A study of Climate Change Control Schemes:
India’s PAT scheme with other International Climate Change Control Schemes
*Amit Virmani ** Rao, D.N
1. Background
As of 2013, India is the world’s third largest CO2 emitter, and, through 2020, annual GDP
growth is expected to be between 8 and 9 percent. By 2020, India is expected to contribute
approximately 6% of global emissions.
India views climate change as a problem caused by developed countries, so there is
political reluctance to create an ETS due to apprehensions that such a policy could hinder
economic development. In international climate negotiations, India has steadfastly refused
to take on mandatory emissions reductions. In the year 2011, in order to support its own
sustainable development, it has committed to bring down its carbon emissions by 20-25%
of 2005 levels by the year 2020 (Copenhagen Accord).
The National Action Plan for Climate Change(NAPCC) released in June 2008, recognized the
need to maintain the country’s economic development along with reducing adverse
impacts of climate change. The NAPCC was formed on the basis of following principles:
a. Protecting the poor and vulnerable sections of society through an inclusive and
sustainable development strategy sensitive to climate change.
b. Achieving national growth objectives through a qualitative change in a directionthat
enhances ecological sustainability and leading to further reduction in emissions of
Green House Gases (GHGs).
c. Devising efficient and cost-effective strategies for end-use demand-side measures.
d. Deploying appropriate technologies for both adaptation to and mitigation of the
adverse effects of GHGs at an accelerated pace.
e. Engineering new and innovative forms of market, regulatory, and voluntary
mechanisms to promote sustainable development.
________________________________________________________________________________________________________
*Amit Virmani is a Research Fellow and pursuing Doctoral Programme at Suresh Gyan
Vihar University, Jaipur, India.
** Rao, D.N. is currently the Vice Chancellor of Suresh Gyan Vihar University, Jaipur, India.
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The National Action Plan outlined the following eight national missions in the context of
climate change:
a) National Solar Mission
b) National Mission for Enhanced Energy Efficiency
c) National Mission on Sustainable Habitat
d) National Water Mission
e) National Mission for Sustaining the Himalayan Ecosystem
f) National Mission for a Green India
g) National Mission for Sustainable Agriculture
h) National Mission for Strategic Knowledge for Climate Change
The Ministry of Power (MoP) and Bureau of Energy Efficiency(BEE) are assigned with the
task of preparing the implementation plan for the National Mission for Enhanced Energy
Efficiency (NMEEE). The initiatives of NMEEE are Perform, Achieve, and Trade (PAT), a
market-based mechanism to improve energy efficiency in energy-intensive large industries
and facilitate certification of energy savings that could be traded.
2. Introduction to PAT
PAT is a market-based mechanism which has been designed to trade energy savings
certificates in order to achieve energy intensity targets in contrast to an Exchange Traded
Scheme (ETS) where emissions reductions certificates are traded in order to achieve
absolute emissions reductions.
For a developing nation like India, economic development in a sustainable manner remains
the primary objective for the government and energy efficiency measures can support
India’s development priorities while generating climate co-benefits. There is a significant
potential to improve efficiency in energy intensive industries and PAT scheme was
designed to tap this potential. It has been estimated that energy efficiency measures under
PAT would help in reducing emissions by 26 million tonnes of carbon dioxide equivalent by
2015.
Though there have been some other international climate change control schemes which
focus on energy efficiency like UK’s Climate Change Agreement (CCA’s), Energy Efficiency
Scheme (CRC), EU’s Tradable White Certificates(TWC) etc. but all these schemes have been
operational in developed countries. By launching PAT, India has become the first nation
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among developing world to adopt an energy efficiency trading scheme which would work
on market-based mechanism.
3. India’s Climate Change Control - PAT
Under PAT, mandatory energy efficiency targets were set on 478 facilities that were either
part of energy-intensive industries or members of the electricity sector, which together
comprised about 60% of India’s 2007 GHG emissions. Facilities covered by PAT were called
as “Designated Consumers”. Such list of facilities with increasing numbers would be
published annually by Bureau of Energy Efficiency (BEE). Under PAT, energy efficiency
measures aims to reduce emissions by 26 million tons of CO2e, as well as save 6.6 million
tons of oil equivalent over its first commitment period (2012-2015). Covered facilities have
been generally obligated to improve energy efficiency by 1-2% per year depending upon
plant to plant basis.
