Underlining framework to support competitiveness in industry via energy efficiency: Highlighting India’s Performance, Achieve, Trade (PAT) scheme 

By Su Min Park

Energy efficiency in the industry sector can bring substantial benefits on top of energy cost savings such as competitive enhancement, profitability and operation and maintenance cost reduction (IEA, 2014). Government-led policies such as regulations, incentives and information can help scale up energy efficiency investments in key technologies and business solutions in the industry sector, supporting industrial competitiveness (Oki et al., 2021). Energy efficiency policy frameworks vary across different continents and countries, and thus it is important to compare them to enhance understanding of energy efficiency policies and their benchmarking. This paper will address the energy efficiency policy framework that serves to support the industry sector and its competitiveness in Europe and non-European countries. It will first outline the energy efficiency framework governing European countries led by the European Union (EU), then highlight India’s Performance, Achieve, Trade (PAT) scheme for policy benchmarking from the European perspective.   

Aligned with the ambition to achieve carbon neutrality in 2050, the EU amended its 2012 Energy Efficiency Directive (EED) in 2018, establishing the EU energy efficiency target for 2030 of at least 32.5% compared to the projected expected energy use in 2030 (EC, n.d.a; Malinauskaite et al., 2020). Then in 2021, the European Commission (EC) adopted a proposal for a recast of EED as part of the European Green Deal, promoting the ‘energy efficiency first’ principle and setting the binding EU energy efficiency target of 9% in 2030 compared to the projections of the 2020 Reference Scenario (EC, n.d.a; EC, n.d.b). Energy efficiency, one of the major pillars of the EU, is perceived as the most cost-effective way to reduce emissions, improve economic competitiveness and sustainability, and lower energy dependency (Malinauskaite et al., 2019; Malinauskaite et al., 2020). 

While the national policies of the member states are predominantly shaped by the EU regulatory frameworks, their national contributions to the EU energy efficiency target and policies vary given their different economic sizes and levels of development. (Malinauskaite et al., 2019; Malinauskaite et al., 2020). Although the EU regulatory frameworks and policies serve as milestones for energy efficiency policies of member states, there is no binding European framework specifically assigned to industrial energy efficiency. EED’s binding yet horizontal measures that are relevant to the industry sector include energy efficiency obligation schemes (Article 7 of EED), mandatory audits and energy management systems (Article 8) and industrial waste heat recovery heating and cooling (Article 14). While these measures are the most relevant to the industry sector, they neither are specifically designed for industry nor address the specific features of various industrial sub-sectors (Malinauskaite et al., 2019). 

Utility-funded programs, with energy efficiency obligations (referred to as “energy efficiency resource standards” in North America) being the most prevalent, are a common measure with a cross-cutting approach. They impose a binding target on designated energy utilities, often energy distributors or suppliers, to reach a defined energy savings level over a designated time period, with a failure to meet the target leading to potential fines. They are often combined with energy efficiency trading certificate schemes, providing economic incentives for businesses to surpass the allocated targets as they are able to monetize the additional savings in the form of tradable certificates. 

These programs include tradable “white certificates”, implemented in countries such as the United Kingdom, Italy, France and Australia (Bhandari & Shrimali, 2018; Bayer et al., 2020; Oki et al., 2021). Energy efficiency obligations, or utility-funded programmes, have been playing an important role in Europe. Between 2014 and 2016, they accounted for a third of all policy instruments deployed to meet the EU’s binding annual energy savings targets. In the case of Italy, the first EU country to adopt the white certificate scheme (after the United Kingdom), the scheme managed to deliver about 45% of the savings required to meet the energy savings target under EED Article 7 (Bayer et al., 2020). 

India’s flagship Perform, Achieve, Trade (PAT) scheme is a market-based mechanism that is similar to the European white certificates scheme. However, the PAT scheme is the first market-based scheme that specifically targets the industry sector in achieving energy efficiency. The PAT scheme is imposed on industrial consumers rather than on electricity and gas suppliers as in the white certificate schemes, which cover a broad range of sectors (Bhandari & Shrimali, 2018). Highlighting the first market-based mechanism specific to the industry sector, the rest of this paper will specifically address India’s PAT scheme in terms of its mechanism and limitations. 

Established in 2011 by the National Mission for Enhanced Energy Efficiency (NMEEE) under the National Action Plan on Climate Change (NAPCC), India’s PAT scheme is a regulatory instrument that is designed to reduce specific energy consumption (SEC) of energy-intensive industries, including energy use per unit of production for Designated Consumers (DCs) in energy-intensive sectors. Along with the energy consumption norms and standards set by the Bureau of Energy Efficiency (BEE), Designated Consumers (DCs) are identified among energy-intensive sectors based on specified threshold levels. They are required to comply with the notified norms, rules and regulations set under the Energy Conservation (EC) Act, 2001 (IEA, 2021; PIB Delhi, 2022). PAT scheme is a multi-cycle process with each cycle lasting three years. It is implemented on a rolling cycle basis, with each cycle identifying a new set of DCs and target sectors (Bhandari & Shrimali, 2018; Sarangi & Taghizadeh-Hesary, 2020). The duration, sectors, DCs, and energy-saving targets of each cycle are summarized in Table 1. 

