The Energy Conservation Act, 2001, was amended with the Energy Conservation (Amendment) Act, 2022 (“Amendment Act”), recently. The amended Act received the President’s assent on December 19, 2022, and by way of a notification issued by the Ministry of Power, dated December 26, 2022, the amended Act along with all its provisions came into force on January 1, 2023. The amended Act has brought about some significant changes that are detailed hereunder:
BACKGROUND
The Energy Conservation Act, 2001 (“The Act”), was enacted to provide for efficient use of energy, its conservation and for matters connected therewith and/ or incidental thereto. The amended Act provides for regulation of energy consumption by equipment, appliances, vehicles, vessels, industrial units, buildings or establishments that consume, generate, transmit or supply energy.[1] With special focus on promotion of new and renewable energy and the National Green Hydrogen Mission, the amendment seeks to (i) facilitate the achievement of “Panchamrit” — the five nectar elements presented by India in COP-26 (Conference of Parties -26) in Glasgow 2021.[2]
The amendment is aimed at helping India fulfil its COP-26 commitments. India committed to (a) reach 500GW non-fossil energy capacity by 2030; (b) meet 50 per cent of its energy requirements from renewable energy by 2030; (c) reduce total projected carbon emissions by one billion tonnes from the date of COP-26 to 2030 (d) Reduce carbon intensity of the economy by 45 per cent by 2030, over 2005 levels and (e) achieve net zero emissions by 2070.[3]
In addition to facilitating the achievement of ‘Panchamrit’, the amended Act aims to promote renewable energy and develop the domestic carbon market to combat climate change and introduce new concepts such as carbon trading and mandate the use of non-fossil sources to ensure faster decarbonisation and help achieve sustainable development goals in line with the Paris Agreement and various other actions related to climate change.[4]
KEY HIGHLIGHTS OF THE AMENDMENT ACT
I.Carbon credit trading: The Amendment Act empowers the Central Government to specify a carbon credit trading scheme. While Carbon Credit has not been defined under the Principal Act or the Amendment Act, it generally refers to a tradeable permit, allowing the holder to emit a specified amount of carbon dioxide or other greenhouse gases. The Central Government or any authorised agency may issue carbon credit certificates to registered entities compliant with the carbon credit trading scheme.[5] A ‘registered entity’ is a defined term under the Amendment Act and means any entity, including designated consumers, registered under the carbon credit trading scheme.[6] The Carbon Credit Trading Scheme is aimed at reducing greenhouse gas emissions, and hence, addressing climate change. The Amendment Act empowers any other person, other than the designated consumer, to purchase a carbon credit certificate on a voluntary basis.[7] It is pertinent to note that the Carbon Credit Trading Scheme has not yet been notified and may be notified by the Central Government in future.
The Carbon Credit Trading Scheme is not the first trading scheme under the Energy Conservation Act. For instance, the Perform Achieve Trade (“PAT”) Scheme under the National Mission for Enhanced Energy Efficiency was launched in 2012, as a market-based compliance mechanism to accelerate improvements in energy efficiency in energy intensive industries. Under the PAT Scheme, the energy savings achieved by notified industries is converted into a tradable instrument called Energy Saving Certificates (“ESCerts”). The ESCets, after issuance by the Bureau of Energy Efficiency, are traded at Power Exchanges.[8] Similar to PAT, Renewable Energy Certificate under the Electricity Act, 2003, is also a trading scheme operational in the energy sector in India.
II. Obligation to use non-fossil sources of energy: The Amendment Act empowers the Central Government to specify minimum share of consumption of non-fossil sources by designated consumers as energy or feedstock. Different share of consumption may be specified for different types of non-fossil sources for different designated consumers.[9] Designated consumers include: (i) industries such as mining, steel, cement, textile, chemicals, and petrochemicals, (ii) transport sector, including Railways, and (iii) commercial buildings, as specified in the schedule.[10] The Amendment Act also brings into place an element of penalty upon failure to meet the minimum share of consumption of non-fossil sources by designated consumers. Under the Amended Act, a designated consumer who falls foul of the minimum share of consumption of non-fossil sources would be liable to pay a penalty of up to INR 10 lakh for each failure.[11] In addition to the above, the designated consumer would also be liable to pay an additional penalty of up to twice the price of every metric ton of oil equivalent prescribed under the Act, which is in excess of the prescribed norms.[12]
III. Energy conservation code for buildings: The Amendment Act substitutes the definition of ‘energy conservation building codes’ with ‘energy conservation and sustainable building code’ to mean the code which provides norms and standards for energy efficiency and conservation, use of renewable energy and other green building requirements for a building. Building has been defined under the Act to mean any structure or erection or part of a structure or erection (i) constructed after the rules relating to energy conservation and sustainable building codes have been notified by the Central Government under clause (p) of Section 14 and by the State Government under clause (a) of Section 15; (ii) which has a minimum connected load of 100 Kilowatt (kW) or contract demand of 120 Kilovolt Ampere (kVA). Prior to the Amendment Act, the Energy Conservation and Building Code was applicable only to buildings used or intended to be used for commercial purposes. However, the new Energy Conservation and Sustainable Building Code expands the scope to include buildings used or intended to be used as an office building or for residential purpose.[13]
IV. Standards for vehicles and vessels: Prior to the Amendment Act, the energy consumption standards could be specified for equipment and appliances, which consumed, generated, transmitted, or supplied energy. The amended Act expands the scope of Section 14 (Power of Central Government to enforce efficient use of energy and its conservation) to include ‘vehicles’ (as defined under Section 2 (28) of the Motor Vehicles Act, 1988) and vessels (includes ships and boats). However, it is pertinent to note that Rule 115-G of the Central Motor Vehicle Rules, 1989, on and from April 1, 2017, has in place the requirement of compliance with the average fuel consumption standards notified under the Energy Conservation Act, 2001, for ‘every manufacturer or importer of M1 motor vehicles, which are type approved under Rule 126, with at least four wheels, other than quadricycles, used for carriage of passengers and their luggage and comprising not more than nine seats, including the driver’s seat, and of gross vehicle weight not exceeding 3,500 kilograms, manufactured or imported for sale in India’.
