Implementing green contracts

Context:

The increasing concerns about climate change once again point to the need for enhanced efforts towards achieving sustainable growth goals in India. While the massive levels of production, consumption and disposal of goods and services have their own set of benefits in a post-industrial society, they have also slowed down the replenishment cycle of limited resources.

Relevance:

GS-III: Environment and Ecology (Pollution Control, Sustainable Development, Climate Change and related issues, Measures and Initiatives taken for control and management of pollution)

Mains Questions:

To what extent can corporations contribute to cutting down emissions through the process of green contracting? (10 Marks)

Dimensions of the Article:

1. What are green contracts?
2. Measures to make the obligations under Green Contracts work
3. Perform Achieve and Trade: Market Based system in India
4. Renewable Energy Certificates (REC)
5. Energy Saving Certificates (ESCerts)
6. About Indian Energy Exchange (IEX)

What are green contracts?

‘Green contracts’ refer to commercial contracts which mandate that contracting parties cut down greenhouse gas emissions at different stages of delivery of goods/services, including design, manufacturing, transportation, operations and waste disposal, as applicable to the industry.

Process of acquiring a green contract:

• It could be taken up through a bidding process. This bidding process requires a Green Tender to be issued under Green qualifications.
• These green qualifications could be using a pre-defined percentage of green energy in service delivery to adequate on-site waste management, reducing carbon emissions by a certain level over a period of time, etc.
• Once a bidder is chosen, the contracting parties can prescribe the green obligations binding and enforceable in the eyes of the law. This obligation makes parties follow emission cuts.

Measures to make the obligations under Green Contracts work

1. Providing for a well-defined measurement criteria and auditing of the performance of the contractor with regard to these obligations. 
2. Penalizing Non-performance or Non -compliance with fines and penalties.
3. Making sure that all stakeholders take participate in the obligations and practice them with the help of special committees/bodies.
4. Incentivizing and making them more attractive by reducing the cost of the contract and additional prices can also be reduced as much as possible.

How can emission cuts be achieved?

1. Use of energy-efficient infrastructure for production.
2. Reducing noise while producing in a factory.
3. Reducing water pollution and air pollution.
4. Ensuring eco-friendly means of transportation such as bicycles and electric cars.
5. Establishing and maintaining a sustainable waste management system.
6. Putting up green buildings and energy-efficient buildings.
7. Centralized waste to energy plants common to multiple industries.

Perform Achieve and Trade: Market Based system in India

• It is one of the most important initiatives under the National Mission on Enhanced Energy Efficiency (NMEEE) is Perform, Achieve & Trade (PAT) mechanism, launched by the Bureau of Energy Efficiency (BEE) under the Ministry of Power on 4th July 2012 at New Delhi.
• PAT is a market-based mechanism to step up and incentivize energy efficiency in large energy-intensive industries.
• The scheme covers 478 Designated Consumers (DCs) from eight energy-intensive sectors—thermal power, aluminium, cement, fertilizer, iron and steel, pulp and paper, textiles and Chlor-alkali. These eight sectors account for 25% of GDP and about 45% of India’s primary energy consumption and consume 165 million tonne equivalent of energy consumption annually.
• It facilitates the DCs to achieve their legal obligations under Energy Conservation Act, 2001 but also provides them with necessary market-based incentives to over-achieve the targets set for them.
• DCs who achieve a reduction in baseline specific energy consumption (SEC) in excess of targets will be entitled to sell ESCerts (Energy-saving Certificates)
• DCs who under-achieve their targets can comply by purchasing ESCerts from electricity exchange or by paying a penalty.
• ESCerts to be traded only on electricity exchanges such as IEX.
• Penalty for non-compliance in accordance with EC Act, 2001. Also, the amount of unmet target to be paid at prevailing oil price.

Renewable Energy Certificates (REC)

• Renewable Energy Certificates (RECs) are a market-based instrument that certifies the bearer owns one megawatt-hour (MWh) of electricity generated from a renewable energy resource.
• Once the power provider has fed the energy into the grid, the REC received can then be sold on the open market as an energy commodity.
• RECs earned may be sold, for example, to other entities that are polluting as a carbon credit to offset their emissions.
• RECs can go by other names, including Green Tags, Tradable Renewable Certificates (TRCs), Renewable Electricity Certificates, or Renewable Energy Credits.

Energy Saving Certificates (ESCerts)

• Energy Saving Certificates (ESCerts) are the tradable certificates under the Perform, Achieve, Trade (PAT) Scheme of the Bureau of Energy Efficiency (BEE).
• It is a market-based mechanism to incentivise energy efficiency in large energy-intensive industries.

About Indian Energy Exchange (IEX)

• The Indian Energy Exchange (IEX) is the first and largest energy exchange in India providing a nationwide, automated trading platform for physical delivery of electricity, Renewable Energy Certificates and Energy Saving Certificates.
• The exchange platform enables efficient price discovery and increases the accessibility and transparency of the power market in India while also enhancing the speed and efficiency of trade execution.
• It is a publicly listed company with National Stock Exchange (NSE) and Bombay Stock Exchange (BSE).
• It is approved and regulated by Central Electricity Regulatory Commission (CERC) and has been operating since 2008.
• The IEX was established to leverage technology and innovation to establish transparent and efficient energy marketplaces for delivering affordable, reliable energy to consumers.

Indian Energy Exchange (IEX) is a trading platform for:

1. Physical Delivery of Electricity
2. Renewable Energy Certificates (REC)
3. Energy Saving Certificates (ESCerts)

-Source: The Hindu