Table 1: India’s PAT scheme: cycles, coverage, DCs, energy-saving targets, and sectors

		Coverage of PAT
Cycle	Duration	Sectors (number)	Designated Consumers (DCs)	Energy-saving targets(Mtoe)	Sectors Covered
I	2012-15	8	478	6.68	aluminum, cement, chlor-alkali, fertilizer, iron and steel, pulp and paper, textile, and thermal power
II	2016-19	11	621	8.86	aluminum, cement, chlor-alkali, fertilizer, iron and steel, pulp and paper, textile, thermal power, railways, refineries, and DISCOMs
III	2017-20	6	116	1.06	aluminum, cement, iron and steel, pulp and paper, textile, and thermal power
IV	2018-21	8	109	0.69	aluminum, cement, iron and steel, pulp and paper, textile, thermal power, petrochemicals, and commercial buildings (hotels)
V	2019-22	8	110	0.51	aluminum, cement, chlor-alkali, iron and steel, commercial buildings (hotels), pulp and paper, textile, and thermal power
VI	2020-23	6	135	1.27	cement, commercial buildings (hotels), iron and steel, petroleum refinery, pulp and paper, and textiles
VII	2022-25	9	509	6.62	aluminum, cement, chlor-alkali, electricity distribution companies, iron and steel, pulp and paper, textile, thermal power plant, and railways

Note: The table is taken from Sarangi & Taghizadeh-Hesary (2020) and is updated based on Indian Ministry of Power (2021) and PIB Delhi (2022). 

With an objective to enhance the cost-effectiveness of energy savings, the PAT scheme is also associated with a market-based mechanism under which the excess energy savings are converted into certifications called Energy Saving Certificates (ESCerts) that can be traded at the Power Exchanges. Each certificate possesses a value of 1 MWh of energy saving, and the price is determined in the market (Sarangi & Taghizadeh-Hesary, 2020). While the market for the trading of ESCerts is regulated by the Central Electricity Regulatory Commission (CERC), the Power System Operation Corporation Limited (POSOCO) is entrusted with the responsibility of the Registry. The trading platform for ESCerts is provided by the two Power Exchanges – India Energy Exchange (IEX) and Power Exchange India Limited (PXIL) (IEA, 2021; PIB Delhi, 2022). 

During the first cycle of the PAT scheme, more than 400 energy-intensive DCs managed to reduce their energy consumption by 5.3%, surpassing the initial target of 4.1% that was established based on the adjusted annual SEC for each EC in 2010, the baseline year. All sectors except for the thermal power generation sector, with the highest target among the eight sectors covered, managed to surpass their target (IEA, 2021). Oak & Bansal (2022) also found that the first cycle of the PAT scheme improved the energy intensity of the DCs in the cement industry by 2.7% and in the fertilizer sector by 1.6%, with the associated carbon emissions savings of around 22.5 million metric tons from the cement industry.   

Since its implementation, however, the PAT scheme has faced several challenges and limitations. The Asian Development Bank Institute highlights that the scheme’s targets are not stringent enough and thus easily achievable. With a lack of clarity and consistency in the scheme and the absence of long-term targets, these features could have dampening effects on future investments in energy efficiency. It is recommended to set realistic and additional targets along with clear and consistent goals promoting long-term investments. Operation of ESCerts has also faced limitations, as these certificates, issued ex-post, could not provide the right signal for energy efficiency investments, potentially leading to price fluctuations in the market. One suggestion made to address the issue is to set a price floor for ESCerts, which would allow to reduce the level of market uncertainties and promote necessary long-term capital investment (Bhandari & Shrimali, 2018; Sarangi & Taghizadeh-Hesary, 2020). 

While there are no comparable trading schemes to the PAT scheme, there exist other mechanisms internationally targeting industrial energy efficiency, such as mandatory energy efficiency targets, mandatory code and standard compliance, mandatory auditing and public reporting of energy consumption to incentivize industrial energy efficiency. For example, China’s top 1000 energy-consuming enterprises program set energy savings targets for the top 1000 energy-consuming enterprises which account for about 50% of the industrial energy usage and required them to establish energy monitoring systems, carry out energy auditing, achieve energy performance targets, and report their energy consumption. Similarly, Australia’s Energy Efficiency Opportunity Scheme required 320 large enterprises to collect energy data, perform energy assessments, identify energy efficiency opportunities and report their outcomes, while mandating all enterprises with an energy consumption level above a certain threshold to carry out energy audits. In Europe, EED also mandates energy auditing of large European enterprises every four years (Bhandari & Shrimali, 2018; Oki et al., 2021). 

As a modest attempt to enhance understanding of the energy efficiency policy framework that promotes competitiveness of the industry sector, this paper addresses different policy mechanisms with a specific focus on India’s PAT scheme, the first market-based mechanism specifically targeting energy-intensive industrial actors. Government-led actions will continue to play a central role in promoting energy efficiency in the industry sector and bringing in necessary long-term investments. Understanding and benchmarking European and international policy schemes thus remain essential for policymakers in improving the policy design and implementing such policies.   

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