India plans to debut energy efficiency cap-and-trade scheme within months

India is moving forward with plans to create a market in energy efficiency credits modelled on carbon emission cap-and-trade schemes, which officials estimate could be worth 740bn rupees ($16bn, £9.8bn) a year by 2015.

The plan, which was proposed last summer, would see energy-intensive firms set energy efficiency targets. Those firms that exceeded the targets would be awarded credits that they would be able to sell on power exchanges to those companies that fail to meet their targets.

The government believes the scheme would provide firms with an incentive to invest in energy efficiency measures, while also helping it meet its target of cutting the economy's carbon intensity by between 20 and 25 per cent by 2020.

Ajay Mathur, director general of the Bureau of Energy Efficiency, told news agency Bloomberg that the government plans to set efficiency targets for energy-intensive firms as early as March and is already in talks with the country's two power exchanges, Indian Energy Exchange Ltd and Power Exchange India Ltd, about managing the trading of the energy efficiency credits.

The scheme is part of a wider initiative from the Indian government to improve corporate energy efficiency, which Mathur said would also include a new loan guarantee scheme for firms taking out loans to invest in energy efficiency improvements.

"Banks are unwilling to lend to energy efficiency because it’s not a business model they do," he told Bloomberg. "To increase the comfort of financial institutions to lend for energy efficiency, we are creating a partial risk guarantee fund."

He added that the energy efficiency bureau is in talks with the State Bank of India, HSBC Holdings Plc and PTC India Ltd about the scheme and is proposing guaranteeing up to 50 per cent of the value of any loans.

The proposals could form part of India's climate change action plan, which is due to be submitted to the UN by the end of the month under the Copenhagen Accord that was brokered at last year's Copenhagen summit.

The Indian government is also preparing to host a meeting later this month with Brazil, China and South Africa, the so-called BASIC grouping, to co-ordinate their position ahead of the 31 January deadline for submission of climate change action plans from developing economies.