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India set to build its own carbon credit market, change building bylaws for energy efficiency

The Indian Parliament recently passed the Energy Conservation (Amendment) Bill 2022 that modifies the 2001 energy conservation act for facilitating energy efficiency.

  • The new amended legislation proposes minimum use of non-fossil fuel energy for large commercial as well as residential buildings and imposes a penalty in case of non-compliance.
  • The new bill also talks about focusing on domestic carbon credit trade in the country for which the government has announced putting a halt on the export of carbon credit unless its own climate goals are achieved.
  • Energy sector experts welcomed the move but batted for incentivizing power consumers who are keen to shift to cleaner sources of energy.

India’s Energy Conservation (Amendment) Bill 2022, passed by the Lok Sabha (Lower House of Indian Parliament) on August 10, proposes boosting the use of non-fossil fuel energy – including green hydrogen and green ammonia – to reduce imports of fuels needed to power the country. The legislation is set to replace the principal act, Energy Conservation Act which was passed by the Indian Parliament in 2001 and had paved the way for energy conservation with a special focus on energy efficient appliances and technology. The act also led to formation of the Bureau of Energy Efficiency (BEE), the nodal government agency that handles energy conservation issues such as framing of rules, standards and specifications among others.

The latest bill, among other things, mandates large residential and commercial buildings – with a minimum of 100 kilowatt of connected load or contract demand to 120 kilovolt Ampere (KVA) – to mandatorily use a minimum portion of clean energy for their energy needs. Earlier the mandatory rule was for commercial buildings with a minimum connected load of 500 KW. The bill also empowers states to amend building bylaws to make these buildings energy efficient and sustainable. This bill empowers the states to enact these by-laws. A penalty of a maximum of Rs. 10 lakh for not complying with the laws has also been prescribed in the legislation.

Experts working in the sector claimed that this is likely to push the cost of construction of these buildings higher, owing to the higher cost of renewable energy installations like solar panels and modules.

Piyush Rout, an urban planner based in Bhubaneswar in Odisha, one of the smart cities of India, welcomed the new bill but also talked about the challenges for the construction of new buildings. “The new bill talks about ensuring a usage of a minimum amount of non-fossil fuel energy for the energy needs of residential as well as commercial buildings which could be apartments and large buildings. Rout said that installing more clean energy to power these dwellings would increase the input cost of construction, although it could have benefits in the long run.

He added that if the costs are going to escalate for these units, the government needs to take measures to incentivize the affected parties so that the switch to clean energy is easier. “He suggested that, as the bill empowers states and local municipal bodies to make rules on building bylaws, they may also consider offering discounts on local taxes and duties. This would encourage owners and builders to switch to clean energy through these incentives.”

India which is still a net importer of oil, natural gas and fuels to meet its energy demands, through this bill also has been planning to produce and use green hydrogen and green ammonia in the country itself to reduce import dependency for fuels. 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. Even during the introduction of the bill, the government announced that the bill would pave the way for the boosting of production and usage of green hydrogen and green ammonia in the country.

Shantanu Srivastava, Energy Finance Expert at the Institute for Energy Economics and Financial Analysis (IEEFA) said that the provision to use green hydrogen is futuristic as the fuel is an essential part of the mix to decarbonize the economy and for India to achieve its 2070 net zero target.

windmill
Windmill
A windmill tower at Pargi in Karimnagar district of Telangana. Photo by Manish Kumar/Mongabay.

He told Mongabay-India, “Green hydrogen could be the fuel of the future as this has the capability to help in decarbonizing the hard to abate sectors like cement and steel. Unlike other sources of renewable energy like solar and wind, green hydrogen has the virtue of generating heat at extreme temperatures, needed in these industries. This is because of the fact that hydrogen as a fuel has higher energy density, even higher than fossil fuels. Thus the future of green hydrogen is bright and investments in the sector are likely to only increase.”

