Gujarat chief minister Vijay Rupani launched India’s first emissions trading scheme (ETS) on June 5, pressing ahead with the government’s efforts to curb air pollution by reducing particulate matter (PM) emissions. June 5 is marked as
World Environment Day and air pollution was the theme of this year’s event. The team that has formulated the ETS includes researchers from the Economic Growth Center at Yale University, the Energy Policy Institute at the University of Chicago (EPIC), and The Abdul Latif Jameel Poverty Action Lab (J-PAL). Where and when?
The Gujarat Pollution Control Board (GPCB) has chosen Surat as the pilot city for the project. Surat was an obvious choice because it is a densely-populated industrial centre and its textile and dyeing industries emit heavy pollution. Starting August, the ETS will come into full effect, incorporating all 350 industrial units across Surat.
GPCB chairman Rajiv Gupta said nearly 150 industrial units are also slated to trade on the national commodities exchange on July 1 as a test case.
What is ETS?
Under ETS, also known as a cap-and-trade system, the GPCB will first determine the total mass of air pollution (in terms of particulate matter emissions) that can be released into the atmosphere during a certain fixed period by all the industrial units together. This is known as the cap.
Under this cap, industries will then be authorised to buy and sell permits to maintain their emissions below the fixed level. These permits are nothing but units of particulate matter emissions in terms of mass.
The ETS would provide a platform for the industrial units to trade permits. "This is like the commodities you trade on the national commodity exchange," a senior GPCB official said.
How does the ETS incentivise industries to curb pollution?
The fixed cap on emissions limits the amount of toxic particulate matter that will be released into the environment. In addition, trading of permits among industrial units rewards those who have cut down their emissions while punishing those who have exceeded them.
Industrial units bear the additional cost when they need to buy permits after exceeding their allotted emissions limit. On the other hand, industries that emit lower than their permitted limit have the ability to sell their permits.
Robust mechanism for combating corruption
In an effort to strengthen the integrity of the program, the GPCB spent two years developing pollution monitoring devices (called Continuous Emissions Monitoring Systems, or CEMS). These are the basis of measurement of emissions, explained Nicholas Ryan, economics professor at Yale and one of the members of the research team that devised the ETS. Ryan said the monitoring system is “performing well” and aids efforts to combat corruption and dishonesty.
Why the ETS is different from other environmental regulations
“Many environmental regulations are concerned more with inputs— like whether an industry installs equipment, what that equipment costs, and so forth — rather than the results that are achieved, as far as making air and water cleaner,” Ryan said.
According to Ryan, instead of the input, an ETS focuses on the output. In this case, the output is the hard cap on emissions that allows industries to use whatever means they can to reach the goal of lower emissions. An added benefit of this policy is that this flexibility can reduce compliance costs and make it easier to hit aggressive standards.
The need for emissions trading in India
In a report published by Health Effects Institute, air pollution has been identified as the third-highest cause of death, contributing to over 1.2 million deaths in 2017. Another study published by India State-Level Disease Burden Initiative estimated that cleaner air could increase the life expectancy of the average Indian by 1.7 years. The ETS in Gujarat promises lowered air pollution while facilitating robust economic growth.
Success of ETSes around the world
Cap-and-trade systems around the world have proven to be successful, delivering their promise of reduced greenhouse gas emissions. China, the world’s largest greenhouse gas emitter, launched a national carbon market in 2017. A central tool in China’s strategy to combat air pollution, the national ETS is the largest carbon market of its kind.
The European Union’s Emissions Trading System has also been effective in mitigating global warming with capped emissions in 2016 being 26 percent than in 2005, when the scheme was first launched.The US also launched its own cap-and-trade scheme in California in 2013. The program is expected to reduce emissions by more than 16 percent by 2020.