Within the PAT, energy efficiency targets were measured in terms of Specific Energy
Consumption (SEC), for which baselines were determined by the April 2007-March 2010
average. The average SEC reduction target under PAT had been set as 4.8%, and it was
expected that achieving this target would cost industry over USD $5.4 billion. Plant-specific
targets had been set which were mandatorily to be achieved within three-year compliance
periods.
An installation or plant that would fulfill and exceed its SEC target would be able to sell
Energy Saving Certificates (ESCerts) for the amount of its surplus energy improvements to
the installations or plant that would be unable to meet mandatory targets.
PAT Model
Trading would occur via regulated exchanges; platforms for trading ESCerts have already
been designated in the two power exchanges IEX and PXIL, and BEE has also set up a
registry and exchanges for the trading of ESCerts. BEE issued guidelines and regulations in
March 2012, and the issuance and trading of ESCerts had begun since April 2013.
While the PAT was launched as a program stemming from the 2008 National Action Plan
on Climate Change (NAPCC), its structure flows from the Energy Conservation Act of 2001
(ECA-2001), which stipulates for fifteen energy-intensive sectors to implement energy
efficiency measures. PAT defined a facility to be regulated as a Designated Consumer (DC) if
it exceeds the sector-specific threshold for annual energy consumption.
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In the first phase of PAT, 8 sectors were defined as Designated Consumers and these were:
1. Thermal Power;
2. Iron and Steel;
3. Cement;
4. Fertilizers;
5. Textiles;
6. Aluminum;
7. Pulp and Paper; and
8. Chlor-alkali.
The railway sector would be included for implementation of energy efficiency in the second
phase of PAT.
Initial 478 Designated Consumer & their Annual energy consumption in Million Ton of oil
equivalent is shown in table below:
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Industry No. of Identified Annual Consumption Norm to
Sector DC's DC's (millions of Tons)
Thermal Power 144 30,000
Iron and Steel 67 30,000
Cement 85 30,000
Fertilizers 29 30,000
Textiles 90 3,000
Aluminium 10 7,500
Pulp and Paper 31 30,000
Chlor-Alkali 22 12,000
Total 478
4. Legal Framework of PAT
PAT though is a market-based mechanism but it is supported by the legal framework and
works on mandatory involvement of Designated Consumers. The Legal mandates for
covered entities include:
1. Submitting a report of energy consumption to the Designated Authority of the
State(DAS) and to the BEE;
2. Establishing an Energy Manager responsible for submitting annual energy
consumption return to the Designated Agencies and BEE;
3. Compliance with prescribed energy conservation standards;
4. The requirement to purchase ESCerts to avoid defaulting on compliance obligations;
5. The monitoring and verification of compliance by Designated Energy Auditors
(DENAs);
6. The ability to receive ESCerts that can be sold on a market if the compliance
obligation is exceeded;
7. Non-compliant entities must pay Rs. 10 lakhs; and
8. Submission to regulation by BEE and process management by Energy Efficiency
Service Ltd. (EESL).
5. Other Market based mechanism in India
5.1 RENEWABLE ENERGY CREDIT TRADING SYSTEM (REC)
India’s REC trading system was launched in November 2010 with the primary purpose of
promoting renewable energy even in regions that have low potential for renewable power
generation. The Indian government planned for this mechanism to contribute significantly
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to renewable energy generation goals outlined by the NAPCC and the Energy Act of 2003
(EA 2003).
