Cap-and-trade regime coming for industrial emissions

The Union environment ministry is planning a scheme to control emissions from industrial plants and other air polluters, using a market-based mechanism.

The move comes on the heels of India’s assurance to voluntarily take mitigation action to reduce carbon emissions by 2020.

The ministry is mulling the idea of introducing an emissions trading scheme (ETS) as a pilot project in Gujarat and Tamil Nadu. Both states have critically polluted areas, with many large industries.

“We will hold a meeting with Gujarat and Tamil Nadu in the third week of January and an action plan will be prepared. Based on this, it will be implemented,” a ministry source said.

A discussion paper on such a scheme was presented by a team from the Massachusetts Institute of Technology, Harvard University and the Abdul Latif Jameel Poverty Action Lab, at the request of minister Jairam Ramesh in August last year.

In an ETS, industrial plants and other polluters, rather than being told to stick to a fixed emission limit, face a price for their emissions and choose how much to emit, within reasonable limits, taking this price into account.

“The price of emissions makes pollution costly and gives polluters an intensive to cut back,” it says. The paper says such schemes have great potential to lower pollution, while minimising costs for industries. Units are able to choose for themselves the cheapest way to reduce pollution. In comparison, traditional command and control regulations do not allow for differences across industries.

On the regulatory side, an ETS, once established, will provide a self-regulating system that makes pollution control more efficient.

“In the longer run, the reduced costs of compliance can also make it easier to introduce new regulations that increase environmental quality,” the paper said.

The ministry opted for Tamil Nadu to introduce the scheme as the state is experimenting on a similar innovation, the real-time online monitoring of pollution loads at the industrial unit level.

The state has already started a programme for generating real-time air quality information reports in some of their large industrial clusters.

Ramesh has said availability of accurate real-time data of the type being generated in Tamil Nadu also allows for possibility of implementing market-based instruments such as an ETS.

“An ETS for air pollution would have the benefit of enabling lower pollution levels, at lower overall costs of compliance. It would allow the regulator to set a cap on the aggregate level of pollution permitted, and then allow a self-regulating system to ensure that pollution does not exceed this cap,” the minister had said.