The Energy Conservation Act, 2001 (“ECA 2001”) was enacted to provide for efficient use of energy and its conservation and other matters connected therewith. The ECA 2001 provided for incorporation and establishment of the Bureau of Energy Efficiency (“BEE”) and conferred powers upon the Central Government, State Government and BEE to enforce measures for efficient use of energy and its conservation.
The ECA 2001 was further amended in 2010 to address various new factors that emerged with the development of energy market over a period of time. With continuous developments taking place in the energy sectors, including but not limited to (i) need to facilitate the achievement of India’s commitments before CoP 26 in Glasgow; (ii) introduce concepts such as carbon trading and (iii) encourage use of non-fossil sources, there was a need to amend the ECA 2001 further.
In this background, on August 8, 2022, Lok Sabha has passed the Energy Conservation (Amendment) Bill, 2022 (“ECA Amendment”) to amend the ECA 2001.
The key provisions of the ECA Amendment are as follows:
- Obligation to use non-fossil sources of energy – As per the ECA Amendment, the Central Government is entitled to recommend minimum share of consumption of non-fossil sources (such as green hydrogen, green ammonia, biomass and ethanol for energy and feedstock), by designated consumers. The Central Government, may, based on the intensity or quantity of energy consumed and the amount of investment required for switching over to energy efficient equipments, specify any user or class of users of energy in the energy intensive industries and other establishments as specified in the schedule to the ECA 2001 as a designated consumer. These designated consumers may be identified from the sectors mentioned in the schedule such as industries engaged in fertilizers, iron and steel, chemicals, transport sector, petrochemicals, thermal and hydel power stations, and others as mentioned in the schedule to the ECA 2001. The ECA Amendment seeks to enforce strict compliance with the aforesaid obligation by prescribing a penalty of up to Rs. 10,00,000 (Rupees Ten Lacs) for non-compliance.
- Promoting use of clean energy: The ECA Amendment empowers the Central Government to specify a carbon credit trading scheme. Carbon credit is commonly defined as “a tradable permit or certificate that provides the holder of the credit the right to emit one ton of carbon dioxide or an equivalent of another greenhouse gas – it’s essentially an offset for producers of such gases.” The Central Government, or any agency authorised by it may issue carbon credit certificate to the registered entity which complies with the requirements of the carbon credit trading scheme. Registered entity has been defined to mean “any entity, including designated consumers, registered for carbon credit trading scheme specified under clause (w) of section 14”. The Central Government may issue the energy savings certificate to the designated consumer whose energy consumption is less than the prescribed norms and standards in accordance with the procedure as may be prescribed. The designated consumer (such as those mentioned in point (1) above) whose energy consumption is more than the prescribed norms and standards shall be entitled to purchase the energy savings certificate to comply with the prescribed norms and standards.
- Energy conservation and sustainable building code: The ECA Amendment has introduced the provision of the ‘Energy Conservation and Sustainable Building Code’ which has been defined to mean “the code which provides norms and standards for energy efficiency and its conservation, use of renewable energy and other green building requirements for a building”. As per the ECA Amendment, the Central government has been empowered to prescribe energy conservation and sustainable building codes for efficient use of energy.
- Applicability to residential buildings – The ECA Amendment also seeks to bring large residential buildings and office spaces within the fold of energy conservation regime. Previously, the requirement to comply with the energy conservation regime under the ECA 2001 applied only to commercial buildings. The ECA Amendment now has defined ‘buildings’ to mean (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); and (iii) which is used or intended to be used for commercial purpose or as an office building or for residential purpose.
- Establishment of State Energy Conservation Fund – The ECA Amendment requires the State Government to constitute a Fund to be called the State Energy Conservation Fund for the purposes of promotion of efficient use of energy and its conservation within the State. To the Fund shall be credited (i) all grants and loans that may be made by the State Government or the Central Government or any other organization or individual; (b) all fees received by the State Government or the designated agency; and (c) all sums received by the State Government or the designated agency from such other sources as may be decided by the State Government. The Fund shall be utilised for meeting the expenses–(a) of the designated agency in the discharge of its functions; (b) for the objects and purposes authorised by or under ECA 2001 read along with amendments.