The Ministry of Power regulates the REC mechanism. Under EA-2003, the country’s State
Regulatory Commissions (SERCs) had set targets for power companies to either produce or
purchase a certain percentage of their total power from renewable sources. These targets were
called Renewable Purchase Obligations Standards (RPOs). To comply with their RPOs or profit from
a surplus of RECs, covered entities were allowed to trade RECs either within or across states. Each
REC represents one MWh of a covered type of renewable energy— solar, wind, small-scale hydro
(capacity below 25 MW), biomass-based power, biofuels, and municipal waste based power—and
the purchase of RECs to be treated as the consumption of the corresponding quantity of renewable
power. As a result, facilities would be able to meet their renewable energy targets even if the local
climate was not well-suited for renewable energy generation. The REC system would enable
renewable energy generators to weigh the costs and benefits of achieving their renewable energy
commitments by selling electricity from renewable sources or by purchasing RECs. The REC
mechanism’s nodal agency for the implementation and registration of participating renewable
energy generators (where participation is voluntary) is Central Electricity Regulatory Commission
(CERC). Participating generators had two compliance options:
(1) Sell renewable energy at the preferential tariff fixed by the CERC; or
(2) Sell the electricity generation and environmental benefits associated with renewable
energy separately in the form of RECs.
RECs trading had begun since April 2011 at India’s two major power exchanges, IEX and
PXIL. The floor price and a ceiling price is determined by CERC from time to time. RECs are
traded once every month.
5.1.1 Progress of RECs Market
In April 2011, only 260 units were traded on the Indian Energy Exchange. In May 2011, this
amount jumped to 18,502, and sky rocketed to 265,606 in September 2012. By May 2011,
there were 71 accredited projects, of which 30 were registered in the system. The price
band for solar certificates was fixed at USD $264-375 per MW/h, and for wind certificates
this value was USD $33-86 per MW/h. In May 2012, as many as 100 solar RECs traded on
the IEX, marking the first time these markets included solar REC trading. On the IEX,
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153,125 non-solar RECs traded for an average price of Rs 2,402 (~USD $42.70). On the
PXIL, 15,550 non-solar RECs were traded for an average price of Rs 2,150 (~USD $38.23).
Trade estimates REC market’s size at USD $1.2 billion. Of India’s 29 states, 21 have REC
system obligations, which range from 2% to 14% energy from renewable sources.
Similar to Renewable Portfolio Standard (RPS) programs in the United States, United
Kingdom, and Australia, India’s REC mechanism was implemented as a compliance market
to meet legal requirements, not a voluntary market. It is expected that strong renewable
policy would prompt enhanced renewable energy investment, and, as a result, would cause
areas with high renewable potential to build capacity.
According to 2010 data, installed RE capacity was 11% of the country’s total, but energy
generation from renewable sources was less than 5% of the country’s total.
5.2 PILOT ETS
India’s pilot ETS mechanism started from February 1, 2011, in which three states—Gujarat,
Tamil Nadu, Maharashtra—received government mandates to implement programs. The
primary objective of ETS mechanism was to focus on particulates, such as SO2, NOx, and
SPM, which are detrimental to human health, these state pilot programs could function as a
foundation for a future CO2 trading program that could conceivably link up to a global
system.
According to the website for India’s Ministry of Environment and Forests (MOEF) -
“The pilot emissions trading scheme will be rolled out as a randomized-controlled trial
to enable rigorous evaluation. Such an evaluation will provide gold-standard evidence
on the environmental and economic benefits of the scheme. Pollution emissions will be
measured in real time using continuous emissions monitoring, and economic
adjustments will be measured with regular unit surveys. Backed by this evidence, the
pilot scheme will provide a model for expansion within India and a framework for
implementing global environmental policy.”
The pilot ETS mechanism was launched by India’s MOEF together with the country’s
Central Pollution Control Board (CPCB) and relevant State Pollution Control Boards
(SPCBs). According to the system’s design, the SPCBs would determine which pollutants to
include and set caps for industry facilities based on desired overall pollutant
concentrations. State regulators would then distribute emissions permits to capped
facilities, which would have the option of either complying to their caps and selling extra
permits or buying from the market the amount of permits by which they would exceed
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their caps. According to the Economic Times (2011), rationale for experimenting with ETS
was two-fold:
(1) It was a cost-effective method of emissions mitigation; and
(2) It encouraged innovation.
