Ambitious Energy Efficiency "Perform, Achieve, Trade" Scheme in India Ready for Rollout

India is about to embark on one of the most ambitious and extensive energy saving initiatives in its history, when the much-anticipated Perform, Achieve, Trade (PAT) scheme becomes operational. The PAT scheme is a trading mechanism designed for high energy consuming industries. It aims to incentivize industrial sectors and units to implement energy efficiency measures and to comply with energy consumption targets set by the regulator (India’s Bureau of Energy Efficiency or BEE). Experts estimate that if PAT is successful, it alone could help India meet half of its emissions intensity targets announced at Copenhagen, i.e. a reduction of 20-25% reduction by 2020, based on a 2005 baseline.

There are similar trading programs for energy efficiency certificates or credits in a few U.S. states (Connecticut, Pennsylvania, Nevada), and in New South Wales province in Australia, but India’s PAT scheme is the first nationwide effort of its kind anywhere in the world. Its scale and scope are unique, making India a global leader in energy efficiency policy, but at the same time posing design and implementation challenges for this pioneering effort.  If successful, PAT could become a valuable model for other countries to adopt for their own energy efficiency programs. In particular, developing countries would have a proven framework to study and incorporate, with the knowledge that emerging economies can achieve energy savings in a cost-effective way that boosts economic growth. Additionally, this could also be a model for future carbon trading schemes in India and other countries.

Eight major sectors of the Indian economy are covered by PAT in its first phase, April 2011 through March 2014 – power, iron and steel, cement, fertilizer, pulp and paper, aluminum, textiles and chlor-alkali. Out of these, just the power, cement, fertilizer and iron and steel sectors account for 96% of the energy consumption covered by PAT, while the remaining account for just 4%. All together, the industrial sectors within the purview of the PAT scheme account for nearly 60% of India’s nationwide energy consumption.

At a recent seminar on the PAT scheme organized by the World Bank, Dr. S. S. Krishnan of the Center for the Study of Science, Technology and Policy (CSTEP) in India explained some of its key features:

• Based on reported emissions data for each sector between 2005 and 2009, sector-wide energy consumption targets have been identified on the basic of Specific Energy Consumption (SEC);
• Within each sector, a number of individual industrial units (plants or factories) called “Designated Consumers” (DCs) have also been issued energy consumption targets;
• There are currently 563 Designated Consumers in the program;
• The overall goal for each sector’s energy reduction under PAT is about 5%, and within each sector the individual targets depend on relative efficiency, i.e. if the unit is already more efficient than most, it may be issued a 2-3% reduction target, while if it is highly inefficient, it may be issued a 6-7% reduction target;
• When industrial units achieve and surpass the target, they can sell their excess in the form of Energy Savings Certificates (ESCerts), and if industrial units fail to achieve their targets, they must purchase the appropriate number of ESCerts to “meet” their energy savings;
• The face value of each ESCert is 1 Metric Ton of Oil Equivalent (but may possibly be converted to 1 Kilogram of Oil Equivalent);
• Trading is limited to DCs, and no outside entities like ESCOs or financial institutions can purchase and sell ESCerts;
• ESCerts can be banked for a future year within the compliance period  (2011-2013);
• Measuring, monitoring, reporting and verification (MRV) will take place in the last year of the compliance period, i.e. from March 2013 to March 2014, by auditors certified by BEE;
• In case of default and noncompliance, a unit will be fined a penalty of 1 million Rupees (Rs. 10 Lakhs). Penalties are uniform across all sectors, even though compliance costs vary.

The PAT scheme was supposed to go into operation on April 1, 2011, but some final steps (such as target notifications for some DCs) are still being taken before it officially comes into force. It is expected to commence in the next few weeks. There are still some concerns about PAT – both for environmentalists and for industry - including the method of determining baselines, target-setting, allocating and determining the price level of ESCerts and standard concerns about transparency and abuse of the MRV system. However, by and large, Indian industry and the country’s energy efficiency community are optimistic about the success of PAT because it is expected to bring down the cost of compliance and make energy savings more cost-effective.  

The Indian government has already allocated nearly $13 million USD for the operation of PAT from 2011-2014, which is a significant budgetary outlay for a single energy savings scheme, and is committed to resolving any technical or regulatory issues that are likely to come up during this time.  While market-based mechanisms are credited with successful environmental outcomes in many instances, they have often been imperfect and have not always delivered the desired results. It remains to be seen whether PAT’s overall impact is positive, both for the environment and for Indian industry.

If PAT succeeds, then it will be responsible for the reduction of approximately 23 million metric tons of carbon dioxide equivalent (23 mMT CO2e) by 2014. This is the equivalent of the annual CO2 emissions each year of countries like Angola, Tunisia or Bahrain! If PAT meets such ambitious goals, then it would indeed become a model instrument under India’s National Mission on Enhanced Energy Efficiency (NMEEE) and would contribute significantly to making India’s National Action Plan on Climate Change (under which NMEEE is one of eight national missions) a true blueprint for strong  and effective climate mitigation actions.

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