficiency targets will provide the industry an Energy Saving Certificate (ESCerts) which it can sell to another industry having mandatory target but unable to meet it. ESCerts so purchased would be deemed to be in fulfilment of compliance requirement for the underachiever and avoid the penalty for non-compliance under the Act. In almost every industrial sector, state-of-the-art energy-efficient plants coexist with less energy-efficient plants. The diversity of energy use is large with the least efficient plants in several sectors using two to six times more energy to manufacture a unit of the product than that used by the most efficient plant. Mindful of this diversity and the fact that mandating one target in a sector will inevitably result in closure of inefficient plants, the PAT scheme will mandate differential targets by clubbing together units in bands within each sector. The flexibility of the PAT scheme to allow an obligated entity to purchase ESCerts for compliance will enable an economically efficient path for achieving the overall target set for the scheme. The first commitment period for PAT is likely to commence in 2012 and will run for three years. ESCerts' fungibility with the Renewable Energy Certificates (RECs) that are being traded in the power exchanges is also being considered. The PAT mechanism could help save the industry about 10 million tonnes of oil equivalents in fuel savings, equivalent to over 5,600 MW of avoided capacity addition.