The purpose for this program was to improve air quality and to incentivize facilities within
states to do their part in enabling the states as a whole to meet the National Ambient Air
Quality Standards (NAAQS). Tamil Nadu, Gujarat and Maharashtra had concentrations of
particulate matter that were above norms prescribed in NAAQS-2009.
According to J-PAL and the SPCBs of Maharashtra, Gujarat, and Tamil Nadu (February,
2011), the five objectives for pilot ETS in India were:
(1) Extend regulatory framework: The pilot ETS would extend the existing regulatory
framework to explicitly support ETS.
(2) Implement continuous monitoring: The pilot ETS would develop instrumentation
and monitoring standards and roll out Continuous Emissions Monitoring Systems (CEMS)
at several hundred factories in each participating state.
(3) Create emissions markets: The pilot ETS would establish permits to emit as a
commodity in demand that would trade easily on established Indian commodity exchanges.
The scheme would develop a platform to reconcile permit holdings and total emissions in
order to determine compliance.
(4) Document emissions cuts: The pilot ETS would measure emissions using CEMS at
both participating industries and industries that cannot trade permits.
(5) Document cost savings: The pilot ETS would measure industry compliance over two
years using semi-annual field surveys of economic and environmental variables at both
participating industries and industries that cannot trade permits.
The pilot systems for the three included states would cover 1,000 industries. SPBs
determined the precise eligibility criteria for industries. The Maharashtra pilot program
would encompass the cities of Aurangabad, Tarapur, Chandrapur, Jhalna, and Kohlapur.
Selected industries must be of medium or large size, be high emitters of particulate matter
(PM), and have at least one CEMS suitable stack. The Tamil Nadu pilot system would
encompass the cities of Ambattur, Chennai, Maraimalai, Sriperumpudur, and Tiruvallur.
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Covered industries must lie within a 50 KM radius of Chennai City, have at least one CEMS
suitable stack, or be of medium or large size. The Gujarat pilot ETS would encompass the
cities of Surat, Vapi, and Ahmedabad. A covered industry must lie within a 20 KM radius of
one of these three cities, be a high emitter of PM, or have at least one CEMS suitable stack.
The program was modeled after successful past and present cap-and-trade mechanisms,
namely the US SO2 trading program, the Chilean offsets trading program for suspended
particulates, and EU ETS within which CO2 and other GHGs are traded. A country-wide
report from February 2011 estimated the total budget for design and roll-out of this ETS to
be Rs 360 crore; and, the single largest cost, comprising over 95% of the overall budget,
was installation and maintenance of a CEMSs for industry.
6. Brief Description about other worldwide Climate Change Control Schemes
a. Top 1000 Energy-Consuming Enterprises Programme-Operational in China
China‘s national Top-1000 Energy-Consuming Enterprises program (Top-1000 program)
was launched in April 2006. The program aimed at making a major contribution to the
country‘s five year energy intensity reduction target of 20% target (energy/GDP) by
delivering 100 million tons of coal equivalent (tce) of the 600–700 million tce of total
national savings needed. The program targeted the largest 1,000 energy consuming
industrial enterprises in the country that each consumed a minimum of 180,000 tce (5.3 PJ)
in 2004.
b. EU-ETS-Operational in European Union
The European Union Emissions Trading System (EU ETS), also known as the European
Union Emissions Trading Scheme, was the first large greenhouse gas emissions trading
scheme in the world, and remains the biggest till now. It was launched in 2005 to combat
climate change and is a major pillar of EU climate policy. As of 2013, the EU ETS covered
more than 11,000 factories, power stations, and other installations with a net heat excess of
20 MW in 31 countries—all 28 EU member states along with Iceland, Norway, and
Liechtenstein. The installations regulated by the EU ETS are collectively responsible for
close to half of the EU's emissions of CO2 and 40% of its total greenhouse gas emissions.
