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Reliance, Tata Face Energy Caps in $3 Billion Efficiency Market in India

According to reports, India has set targets for companies including Reliance Industries Ltd. (RIL) and Tata Steel Ltd. (TATA) on energy consumption reductions in preparation for a $3 billion-a-year market for trading efficiency credits.

Companies have been notified of their targets and audits of their energy consumption have started, said Ajay Mathur, director of the Bureau of Energy Efficiency.

“By mid-2012, we should be able to start issuing tradable certificates,” Mathur said in an interview this week. The government may disclose the individual targets assigned to 563 facilities, including oil refineries, steel plants and paper mills in its official gazette as early as next month, he said.

The program aims to lower fossil fuel use in the world’s third-largest energy consumer by forcing eight industries to reduce their power needs. Companies that save more power than required earn credits which they can trade on power exchanges to others seeking to meet their targets.

Other companies with facilities falling under the program include NTPC Ltd. (NATP), Hindalco Industries Ltd. (HNDL), Essar Steel Ltd., JSW Steel Ltd. (JSTL) and Reliance Power Ltd. (RPWR), according to a list from the bureau.

By using energy more efficiently and reducing losses, India may avoid building 10,000 megawatts of new power capacity, saving 1 trillion rupees ($19 billion), according to the power ministry. That’s the equivalent of about 9 new nuclear reactors.

Over three years, the energy-efficiency program should reduce power consumption across the eight industries by about 5 percent, Mathur said. India became the world’s third-largest energy consumer after topping Russia in 2009, the International Energy Agency said in its annual outlook this month.

Trading of the credits may create a market worth $3 billion annually, according to Baman K. Mehta, chief executive of Darashaw & Company Pvt., a Mumbai-based investment bank. Within five years, that could climb to $16 billion, Mathur has estimated.

India’s trade in international carbon credits could be affected because of an impasse over the renewal of the Kyoto Protocol, the world’s only climate treaty that created the carbon market.

Annual climate negotiations begin next week in Durban, South Africa. Japan, Canada and Russia are expected to refuse an extension of the treaty requiring industrialized nations to cut emissions through 2012.

With the future of a global emissions trading market at risk, India is pressing ahead with domestic environmental trading programs to slow emissions and promote clean energy.

In April, trading began in India’s renewable energy market that requires power distributors and large energy consumers to buy a certain amount of their electricity from clean sources like wind farms and hydropower plants.

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