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Emissions trading

  Jun 05, 2020

Emissions trading

What is it?

Emissions trading is a market-based approach to controlling pollution by providing economic incentives for achieving reductions in the emissions of pollutants.

How does it operate?

Government sets a limit to emissions. The total limit is distributed among the production/polluting units. Some achieve and some don’t. Some units may emit less than permitted and thus gain credits. These credits can be sold to those unable to achieve the targets. 

Is it the same as Cap and trade (CAT) programs? How is it a flexible mechanism? 

Yes. It is a type of flexible environmental regulation that allows organizations and markets to decide how best to meet policy targets.It is an incentive to comply and disincentive to miss the target. There is no compulsion. It is a fiscal measure and not a physical one.

What is the other model?

This is in contrast to command-and-control environmental regulations and government subsidies.

Can it be done at the international level?

Emissions trading, as set out in Article 17 of the Kyoto Protocol, allows countries that have emission units to spare - emissions permitted them but not "used" - to sell this excess capacity to countries that are over their targets.

Is it the same as carbon trading?

It is more. Since carbon dioxide is the principal greenhouse gas and Kyoto Protocol allowed it in 1997, people speak of trading in carbon. Carbon is now tracked and traded like any other commodity. This is known as the "carbon market." Earlier, it was done for SO2 in the US and Europe where there were complaints of acid rain. Gujarat programme of 2019 is the first in the world to regulate particulate air pollution.

Why is Gujarat in news?

In September 2019, Gujarat became the world’s first market for particulate matter emissions. 155 industrial units of Surat began trading under the Emissions Trading Scheme (ETS).

Under the ETS, the overall amount of pollution allowed from 155 regulated industries is capped. These industrial units can decide for themselves how to allocate the total permissible emissions among themselves by buying and selling “emission permits.” The units for whom it is cheap to cut pollution have an incentive to make large reductions. The extra -reductions that some make can be sold to those for whom meeting targets is relatively expensive. This flexibility can reduce costs while meeting environmental goals.

It is initiated in Surat by the Gujarat Pollution Control Board (GPCB). 

How does it contrast with the current system?

Before the ETS came, the system was unfriendly and unrealistic. Every industrial unit had to meet a certain maximum concentration of pollutants when it is operating. They are tested occasionally and manually (one or two times a year). However, there is widespread non-compliance across India. This is partly because penalties are rarely applied, in large part because they involve punishments such as closing down the entire plant which is not appropriate for small violations.