Industrial. The Perform, Achieve, and Trade Scheme for Industrial Energy Efficiency

Transcription

1 Industrial Energy Efficiency The Perform, Achieve, and Trade Scheme for Industrial Energy Efficiency

2 balancing energy efficiency AND industrial growth A market-based, growth-friendly solution India s Energy Conservation Act of 2001 called for energy efficiency improvements in several key industries. The act allows the government to label certain energyintensive industrial plants as designated consumers and requires them to implement energy-efficiency measures and report energy consumption to government authorities. Designated consumers currently account for about 25 percent of India s GDP and 45 percent of its energy consumption. 1 In 2008, Indian policymakers approved the National Mission on Enhanced Energy Efficiency and significantly expanded the energy efficiency programs in the country. The mission s cornerstone is the Perform, Achieve, and Trade (PAT) scheme, a market-based mechanism designed to facilitate industrial investment in energy efficiency through trading of energy savings certificates. Designated consumers in eight industries power, fertilizer, cement, iron and steel, chlor-alkali, aluminum, textile, and pulp and paper are required to participate in the first cycle of implementation. Independent consultants estimate that the PAT scheme could result in savings of as much as 12.5 percent of total energy consumption. 2 The Bureau of Energy Efficiency oversees implementation. Figure 1: Share of Potential Energy Savings by Sector in Million Tons of Oil Equivalent 3% 2% 1% 1% Power Iron and Steel Cement Fertilizer Aluminum Pulp and Paper Chlor-Alkali Textile 13% 8% 47% 24% Source: Climate Connect News. 1

3 Program tracks efficiency of plants in specific industries The target for the PAT scheme s first commitment period, from 2012 to 2015, is an overall reduction of 10 million tons of oil equivalent across the eight industries, which include 478 designated consumers. 3 Each industry is responsible for a share of the total reduction target, proportional to the weight of its total energy consumption. Industry targets are further divided among the 478 designated consumers using a gate-to-gate methodology. This approach examines a designated consumer s total energy input in relation to its total product output. A baseline specific energy consumption value is first calculated for each plant, based on consumption data supplied by the designated consumer for the previous three years. Once a baseline is determined, officials analyze the plant s existing efficiency measures and potential for further improvements. The analysis includes various factors, such as production capacity, raw material quality, product mix and the age of the facility, and is used to set reduction targets, which take the form of percentage reductions from the baseline specific energy consumption value. Under this methodology, less-efficient designated consumers are called on to reduce emissions more than more-efficient ones, relative to their baseline values. During the compliance period, the consumers will submit annual reports on their energy efficiency efforts and progress toward their targets. Companies that exceed their targets will receive energy savings certificates. 4 Each certificate represents one metric ton of oil equivalent, and the number to be issued will depend on the degree of overachievement. Throughout the compliance period, the consumers can trade energy savings certificates bilaterally or through power or commodity exchanges. They can also trade obligations, which are similar to energy savings certificates, but are based on future energy savings rather than realized efficiency improvements. At the end of the compliance period, consumers that fall short of their targets can either purchase energy savings certificates from other designated consumers or pay a monetary penalty. The penalty for noncompliance is INR 1 million (approximately USD 18,000), plus an additional amount depending on the spread between the established target and actual performance. Compliance is determined by a transparent measurement and verification system. Designated energy auditors conduct energy audits to verify data provided by the consumers, such as the energy performance of equipment, energy conservation options and efficiency measures already implemented by the plant. Assessments are performed for the specific energy consumption baseline year and at the end of the three-year cycle. Audits must be consistent and impartial, following rules and procedures established by the Bureau of Energy Efficiency, and auditors must report findings clearly and openly, with supporting documentation. To ensure that auditors are accountable for the quality of their services, the Bureau of Energy Efficiency accredits only fully independent organizations with legal standing. Accredited auditors must be able to enter into binding contracts that have legal and financial consequences if the auditor fails to perform as agreed. 5 Energy-efficiency cap-and-trade scheme may be model for future By April 2011, India had allocated USD 13 million for operation of the PAT scheme through its first cycle. 6 Total investment costs for industry over that period are expected to be about INR 300 billion (USD 5.37 billion). 7 The government estimates 2

