- Industrial plants participating in an air pollution emissions trading scheme reduced particulate emissions by 20-30%.
- Apart from reducing emissions, the air pollution market also resulted in fewer costs for plants.
- Replicating this model in other states could be challenging due to the poor state capacity of pollution boards.
The industrial city of Surat succeeded in reducing its air pollution loads — by experimenting with the rules.
India is among the most polluted countries in the world, with transport, industrial emissions, and biomass burning as some of the leading causes. The responsibility of enforcing air pollution norms falls on the state and central pollution control boards (PCBs), who have the power to set emission and effluent standards and test them.
In Surat, an experiment with changing the regulatory framework yielded better results in controlling air pollution than before. The Gujarat Pollution Control Board collaborated with researchers affiliated with the Energy Policy Institute at the University of Chicago’s India program (EPIC) to set up an emissions trading system (ETS), giving polluting industries the chance to buy and sell permits to pollute, with the aim of driving down pollution.
“An emissions trading system replaces a fixed limit on emissions per plant with a cap on the total amount of pollution reaching the atmosphere by a group of factories, while allowing them to reallocate and redistribute that pollution amongst themselves, by trading permits,” explained Anant Sudarshan, a faculty member at the Department of Economics at the University of Warwick and a co-author of the study. “The benefit of this is it can bring costs down significantly, because it creates an incentive to over achieve. So, plants that are able to over achieve have an incentive to do that because they can then sell permits to plants for whom it is very difficult to cut pollution,” he added.
Industrial plants participating in the ETS collectively reduced emissions of particulate matter — particles that make up air pollution — by 20-30% compared to those that didn’t, the study found. It also found that the regulator — the Gujarat Pollution Control Board — was able to penalise erring plants more effectively under the ETS, since enforcement was swift and “a nondiscretionary rule for fines proportional to permit shortfalls made strict enforcement credible,” said the study.
Pollution control boards often lack the human resources and technical capacity to enforce pollution norms. A study by the Centre for Policy Research on the state of pollution boards in the Indo Gangetic plain, the most polluted part of the country, found that conflict of interest and poor state capacity negatively impacted pollution monitoring.
The ETS scheme makes a case for innovating with regulation, said Sudarshan. “The environmental outcomes we see are not just about the polluting sources, but also about the rules and techniques we are using to regulate those polluting sources. So sometimes with the same sources, if you change the rules, you can get better outcomes.”
How the trading system worked
The emissions trading system for air pollution in Surat is the first of its kind in the country. The experiment was designed as a randomised control trial, where 342 industrial plants were divided into a treatment group (participating in the ETS) and a control group (subject to the standard command and control regime). Plants were chosen based on three necessary criteria: it consumed solid fuel (coal or lignite, mostly), it had a boiler capacity of at least one ton of steam per hour, and a stack diameter of at least 24 cm. Each plant was also required to have continuous emissions monitoring systems (CEMS).
Under the ETS, the GCPB set a cap of 170 tons of particulate emissions a month, and distributed 80% of permits to treatment plants free of cost, in proportion to the potential emissions of a plant. The remaining 20% of permits were sold in weekly auctions. Each permit allowed a plant to emit one kilogram of particulate matter (irrespective of particle size).
“Plants traded often, with daily trading volume reaching up to 20% of the market cap,” the study said, adding, “At the end of each compliance period, plant permit holdings differed greatly from initial allocations, as some became net sellers and others net buyers. Plants consumed 95% of their final permit holdings, on average, and therefore left little money on the table in unused and unsold permits.”
Each compliance cycle lasted between four and six weeks. Apart from reducing emissions, the ETS also resulted in an 11% reduction in abatement costs for plants, in part because participating in the ETS didn’t require additional capital investments. “The benefits of pollution reductions under an emissions market therefore exceed the costs of the market by at least 25 times,” according to the study.
Jitendra Vakharia, President of the South Gujarat Textile Processors Association and a participant in the experiment, said the opportunity for members of his union to participate collectively encouraged compliance. “Our members were happy to join the ETS together, and everyone is happy because it’s also resulted in more efficient fuel use,” he said.
Vakharia also said his association was seeking clarity from the Gujarat government about whether the sale of permits will be taxed under the Goods and Service Tax (GST) regime. “Till we get more clarity on whether GST is applicable on these, the ETS is paused.”
Scaling up air pollution markets
The Gujarat government is considering scaling up the air pollution market and introducing it to other cities, including Ahmedabad. However, replicating this model in other states could be challenging, said Annanya Mahajan, Research Lead, Environmental Governance and Policy at Sustainable Futures Collaborative, a New Delhi-based think tank.
“High vacancy rates of technical positions and limited time to monitor polluting industries are the key challenges that state pollution control boards (SPCBs) currently face with respect to controlling pollution from industries. It is too early to be saddling them with additional responsibilities such as setting up markets, conducting trainings and weekly auctions and levying penalties on industries,” she said, adding, “The market is currently focused on PM (particular matter) trading. Air pollution comprises of gaseous pollutants in addition to particulate matter, so such a framework would have to be put in place for other dangerous gaseous pollutants too. All of this will be contingent on building a continuous emissions monitoring system (CEMS) that has transparent data and functions well.”
Read more: Air pollution deaths spotlight need for health-based air quality standards
Banner image: An aerial view of a dairy manufacturing unit in Palanpur, Gujarat. Image by Banas dairy 1969 via Wikimedia Commons (CC BY-SA 4.0).
Credits
