Govt unveils cap and trade market worth $15 bln

NEW DELHI (Reuters) - India has approved in principle new trading plans centred on energy efficiency as part of efforts to shift to a greener economy to fight climate change, opening up a potential market worth more than $15 billion by 2015.

Energy efficiency is a key focus in India's national climate change policy, unveiled last year and which lays out a roadmap to a green economy but doesn't fix a target for carbon emissions.

Officials said Prime Minister Manmohan Singh on Monday approved in principle the national energy efficiency plan, which puts in place new financial architecture chiefly centring around trading of efficiency certificates and the carbon market.

"The mission sets off a process which creates sustainable business models and which gives investors the confidence to invest in energy-efficient projects," said Ajay Mathur, head of India's Bureau of Energy Efficiency.

The plan involves creating a market-based mechanism that would allow businesses using more energy than stipulated to compensate by buying energy certificates from those using less energy due to energy efficiency practices.

The government is setting up energy benchmarks for each industry sector. Companies that do not meet the benchmarks would have to buy these certificates under a reward and penalty system.

A government statement said the efficiency mission would ensure an annual saving of 5 percent of India's total energy consumption and a cut of about 100 million tonnes of carbon dioxide every year from its annual emissions of about 3 billion tonnes now.

"It's a fairly ambitious beginning," said K. Srinivas, former climate campaigner of Greenpeace India. "We have reached the stage where we are willing to cap and trade. Now they have to ensure sustained implementation."

The new plan, while it will make things difficult for energy inefficient companies, comes with a financial support mechanism, including a fund which will provide banks with guarantees for loans to energy-efficiency projects.

A second fund will support investment in the manufacturing of energy-efficient products and provision of energy-efficiency services. The two funds will have budgetary support.

Most firms in India, which is Asia's third-largest economy and the fourth-largest emitter of planet-warming carbon dioxide, have yet to plan for the impact of climate change and do not measure emissions or have deadlines to curb them, according to studies.

India's top firms also face little stakeholder pressure to combat climate change with only about 40 percent of major companies setting voluntary carbon emission reduction goals, according to a survey of CEOs by KPMG consultants last year.