Local carbon credit markets

The new bill is also advocating for increasing the number of ex-officio members in the Governing Council of BEE by including more representatives from other ministries. Additionally, the bill proposes creating a domestic ‘Carbon Credit Trading market’ in the country and empowering Indian government agencies to issue Carbon Trade Certificates to ensure a smooth carbon trading mechanism in the country.

Carbon credit emerged in the Kyoto Protocol in 1997 where carbon was deemed to be a traded commodity and this was reiterated during the Paris Agreement in 2015. Now, traders globally trade carbon to obtain carbon credits, contributing to the overall reduction of emissions worldwide. The carbon trade certificate allows companies/countries to release emissions up to a certain point and encourages them to invest in green projects or pro-nature activities like forestation to earn the right to do more emissions beyond their prescribed limits as a compensation.

In simple words, industries with higher emissions compensate for their emissions by creating green assets in any part of the world and earn the right to emit as a compensation. This has helped in giving an impetus to the growth of renewable projects across the world.


In the past, India has invested in creating carbon credits and selling them to foreign industries through export of these credits. However, now the government plans to ban its exports and ensure growth of a local domestic carbon credit market and boost its trade internally. Although the ban of carbon credit export has not been mentioned in the bill, it was announced by the Minister of New and Renewable Energy R.K. Singh during his speech in Lok Sabha when he introduced this legislation.

“We have decided to not export our carbon credits. There is no question about this. This is because we have already set our climate mitigation goals through the Nationally Determined Contributions (NDCs). Now unless we meet our own goal, we will not export our carbon credits. We want to create our own carbon credit markets so that we can ensure more investments in the clean energy sector in our country alone,” the minister told the Lok Sabha in his speech during the introduction of the bill.

He also said that a ‘sub species’ of carbon credit market already exists in the country and this bill would help in making this clearer and club other such provisions. “We already give energy efficiency certificates to better performing units which they can sell to underperforming units who want to avoid paying a penalty for not maintaining their targets. Similarly, we give Renewable Energy Certificates to clean energy producers and those producing more than required are getting certificates and able to sell it to underperformers. So there is a mechanism in place. We just want to club these things together and bring more clarity on the issue,” he told the Parliament during the debate on the bill provisions.

Experts in the carbon credit market in India claimed that the move aligns with practices adopted in different parts of the globe. One of the few carbon offset developers in the country dealing with carbon credit trade is EKI Energy Services, based in Indore. Manish Dabkara, chief managing director of EKI Energy, told Mongabay India that the creation of a robust carbon credit market, through the Nation Emission Trading Scheme (National ETS) in India would imply renewed focus towards controlling emissions and increased private participation whereas the bill could pave the way for to unlock new market potentials for the market. He however said that the announcement of the government to not export carbon credit would not affect the voluntary carbon credit trade.

“The announced export ban of the carbon credits by the government is in line with other National and Regional ETS active around the world like European Union ETS, Korean ETS among others. These restrictions are specific to National / Regional ETS and do not have any direct impact on the voluntary carbon market, rather indirectly enhance the market size by attracting enhanced participation. The domestic carbon credits market will enable the development of higher quality sources of carbon credits, benefitting both buyers and sellers and ultimately, supporting progress toward a low-carbon future,” he said.

He also added that there is a need for regulatory frameworks and policy guidelines that provide clear mandates on emission reductions. The robust carbon market will also require a legislation backed formation of National Carbon Registry and National Carbon Market, its regulation on urgent basis and providing the private players in the mark by linking it with the National Carbon Registry besides country endorsement to participate in International Voluntary Carbon trading, bringing the requisite FDIs in India,”


The legislation discussing a scheme to trade carbon credits is yet to define clear guidelines and rules for the public, industries, and policymakers regarding carbon credit certificates. The legislative provisions suggest that authorities will probably announce these details in the days to come, following the bill’s passage in the Rajya Sabha and completion of other scheduled procedures.

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