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Carbon Trading-like Scheme To Be Soon Started For Industries

For such a scheme to be implemented effectively, there is a need for the Central Pollution Control Board to implement a Continuous Emission Monitoring System (CEMS), to continuously keep a tab on polluting industries and see their level of emissions with respect to the “cap” and how many permits they are allocated

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NITI Aayog may soon start a cap-and-trade emission scheme for industries, which will involve a market for industries to buy and sell permits to allow them to emit a certain amount of particulate matter (PM 2.5).

Numerous schemes like this have been implemented in USA, such as the Acid Rain Programme of 1995, where the cap-and-trade scheme was used to reduce levels of Sulphur Dioxide and oxides of nitrogen from industries. Total emissions fell from 8 to 5 million tonnes through this scheme, with estimated savings of $225-374 million for firms. The reduction was brought about by switching to low-sulphur coal and used scrubbers to remove SO2 from stack gases, and scrubber efficiency of industries increased from 75% to 95%.

Energy Policy Institute at the University of Chicago (EPIC) is working on a feasibility study for the same, and helping draft the policy for NITI Aayog. According to EPIC, such a scheme will have an impact on air pollution levels, and can be implemented in any cluster of industries or a city with a number of industries such as in NCR.

According to Anant Sudarshan, Director of EPIC India, "For New Delhi, this type of scheme is not really applicable since it is designed for industry." He further added that, "a market-based approach like cap-and-trade mechanism aims to regulate pollution by providing economic incentives for achieving reductions in the emissions of pollutants.  Basically for a scheme like this to work, the government sets a cap on total emissions that a group of industries is allowed to emit (it could be all plants in a city or even all plants in a country, latter for pollutant that travel long distances). Industries are then allocated permits based on a transparent rule which define the maximum emissions they are allowed. However they are allowed to buy and sell permits. This means that industries for whom it is easier to reduce emissions will do more and sell permits to other plants for whom it may be expensive to reduce. This ensures that most of the emission reductions come from those for whom it is cheapest to reduce, while retaining the overall cap."

For this scheme, the Central Pollution Control Board sets a "cap" or a limit of amount of PM 2.5 emissions allowed by an industry, and issues permits, which can be in the form of say kg/hour. Each industry is issued permits based on how much of PM 2.5 emissions they can reduce. Some industries will be able to reduce their emissions, way below the "cap" through efficiency measures, while some industries may not be able to reduce their emissions below the "cap". This is where the trading of permits occurs, where industries which are able to reduce their emissions significantly, can sell their extra permits to industries which are not able to do so, who will be only allowed to pollute after they buy the required permits. This trading can be intermediated by a stock exchange, and will incentivize industries to lower their emissions in order to sell their extra permits.

While some industries may find it easier to reduce emissions by investing in technology upgrades and cheaper efficiency measures, some industries such as power plants may find it difficult and expensive. However, with unfair allocation of allowances/permits, complexity of the apparatus set up, difficulty in quantitative and qualitative measurement, lack of a just regulator (without conflicts of interest), and the potential for the entire emission market to become a gambling arena for "permit"  price speculators and traders, the objective of a "cap-and-trade" scheme to reduce emissions may be lost, if not implemented properly, such as the pilot scheme for 1,000 industries in 2011 in Tamil Nadu, Gujarat and Maharashtra.

For such a scheme to be implemented effectively, there is a need for the Central Pollution Control Board to implement a Continuous Emission Monitoring System (CEMS), to continuously keep a tab on polluting industries and see their level of emissions with respect to the "cap" and how many permits they are allocated.

"Talking about the measures post implementation, the most crucial component is good data on emissions since that is used to trade permit. Also implementing mechanisms for flexible and predictable penalties so that plants know that they will be penalized if they have fewer permits than what they are emitting", added Sudarshan.


Tags assigned to this article:
carbon trading emission norms Acid Rain