India develops efficiency-trading market

India plans to create the world's first market for trading credits for energy savings.

India's government expects to set mandatory energy-savings targets by the end of 2009 for energy-intensive sectors such as cement, aluminum, steel, power, textiles, fertilizers, railway, paper and pulp.

The country's Bureau of Energy Efficiency is working on a program to establish credits for industrial plants that save energy beyond the government requirement. The plan has been modeled after emissions-trading markets at work in the EU.

In January, Mumbai, India-based  Multi Commodity Exchange (MCX) launched futures trading in carbon credits in India (see MCX launches carbon credit trading in India).

Under the energy-savings plan, separate targets would be established for each large industrial unit and plant in order to take into account the different sizes and type of companies in each sector. The mandatory reductions would then go into effect three years later.

Companies surpassing energy savings requirements would get credits that can be sold through existing power exchanges to companies that fail to meet their targets. Companies failing to meet targets that do not buy credits would then be penalized by the government.

The energy-savings market must be approved by the prime minister's climate council.

The move is part of India's National Action Plan on Climate Change. Because the country has lower emissions than industrialized countries, India has decided one of its best contributions could be to use less energy from polluting sources.

India has generated about 30 million carbon credits and is one of the largest beneficiaries in the carbon credit trade, according to MCX (see Europe gains carbon credits with India projects).

Under the plan, private companies would be responsible for measuring energy reductions.