4 that by the end of the first implementation period in 2015, the PAT scheme will have reduced carbon emissions by nearly 100 million metric tons over a business-asusual scenario, and the energy savings certificate market will be worth about USD 16 billion. 8 As the world s first cap-and-trade program for energy efficiency, the PAT scheme could usher in a new climate policy paradigm that balances the need to address climate issues with the desire for economic growth. By focusing on efficiency, the scheme enables industrial firms to continue expanding their activities, as long as they operate in an environmentally conscious manner. Companies involved in the scheme also benefit from energy cost savings. According to Climate Connect estimates, the industrial units covered by the PAT scheme could save more than USD 1 billion by fiscal year by meeting their specific energy consumption targets. 9 Despite the benefits and optimism, however, pitfalls have slowed the process and caused some controversy. The most controversial issue is setting appropriate reduction targets for all designated consumers. Plant boundaries, materials used and outputs vary across the different industries, and the affected parties have criticized some targets. The PAT scheme is a central component of India s pledge to reduce its emissions intensity the amount of greenhouse gases it releases per unit of gross domestic product by 20 to 25 percent below 2005 levels by In the next cycle, other industries such petroleum refineries, petrochemical plants, transportation industries and services, electricity transmission and distribution companies, and commercial buildings and establishments may be included in the PAT scheme. References Bureau of Energy Efficiency, India. January 10, PAT Consultation Document: Web. October < Document_10Jan2011.pdf> Emergent Ventures International Perform Achieve & Trade (PAT) Scheme Impact & Options for Pulp & Paper Sector. Web. October < PAT-Scheme-Impact-Options-for-Pulp-Paper-Sector.pdf> 3

5 Endnotes Note: All currency conversions from INR to USD were calculated using the exchange rate on August 2, 2012 (1 INR = USD). 1 Dube, Sanjay et al. March Can the Learnings from International Examples Make the Perform Achieve and Trade (PAT) Scheme Perform Better for India? Emergent Ventures International. 2 Center for Clean Air Policy. CCAP Success Stories: India and Waste Sector. Web. October < org/docs/resources/1034/other%20nama%20success%20 Stories%20-%20CCAP.pdf> 3 Emergent Ventures International Perform Achieve & Trade (PAT) Scheme Impact and Options for Pulp and Paper Sector. Web. October < com/docs/pat-scheme-impact-options-for-pulp-paper- Sector.pdf> 4 Diddi, Saurabh. PAT Mechanism. Indian Bureau of Energy Efficiency. Web. November < live/hrdpmp/hrdpmaster/hrdp-asem/content/e8451/e32537/ e34008/e34022/mr.saurabhdiddi.pdf > 7 Industrial Efficiency Policy database. N-2: Perform Achieve Trade Scheme (PAT Scheme). Web. October < iepd.iipnetwork.org/policy/perform-achieve-trade-schemepat-scheme> 8 Mukherjee, Krittivas. India takes unique path to lower carbon emissions. Reuters, May 29, Web. October < 9 Climate Connect News. PAT Scheme formally launched. PATNET Registration Opens, Guidebook for DCs Released. Climate Connect, July 5, Web. October < Figure Section Figure 1: Share of Potential Energy Savings by Sector in Million Tons of Oil Equivalent Climate Connect News. PAT Scheme formally launched. PATNET Registration Opens, Guidebook for DCs Released. Climate Connect, July 5, Web. October < 5 Indian Bureau of Energy Efficiency. January 10, PAT Consultation Document: Web. October < Document_10Jan2011.pdf> 6 Reddy, Shrevya. Ambitious Energy Efficiency Perform, Achieve, Trade Scheme in India Ready for Rollout. Switchboard, the National Resource Defense Council staff blog, April 19, Web. October < nrdc.org/blogs/sreddy/ambitious_energy_efficiency_ pe.html> 750 First Street, NE, Suite 940 Washington, DC p CCAP CENTER FOR CLEAN AIR POLICY