SURAT EMISSIONS TRADING SCHEME: ENVIRONMENT

SURAT EMISSIONS TRADING SCHEME: ENVIRONMENT

NEWS: World’s first market for particulate emissions trading in Gujarat, how it worked

WHAT’S IN THE NEWS?

The Surat Emissions Trading Scheme (ETS), the world’s first market targeting particulate matter, reduced pollution by up to 30% while lowering abatement costs through a cap-and-trade mechanism. Despite its success, challenges like regulatory capacity, compliance equity, and systemic rigidity remain barriers to wider adoption.

Context: Experimental Evidence from Surat ETS

  • The world’s first particulate matter emissions trading market, implemented in Surat, Gujarat, has shown a 20–30% reduction in particulate pollution among participating industries.
  • The pilot has also demonstrated lower abatement costs, making it a cost-effective alternative to traditional environmental regulation.

Emissions Trading Scheme (ETS): Overview

  • ETS is a market-based regulatory approach aimed at reducing emissions by offering economic incentives to polluters who stay within set limits.
  • It is commonly known as a “cap-and-trade” system.
  • Unlike the traditional command-and-control model, ETS uses tradeable permits to provide flexibility and financial motivation for cleaner production.

How ETS Works: Key Mechanisms

  • Cap Setting: Regulators fix a total emission limit (cap) that industries must not exceed. This is based on environmental goals, pollution load, and industry capacity.
  • Permit Allocation: Industries are allocated or buy emission permits (each representing a fixed quantity of allowable pollution).
  • Trading:
  • Industries that reduce emissions below their limit can sell excess permits.
  • Those unable to reduce emissions immediately can buy additional permits, ensuring compliance while transitioning to cleaner technologies.
  • A floor price and ceiling price are used to stabilize the market and make trading predictable.
  • Compliance Monitoring:
  • At the end of a trading cycle, firms submit emission data verified through monitoring systems.
  • Non-compliance results in penalties, often calculated per unit of excess pollution.
  • Over time, regulators tighten the cap to drive progressive reductions in emissions.

Surat Emissions Trading Scheme: Features and Implementation

  • Launch: Initiated in 2019, Surat’s ETS is the first global program specifically targeting particulate matter (PM) pollution.
  • Key Collaborators: Gujarat Pollution Control Board (GPCB), J-PAL, EPIC-India, and Yale University.
  • Objective: Transition from rigid regulatory frameworks to market-based environmental governance in India.

Working Model of Surat ETS

  • Initial Emission Cap:
  • Started with 280 tons/month of Suspended Particulate Matter (SPM).
  • Based on real-time data from Continuous Emission Monitoring Systems (CEMS), this cap was revised to 170 tons/month.
  • Permit System:
  • 1 permit = 1 kg of PM emissions.
  • Permits valid only for one compliance cycle (4–6 weeks).
  • 80% of permits were allocated for free, based on historical emissions and capacity.
  • 20% of permits were auctioned using a uniform price discovery system.
  • Auction Mechanism:
  • Buyers and sellers bid within a fixed price range:
      • Floor Price: ₹5 per kg
      • Ceiling Price: ₹100 per kg
  • A single clearing price is determined for all participants at the start of each cycle.
  • Compliance Mechanism:
  • Each firm deposited a compliance bond called the Environmental Damage Compensation Deposit.
  • Firms exceeding their permit quota were fined double the ceiling price (i.e., ₹200 per kg of excess emissions).
  • Fines were deducted from the deposit to ensure prompt enforcement without litigation.

Significance and Outcomes of Surat ETS

  • Pollution Reduction:
  • Participating industries saw a 20–30% drop in particulate emissions.
  • Cost Efficiency:
  • Firms found it more economical to either reduce emissions or trade permits, lowering overall compliance and abatement costs.
  • Policy Innovation:
  • Represented a scalable, flexible, and market-aligned model for pollution control.
  • Can serve as a template for expanding emissions trading to other Indian cities and pollution types (e.g., SO₂, NOx).

Systemic Limitations and Challenges of ETS

  • Resource Constraints:
  • Thousands of small and medium polluting units exist, but regulatory manpower is limited.
  • Monitoring and enforcement lag due to shortage of skilled personnel and technology deployment.
  • Uniform Compliance Burden:
  • All industries are treated equally in terms of compliance expectations, regardless of their technological sophistication or financial strength.
  • This disadvantages smaller enterprises, which may lack the resources to adopt cleaner technologies immediately.
  • Regulatory Rigidity:
  • Traditional command-and-control systems still dominate outside the ETS framework, offering little scope for flexibility.
  • Rule-based enforcement often involves high administrative and transaction costs, and lacks incentives for innovation or overperformance.

Conclusion and Future Prospects

  • The Surat ETS demonstrates that market-based solutions can achieve environmental goals more efficiently than blanket regulations.
  • With proper monitoring, technological support, and stakeholder training, ETS can be expanded to other Indian industrial clusters.
  • However, to ensure inclusive and effective implementation, future schemes must address regulatory capacity, equity for smaller firms, and localized adaptability.

 

Source: https://indianexpress.com/article/explained/explained-climate/world-first-particulate-emissions-market-gujarat-9949535/