Effect of Perform-Achieve-Trade Policy on Energy Efficiency of Indian Industries

Abstract

India adopted a Cap and Trade in energy intensity via a scheme called Perform-Achieve-Trade (PAT) with the objective to improve energy efficiency of the high energy intensive industries through target setting and tradable energy saving certificates. The scheme was announced in 2007 and the first cycle runs from April 2012-March 2015. This is the first market-based instrument adopted in India to achieve environmental protection. Under this scheme, the Bureau of Energy Efficiency identified eight most energy intensive industries, and within each of these industries it identified the most energy intensive plants and assigned them Energy Intensity (EI) targets. Firms exceeding their targets were given ESCerts which could be traded in Indian Energy Exchange and Power Exchange of India. This paper aims to examine effectiveness of the PAT scheme on inducing firms to reduce energy intensity of Cement, Fertilizer, and Pulp and Paper Industries. We use panel data for firms in the three industries with a difference-in-difference model to estimate the average treatment effect of the PAT scheme on firms that were assigned targets. We find that the PAT scheme was effective in improving energy intensity of firms in the cement and fertilizer industry, but not in the pulp & paper industry. Further, the scheme resulted in a decrease of power & fuel expenditure in the two industries, which in turn amounts to reduction of 9.53 million tC and 1.37 million tC for the cement and fertilizer industries respectively. The paper finally examines the market for ESCerts.

Keywords: Carbon Emissions, Energy Efficiency, Energy Saving Certificates, Government Policy, India, Perform-Achieve-Trade

JEL Classification: Q48, Q50