India lays foundation for $15bn cap-and-trade market

The Indian government has provided early approval of a national energy-efficiency plan, including provisions for a cap-and-trade market that could be worth about $15bn (£9bn) a year.

Under the scheme, benchmarks for the consumption of electricity will be established for each industry. Echoing the EU's emissions trading scheme, companies that exceed their targets will need to buy energy certificates from firms that use less power due to efficiency practices.

Prime minister Manmohan Singh earlier this week said the plan "will enable about [$15bn] worth of transactions in energy efficiency. In doing so, it will, by 2015, help save about five per cent of our annual energy consumption and nearly 100 million tonnes of carbon dioxide every year."

The nation currently emits about three billion tonnes of greenhouse gases annually, making it the world's fourth-largest polluter.

Other initiatives under the plan include the expanded use of the global carbon market to help achieve its energy consumption targets.

Energy-efficiency projects approved under the UN's Clean Development Mechanism carbon offsetting scheme already comprise India's second-largest source of carbon credits after renewables. They include waste heat recovery projects undertaken by iron and steel producers, as well as controversial projects to improve the efficiency of traditional power and industrial plants.

The government scheme also outlines plans for a fund that would provide loan guarantees for energy-efficiency projects, while a separate venture capital fund would be created to support companies that manufacture energy-efficient products and provide related services in the sector. The government did not disclose the planned size of either funds.

India hopes to save 10GW of power by 2012 through the efficient use of energy, although the nation has refused to set an emissions reduction target, prompting criticism from some of the other countries involved in the UN Copenhagen talks to agree a new international climate change deal.

Singh hinted that he hoped the plan would help to break the current deadlock at the international talks, arguing that it would "be a powerful signal to the international community that we are willing to contribute in a significant manner to meet the global challenge of climate change".

Earlier this month, India announced that it would make energy-efficiency ratings mandatory for electric appliances, including air conditioners and refrigerators. The initiative, to commence in January, will also require fluorescent lights to bear labels that provide consumers with information about the product’s energy consumption.

By June 2010, the efficiency ratings system will expand to cover electric motors, colour televisions and LPG stoves. Indian appliance manufacturers would need to adhere to the scheme, no matter if their products are to be sold domestically or exported.