Last week, China, the world’s top greenhouse gas emitter, announced it was opening a national carbon market, a type of emissions trading system. Under the system, industrial units that cannot meet annual government-set greenhouse gas emissions targets will have to purchase surplus targets from units that met theirs.

A pilot emissions trading scheme (ETS) for particulate matter pollution implemented in Surat, Gujarat in September 2019–the world’s first such programme–works similarly. Industries participating in the pilot scheme reduced their particulate matter pollution by 24% (with an 8% margin of error), compared to industries that continued to be under the business-as-usual regulation of complying with ambient air quality standards, an initial analysis of the effectiveness of the scheme has projected.

Particulate matter, a major cause of air pollution in and around industrial clusters, is a mixture of fine solid particles and liquid droplets suspended in the air. These fine particles, when inhaled and after entering the bloodstream, can cause lung and cardiovascular disease. In 2017, air pollution caused one in every eight deaths and a total of 1.24 million deaths in India, IndiaSpendreported in December 2018.

Last month, Gujarat Chief Minister Vijay Rupani announced that the pilot scheme would be replicated in Ahmedabad. The Punjab government alsosigned a pact on June 7 to roll out a similar system in Ludhiana. Surat and Ludhiana are home to some of India’s largest industrial clusters.

How does the emissions trading or cap-and-trade market work?

Under Surat’s ETS, the designated government authority sets a limit or cap on the quantum of pollution that industries may emit. In the case of Surat, where the pilot scheme’s third phase began on November 16, 2019, the cap on the total mass of suspended particulate matter emissions is set at 276 tons per industrial unit. The cap is based on an assessment of emissions data from the government’s continuous emissions monitoring system (CEMS).

Participating industries can comply either by installing technology that cuts pollution, or by purchasing ’emission permits’ to emit more than their limit for a specific pollutant. This is the trade part of the system. Industries that have installed emissions-reducing technology and have surplus permits left over, can sell these to the industries that find it costlier to install such technology. This way, industries also earn from installing emissions-reducing technology.

The government authority in-charge, the Gujarat Pollution Control Board (GPCB) in the case of Surat, fixes the number of such tradable emission permits, which are created at the start of each period of compliance or trading. For the November 16 to December 31 trading period in 2019, the GPCB distributed 80% (220.8 tons worth of emissions) of permits free to participant industries at the start of trading. The pro-rata allocations were based on the boiler and heater capacity of an industrial unit. The remaining 20% of emission permits were auctioned by GPCB through the National Commodities and Derivatives Exchange Limited e-market.

“At the end of a specified trading period, the total emissions by a factory are compared to the emission permits they hold and to be in compliance, permit holdings must be equal to or greater than actual emissions,” Anant Sudarshan, South Asia director of the Energy Policy Institute at the University of Chicago (EPIC), and one of the four principal investigators assessing the effectiveness of Surat’s project, told IndiaSpend….