The scheme has been divided into a number of "trading periods". The first ETS trading
period lasted three years, from January 2005 to December 2007. The second trading period
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ran from January 2008 until December 2012, coinciding with the first commitment period
of the Kyoto Protocol. The third trading period began in January 2013 and will span until
December 2020..In 2020, emissions from sectors covered by the EU ETS will be 21% lower
than in 2005. By 2030, the Commission proposes, they would be 43% lower.
c. Climate Change Agreement(CCA)-Operational in UK
Climate change agreements were introduced as voluntary agreements made by UK
industry and the Environment Agency to reduce energy use and carbon dioxide (CO2)
emissions. In return, operators were receiving a discount on the Climate Change Levy
(CCL), a tax added to electricity and fuel bills.
For operators who hold a CCA, the CCL would be reduced by:
90% on electricity bills
65% on other fuels
CCAs were available for a wide range of industry sectors from major energy-intensive
processes such as chemicals, paper and supermarkets to agricultural businesses such as
intensive pig and poultry farming.
A total of 53 industrial sectors across more than 9,000 sites signed up to targets. Targets
were applicable to participating sectors from 2013 to 2020, with the scheme running until
2023.
d. Carbon Reduction Commitment(CRC) Energy Efficiency Scheme-Operational in
United Kingdom
The Carbon Reduction Commitment (CRC) Energy Efficiency Scheme was again a UK
government initiative designed to improve energy efficiency and cut carbon dioxide (CO2)
emissions in private and public sector organizations that had high energy users. It was
estimated that the scheme would reduce carbon emissions by 1.2 million tonnes of carbon
per year by 2020.
The CRC scheme was applicable to organisations that would have a half-hourly metered
electricity consumption greater than 6,000 MWh per year. Organisations qualifying for CRC
would have all their energy use covered by the scheme, including emissions from direct
energy use as well as electricity purchased. Such organisations - including hotel chains,
supermarkets, banks, central government and large Local Authorities - mostly fell below
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the threshold for the European Union Emissions Trading Scheme, but account for around
10% of the UK carbon emissions.
e. Tradable White Certificates(TWC)-Operational in EU
The white certificate scheme was one of the key new instruments that was foreseen to
support energy efficiency improvements. The concept of tradable white certificate scheme
was not meant to replace but complement existing policies and measures, and it aimed to
contribute to achieving current or newly formulated energy efficiency targets in a cost-
effective way.
White certificate scheme was meant to facilitate achieving energy saving targets. By means
of certification it aimed to guarantee the achievement of a claimed amount of energy
saving. Italy had started the TWC scheme in January 2005; France a year later. Great Britain
also combined its obligation system for energy savings with the possibility to trade
obligations and savings (only among the obliged parties and through bilateral contracts).
f. UK Renewable Obligation-operational in UK
The Renewable Obligations came into effect in 2002 in England and Wales, and Scotland,
followed by Northern Ireland in 2005. It was designed to encourage generation of
electricity from eligible renewable sources in the United Kingdom. It placed an obligation
on UK electricity suppliers to source an increasing proportion of the electricity they supply
from renewable sources. In 2010/11 it was 11.1% (4.0% in Northern Ireland). This figure
was initially set at 3% for the period 2002/03 and under current political commitments
would rise to 15.4% (6.3% in Northern Ireland) by the period 2015/16 and then it would
run until 2037 (2033 in Northern Ireland). The extension of the scheme from 2027 to 2037
was declared on 1 April 2010. Since its introduction the RO has more than tripled the level
of eligible renewable electricity generation (from 1.8% of total UK supply to 7.0% in 2010).
g. Regional Green House Gas Initiative(RGGI)-Operational in USA
The Regional Greenhouse Gas Initiative (RGGI) was the first market-based regulatory
program in the United States to reduce greenhouse gas emissions. RGGI was a cooperative
effort among the states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New
Hampshire, New York, Rhode Island, and Vermont to cap and reduce CO2 emissions from
the power sector.