V. Penalty: The amended Act substitutes Section 26 of the Act. It brings in new penalties and aggravates existing penalties for violations of certain provisions of the Act. For instance, the Amendment Act enhances penalty for equipment and appliances that fail to conform with the energy consumption standards specified by the Central Government and for equipment and appliances that do not contain particulars as specified by the Regulations.[14] In addition to the maximum penalty of ten lakh rupees under the Act, the Amendment Act brings in additional penalty of minimum two thousand and maximum five thousand rupees per appliance or equipment against which the non-compliance has occurred.
Further, the Amendment Act introduces penalty for vessels and vehicles. Where the non-compliance relates to any vessel, the person in addition to paying a penalty of up to ten lakh rupees shall be liable to pay an additional penalty of up to twice the price of every metric ton of oil equivalent consumed in excess of the prescribed norms.[15] Vehicle manufacturers in violation of fuel consumption norms, in addition to the penalty of ten lakh rupees, will be liable to pay a penalty of twenty-five thousand per vehicle for non-compliance of norms up to 0.2 litres per 100 kms and fifty thousand rupees per vehicle for non-compliance of norms above 0.2 litres per 100 kms.
Similarly, a penalty of up to ten lakh rupees and additional penalty of up to twice the price of every metric ton of oil equivalent in excess of the prescribed norms has been introduced for failure to comply with directions issued for minimum share of consumption of non-fossil sources by designated consumers.[16] The Amended Act prohibits the use of deceptive names that resemble the name of the Bureau, used to deceive or likely to deceive the public, and makes it punishable with penalty of up to fifty thousand rupees for first non-compliance, and for every subsequent non-compliance with an additional penalty of up to ten thousand rupees per day of such non compliance. Similarly, failure to provide information to the Bureau, as required, has been made punishable with a penalty of up to fifty thousand rupees for first such failure and for every subsequent failure with an additional penalty of up to ten thousand rupees per day of such failure.
The Amended Act adds a new clause to Section 28 under which the Adjudicating Authority while deciding the quantum of punishment under Section 26 will now also pay due regard to the loss caused to a consumer in addition to the two factors under the Act i.e. (a) the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default and (b) the repetitive nature of the default.[17]
VI. Composition of the governing council of BEE: The Act provides for the setting up of the Bureau of Energy Efficiency (BEE). Prior to the Amendment, the general superintendence, direction, and management of the affairs of the Bureau vested with the Governing Council, which had 20-26 members. The Amendment Act amends this to provide that the Governing Council shall comprise of 31-37 members.[18]
CONCLUSION
With the aim of facilitating the achievement of COP-26 goals, significant changes were made to the 2001 Act. The Amendment Act introduces new concepts such as carbon trading and mandates the use of non-fossil sources by designated consumers to ensure faster decarbonisation and achievement of sustainable development goals. The Carbon Credit Trading Scheme has not yet been notified and may be notified in the future. Currently, there is no clarity on the scope and ambit of the Carbon Credit Trading Scheme. The same energy saving measure may entitle a person to Renewable Energy Certificate, Energy Saving Certificate or Carbon Credit Certificate. It is to be seen if the certificates are made interchangeable in the future.
The Carbon Credit Trading Scheme once notified may bring more clarity on the trading and regulation of Carbon Credit Trading Certificate and may also bring changes in the compliance structure and penalty provisions. The Act also empowers the government to specify minimum share of consumption of non-fossil sources by designated consumers. The ‘minimum share’ of consumption to be met from non-fossil sources has not been specified yet and it is expected to be different for different non fossil sources and consumer/ industry categories. It may be better if the ‘minimum share’ is introduced in a phased manner, keeping in mind the availability of non-fossil sources in various sections and regions.
For further information, please contact:
Bishwajit Dubey, Partner, Cyril Amarchand Mangaldas
bishwajit.dubey@cyrilshroff.com
[1] Section 14(a), Energy Conservation Act, 2001
[2] Statement of Objects and Reasons, The Energy Conservation (Amendment) Bill, 2022
[3] https://pib.gov.in/PressReleasePage.aspx?PRID=1795071
[4] Statement of Objects and Reasons, The Energy Conservation (Amendment) Bill, 2022
[5] Section 14AA (1) of the Energy Conservation Act, 2001.
[6] Section 2 (qa) of the Energy Conservation Act, 2001.
[7] Proviso, Section 14A of the Energy Conservation Act, 2001.
[8] PAT | Bureau of Energy Efficiency (beeindia.gov.in)
[9] Section 14(x) of the Energy Conservation Act, 2001
[10] https://prsindia.org/billtrack/the-energy-conservation-amendment-bill-2022
[11] Section 26(3) of the Energy Conservation Act, 2001.
[12] Proviso, Section 26(3) of the Energy Conservation Act, 2001.
[13] Section 2(c)(3) of the Energy Conservation Act, 2001
[14] Section 26 (2) of the Energy Conservation Act, 2001.
[15] Proviso, Section 26(2) of the Energy Conservation Act, 2001.
[16] Section 26 (3) of the Energy Conservation Act, 2001.
[17] Section 28(c) of the Energy Conservation Act, 2001.
[18] Section 4(a) of the Energy Conservation Act, 2001.
