Context:
In her Budget speech, the Finance Minister indicated that industries with high pollution levels, such as iron, steel, and aluminium, will need to meet specific emission targets. She stated, “A roadmap will be developed to transition ‘hard-to-abate’ industries from energy efficiency targets to emission targets. Regulations will be introduced to shift these industries from the current ‘Perform, Achieve, and Trade‘ (PAT) scheme to the ‘Indian Carbon Market’ framework.”
Relevance:
GS3- Environmental Pollution and Degradation
Mains Question:
Climate change is not about equity concerns alone, but also about searching for viable options to move away from excessive dependence on fossil fuel. Analyse. (10 Marks, 150 Words).
PAT vs. Emissions Trading:
- The Bureau of Energy Efficiency defines PAT as a regulatory tool aimed at reducing specific energy consumption in energy-intensive sectors. It incorporates a market-based mechanism that certifies and trades excess energy savings.
- PAT focuses on achieving energy efficiency, meaning that firms aim to produce a given output using no more than a specified amount of energy.
- This system does not cap total energy use, allowing firms producing more steel, for example, to consume more fuel while still being considered energy-efficient. Successful firms earn credits or certificates that they can trade.
- In contrast, emissions trading, often referred to as cap and trade, is a market-based approach to controlling pollution through economic incentives for reducing emissions.
- Unlike energy efficiency, which is based on relative standards, emissions trading sets absolute limits, or caps, on emissions.
- The Finance Minister’s announcement highlights that for India, a developing country, climate change is not just about equity but also about finding sustainable ways to reduce reliance on fossil fuels.
Decarbonizing Various Sectors:
- Over the past 15 years, India has been working to decarbonize various sectors to meet its development goals, including poverty reduction and providing affordable, reliable energy.
- India participated in the Clean Development Mechanism under the Kyoto Protocol, which allowed industrialized countries to engage in climate mitigation projects in developing nations, earning certified emission reduction units for trade. By 2011, India became the largest supplier of these units globally after China.
- To further this effort, India launched the PAT scheme in 2012 as part of its National Mission for Enhanced Energy Efficiency, one of eight missions under the National Action Plan on Climate Change.
- Given India’s need for iron and steel to support industrialization and meet the growing demand for housing in urban areas, emissions from these sectors significantly contribute to climate change.
- In the context of achieving Net Zero Emissions by 2050, the International Energy Agency (IEA) notes in a policy brief that the likelihood of currently planned iron and steel projects reaching net zero emissions is very low.
Carbon Market Mode:
- In international law, obligations related to climate change mitigation are considered due diligence obligations or obligations of conduct. This means that countries are required to make their best possible efforts to combat climate change.
- An example of such an obligation is the nationally determined contributions (NDCs) central to the Paris Agreement of 2015.
- It is reasonable for India to refine its existing PAT scheme or develop its version of a carbon market within the framework of its NDCs. India’s NDC includes eight targets, two of which pertain to the energy sector.
- The first target is to reduce the emissions intensity of its GDP by 45% from 2005 levels by 2030. The second target is to achieve around 50% of cumulative electric power capacity from non-fossil fuel sources by 2030, contingent on international finance and technology transfer.
- Given that India’s NDC does not require binding greenhouse gas reductions relative to a baseline year, the country is likely to create its own version of a carbon market, distinct from the European Union Emissions Trading System (ETS).
- India has not formally adopted the ETS and has resisted mandatory emission cuts, as such measures would currently conflict with its development priorities.
- The 2021 draft blueprint by the Bureau of Energy Efficiency outlines two mechanisms: in the first phase, a voluntary market supported by a domestic project-based offset scheme (carbon offset mechanism); and in the second phase, a compliance market with mandatory participation for regulated entities (carbon credits trading mechanism).
- According to an International Energy Agency (IEA) policy brief, this will involve updating emissions measurement methodologies to support the launch of a domestic carbon credits trading scheme by 2026, which will include the iron and steel sector, alongside other industries such as petrochemicals, chemicals, and aluminium.
Conclusion:
India’s effort to establish a carbon market tailored to its needs underscores that climate change discussions must go beyond equity concerns and consider broader socioeconomic priorities.
