Carbon trading market: Centre’s right step to cleaner environment

India has committed itself to transform itself into a net-zero economy by 2070. A layman may not understand the significance of this commitment, and so the passing of the Energy Conservation (Amendment) Bill, 2022 last month to amend the Energy Conservation Act (ECA), 2001 failed to attract much attention in the media. But this is a step that is not only entirely new for us, but will lead to the creation of a greener environment.

What the amendment proposes to do? It establishes a carbon credit trading scheme in India, and thereby establishes a legal framework for creation of India’s first-ever compliance carbon trading market. The system is already fashionable in some western countries, and has served as an important instrument for reducing carbon emission.

What is this carbon trading market? In short, the weightage of different carbon pollutants in respect to the damage done by those particulates will be measured by the experts, and the pollutant industries will be levied tax according to the quantum of emission of such pollutants. As per recent information from government sources, the process will take quite some time, but the pressure is already on the industries.

How will it help? Surely no industry wants to pay more taxes. Again, industries are the most important vehicles of economic development, and they should not be punished unduly. On the other hand if the industries do not go forward with innovation to curb emission of pollutants, we cannot maintain public health priorities which must be maintained at any cost.

Carbon trading market is considered to be a meeting ground of these opposites. The ETS, or emission trading systems, fix a price on emissions of harmful gases, mainly CO2, and N2O. The firms that release these gases are taxed for such emissions. This is a cost they incur for the harmful impact of their activities on people’s health.

In other words, these markets incentivise firms to embark on a path of faster transition to eco-friendly industrial processes. If they fail, they enrich the government exchequer, with which the government can take some measures to clean the environment. On the other hand, if the firms do well on this count, that is good news for us Indians and also the whole world.

The experts point out that the most common form of emission market in practice is cap-and-trade models. In this system, the government first puts an overall ‘cap’ on the total emissions from a specific industrial sector, and then allocates or auctions permits to regulated firms. It gives the firms the right to emit a specified amount of pollutants.

These permits are then traded freely on environmental exchanges, giving a firm which has successfully reduced emission to sell off the permit or a part of its total quantum. Some other firm, which is planning expansion but has not succeeded to reduce emission levels, will buy those as its emission will increase after expansion. The market forces of supply and demand fix the specific price for such permits at a given point of time.

If a firm exceeds its permit-specific level of emissions, it will be fined. The plan is to lower the overall cap periodically, as the firms are mandated to go for modern technologies that will help reduce emission.

A research conducted in 2017 to record PM2.5 exposure and the sectoral contributions to its levels in India, pointed out that all residential and commercial cooking, lighting, and heating account for 28 percent of PM2.5 levels. Industries were the second largest contributor accounting for 15 percent of PM2.5. However, industries led to the contribution of harmful nitrogen and sulphur compounds in the air.

So, it is understandable that targeted intervention to reduce industrial emission can go a long way in reducing air pollution in India. However the jury is out to see how the carbon trading market shapes up in India, given that Indians are prone to corruption like people of some other countries.

There remains another question too. What about residential and commercial cooking, lighting, and heating that contribute to 28 percent of PM2.5 levels in air? We love to lecture others, e.g. the industry which is a somewhat distant entity from us, but prefer to remain silent on our follies. But, it is time when for our future generations we must take some action to reduce our follies too. – IANS

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