RGGI was established in 2005, and administered its first auction of CO2 emissions
allowances in 2008. By 2020, the RGGI CO2 cap is projected to contribute to a 45 percent
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reduction in the region’s annual power-sector CO2 emissions from 2005 levels, or between
80 and 90 million short tons (tons) of CO2. Under RGGI, fossil fuel power plants over 25
megawatts in participating states are required to obtain an allowance for each ton of CO2
emitted annually.
h. NSW Green House Gas Abatement Scheme-Operational in Australia
The New South Wales (NSW) Greenhouse Gas Reduction Scheme (GGAS) was an Australian
mandatory state-level program designed to "reduce greenhouse gas emissions associated
with the production and use of electricity; and to develop and encourage activities to offset
the production of greenhouse gas emissions." GGAS was launched in 2003– two years
before the EU ETS– and targets had been set until 2021. The scheme established a
greenhouse gas reduction target of 8.65 tonnes per capita in 2003, and the benchmark
dropped progressively until 2007, when the target became 7.27 tonnes per capita, which it
will continue to be until 2021. The Scheme requires individual electricity retailers and
certain other parties who buy or sell electricity in NSW to meet mandatory benchmarks
based on the size of their shares of the electricity market.
i. Chicago Climate Exchange-CCX-Operational in North America and Brazil
Chicago Climate Exchange (CCX) was established in 2003 as a voluntary greenhouse gas
emission reduction program. Market participants included major corporations, utilities and
financial institutions with activities in all 50 United States, 8 Canadian provinces and 16
countries. The total program baseline covered approximately 700 million metric tons of
carbon dioxide (CO2) - equal to roughly one-third the size of Europe's cap and trade
program. The exchange had more than 400 members ranging from corporations like Ford,
DuPont, and Motorola, to state and municipalities such as Oakland and Chicago, to
educational institutions such as University of California, San Diego, Tufts University,
Michigan State University and University of Minnesota, to farmers and their organizations,
such as the National Farmers Union and the Iowa Farm Bureau. CCX members made
legally-binding commitments during Phases 1 and 2 to meet annual reduction
requirements. Allowances were issued to members in accordance with their emission
baseline and the CCX reduction schedule.
All emission baselines and annual emission reports were independently verified. Members
reducing beyond their requirements had surplus allowances to sell or bank; those who did
not meet the targets complied by purchasing additional allowances or offsets. In the first
phase of the scheme, from 2003 to 2006, CCX members agreed to cut their emissions by 1%
each year below their annual average emissions for the period 1998 to 2001, thereby by
achieving a reduction of 4% by the end of the fourth year. For the second phase from 2007
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to 2010, the original members agreed to cut their emissions by an additional 0.5 % each
year to achieve an overall target of 6% below 1998–2001 levels by 2010. The program is
being discontinued since 2010.
j. US Acid Rain Programme-Operational in USA
The overall goal of the Acid Rain Program was to achieve significant environmental and
public health benefits through reductions in emissions of sulfur dioxide (SO2) and nitrogen
oxides (NOx)—the primary causes of acid rain. Since its inception in 1995, the U.S. Acid
Rain Program (ARP) has earned widespread acclaim due to dramatic sulfur dioxide (SO2)
and nitrogen oxides (NOX) emission reductions, far-ranging environmental and human
health benefits, and far lower-than expected compliance costs. By the end of 2006,
regulated sources in the ARP had decreased annual SO2 emissions by more than 40 percent
and NOX emissions, in conjunction with other programs, by almost 50 percent. Notably,
these reductions occurred while the combustion of fossils fuels for electricity generation, as
measured by ‘‘heat input,’’ has increased by almost 40 percent.
The program’s long-term goal of reducing annual nationwide utility emissions to 8.95
million tons was achieved in 2007, and by 2010 emissions had declined further, to 5.1
million tons. Overall, the program delivered emissions reductions more quickly than
expected, as utilities took advantage of the possibility of banking allowances. With its
$2,000/ton statutory fine for any emissions exceeding allowance holdings (and continuous
emissions monitoring), compliance was nearly 100 percent.
Conclusion
Though PAT has many unique features which other global climate change control
programmes do not have but it is not the final solution to combat the global issue of climate
change. Such participation should come from all the nations worldwide and most
importantly developed nations need to come forward and take lead along with ownership
to fight this global issue.
Along with PAT India also need to take some strong steps and introduce mechanisms like
Carbon Tax at least on big corporate houses and polluting industries.
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