- Standards for appliances, vehicles, and vessels: Previously, ECA 2001 mentioned that standards be set up for energy consumption with respect to equipment and appliances which consume, generate, transmit, or supply energy. The ECA Amendment further expands the scope to include vehicles (as defined under the Motor Vehicles Act, 1988), and vessels (which includes ships and boats). The failure by the mentioned entities to comply with standards shall be punishable with a penalty of up to Rs. 10,00,000 (Rupees Ten Lacs). Non-compliance in case of vessels or industrial units will further attract an additional penalty, not exceeding twice the price of every metric ton of oil equivalent consumed more than the prescribed norm. Vehicle manufacturers in violation of fuel consumption norms will be liable to pay an additional penalty per unit of the cars sold in the corresponding year and shall not exceed Rs. 50,000 (Rupees Fifty Thousand) per unit of vehicles sold.
- Regulatory powers of SERCs: ECA 2001 empowered the state electricity regulatory commissions (“SERCs”) to adjudge penalties under the ECA 2001. The ECA Amendment further adds that SERCs may also make regulations for discharging their functions and such regulations may also provide the manner in which applications before the SERCs are to be made inclusive of the fee payable, and any other matter which is to be provided by regulations by the SERC for the purposes of its function.
- Functions of BEE: Chapter IV of ECA 2001 provided functions and powers of BEE with respect to those matters assigned under it or any other act in particular. The ECA Amendment further extends the scope to include (a) recommendations to the Central Government regarding the norms for processes and energy consumption standards required to be notified, (b) take suitable steps to prescribe guidelines for energy conservation building codes, and (c) promote research and development in the field of energy conservation.
- Management of BEE: The ECA Amendment now mandates that the general superintendence, direction, and management of the affairs of BEE should vest in the governing council which shall consist of minimum 31 (Thirty-One) members and maximum of 37 (Thirty-Seven) members, to be appointed by the Central Government. These include: (a) secretaries of six departments, (b) representatives of regulatory authorities such as the Central Electricity Authority, and the Bureau of Indian Standards, and (c) up to four members representing industries and consumers. The ECA Amendment has further included one member each from the five power regions representing the States of the region to be appointed by the Central Government and maximum of 4 (Four) persons who can represent industry, equipment and appliance manufacturers, architects, and consumers also to be appointed by the Central Government.
Argus View:
Thus, the provisions introduced by the ECA Amendment are aimed at (a) mandating use of non-fossil sources, including green hydrogen, green ammonia, biomass and ethanol for energy and feedstock; (b) establishing carbon markets; (c) bringing large residential buildings within the fold of energy conservation regime; (d) enhancing the scope of energy conservation and sustainable building code; (e) amending penalty provisions; (f) increasing members in the governing council of BEE; and (g) empowering the SERC to make regulations for smooth discharge of its functions.
The provisions introduced by the ECA Amendment are very promising and will be instrumental in reducing emission of greenhouse gases which among other factors is largely attributable to use of fossil fuels. The provision aimed at establishing carbon markets will encourage the private players to align their business operations with the critical goal of achieving sustainable development. Needless to say that these amendments will also help India meet its nationally determined contributions submitted to United Framework Convention on Climate Change, before its 2030 target date. The ECA Amendment seeks to ensure strict enforcement of the amended provisions by prescribing penalties for violation or non-compliance by any industrial unit, vessels or manufacturer or any other responsible entity.
Please find attached a copy of the ECA Amendment.
This update has been contributed by Prashanth Sabeshan (Partner), Swati Rawat (Senior Associate) and Ramya P (Associate).
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