16. Designing PAT as a Climate Policy in India: Issues Learnt from EU-ETS

Perform, Achieve and Trade (PAT) has emerged as a significant policy tool to mandate decrease in specific energy consumption (SEC) of the energy-intensive industries in India. As there are similar cap and trade policies operating in different other parts of the world, learning and experience derived from those will be helpful to make PAT more effective and accurate without delay. The objective of this chapter is to highlight basic experiences of the initial phase of European Union Emission Trading Scheme (EU-ETS) and analyse its implications for PAT. This chapter gives an overview of the genesis of PAT and EU-ETS, briefly describes the mechanism design of PAT and identifies issues with PAT which need to be revisited on the basis of what has been learnt from the similar mechanism design of EU-ETS during its pilot phase. Targeting specific energy consumption under PAT as compared to grandfathering in allocation of emission permits in case of EU-ETS makes the former free of certain allocation inefficiencies, but the target has to be stringent enough to avoid reduced mitigation effort and resultant price volatility of the emission trading instruments.