The central government has been raving about the Perform, Achieve and Trade (PAT) scheme, a plan for energy sustainability and optimisation by the Bureau of Energy Efficiency (BEE). The scheme was notified on March 30 this year and, according to a leading daily, has already hit “early hurdles”. Only a few companies by June 30 submitted their road maps for energy reduction. A fresh deadline is on the cards, but only time will tell if PAT is able to grab the attention of big entrepreneurs.
As a unique market-based mechanism, PAT identifies energy-intensive industries and facilities and mandates them to adopt energy-efficiency mechanisms. It is in step with measures that international policy makers have adopted. Also, it recognises the fact that an optimum mobilisation of technology, marketing and financing is a prerequisite for tackling climate-related challenges. If successfully implemented, PAT could become an important instrument in creating a powerful blueprint for strong and effective climate mitigation by developing countries.
Its importance increases because these countries have been receiving scant support from the industrialised world in reducing emission intensity. Moreover, it could become a valuable model for other countries, particularly developing ones, as a proven framework to study and incorporate.
The PAT scheme will also “appropriately evaluate” steps Indian companies take to curb greenhouse gas emissions (GHGs) and improve energy efficiency, thereby concurrently realising the dual objective of environmental sustainability and cost optimisation. Therefore, in this period of policy paralysis, India’s industrial fraternity should wholeheartedly welcome legislation that launches a market-based mechanism to promote sustainability and cost optimisation.
India’s energy efficiency opportunity is estimated at approximately Rs 19,000 crore and 10 million metric tonnes of oil equivalent (MMTOE). PAT aims to unlock this latent potential. After the initial three-year compliance period, from 2012 to 2015, its target will be reviewed and reset. By 2015, the government expects annual fuel savings of approximately 23 MMTOE, cumulative avoided electricity capacity addition of 19,000 Mw, and carbon dioxide emission mitigation of approximately 100 million tonnes a year.
Given that improvements in production processes are set to assume a major role in industrial energy efficiency, the regulation specifically targets industrial energy efficiency. In India, about 685 designated consumers (or DCs) are responsible for approximately 60 per cent of energy consumption. The power ministry has notified 478 of these DCs in eight industrial sectors – thermal power, cement, iron and steel, pulp and paper, fertiliser, chlor-alkali, aluminum and textile plants – to comply with the energy conservation norms. The estimated annual energy consumption by the selected DCs is over 160 MMTOE. The aim is to achieve an approximately four per cent reduction (6.6 MMTOE) by the end of the first PAT cycle, in March 2015.
PAT is exclusive in several ways, particularly in the context of developing nations. It is the first nationwide legislation that provides legal and institutional framework for issues related to energy conservation and energy efficiency. It also marks a significant departure from the traditional command-and-control regime, and combines the energy, environment and the economy.
Based on the requirements of the Energy Conservation Act 2001, a situation analysis of DCs, and the National Action Plan on Climate Change, PAT is aimed at augmenting the cost effectiveness of energy efficiency-related upgrades by energy-intensive businesses. The scheme requires setting up baseline individual targets for saving energy at the plant level and the subsequent issuance of energy saving certificates (ESCerts), which can be traded.
The financial penalty for non-compliance is to be linked to the degree of non-compliance, so that underperformers can buy certificates for some amount and pay a penalty for the rest. The proposed penalty will be equal to the (fixed amount = close to Rs 10 lakh) + [(Target saving) x (% Actual unachieved) x (Current Price of 1 tonne of oil equivalent)]. PAT is in line with the commitments made by India under the Copenhagen Accord 2010 and will be implemented under BEE’s supervision.
The workability of the present regulation is undeniable, though there are certain common barriers that need to be addressed — such as the delay in data from companies. Other obstacles could be a sudden increase in the price of energy-efficient equipment and technology; manipulation of the system by manufacturers through outsourcing energy-intensive activities; and very low future ESCert prices, which may not justify a company’s investment.
One can, however, be fairly optimistic about the scheme’s success since, in the long run, it is likely to reduce the cost of compliance and make energy savings increasingly cost-effective. In the short term, an easy availability of soft financing (in the range of three to five per cent), adequate training and capacity building, reduction of regulatory hurdles, simple monitoring protocol, and technology identification support can help PAT forward.
Although the PAT scheme does not explicitly target carbon emission reduction, lower energy intensity will directly impact national emissions. India’s emission-intensity reduction target of 20 to 25 per cent between 2005 and 2020 will require a reduction of 733 million tonnes of carbon dioxide. Calculated against this required annual emission reduction target, PAT’s contribution in the first phase comes to approximately 14 per cent. That is why it is vital for the government to ensure that PAT does not remain an isolated initiative, and an enabling framework should be created to address the barriers.
The author is a senior business analyst with Evalueserve
