Environmental Emissions Market in India –Are We Prepared Enough?

Preamble

Policies on environmental management evolve to address challenges that are critical and issues that still remain to be addressed. Policies are also developed to prepare for the future as a strategy on a proactive basis.

In policy development, sharing of international experiences becomes useful. These learnings help in not to repeat the “mistakes” earlier made.

Policies successful elsewhere however cannot be transposed on “as is” basis. Policies need to be adapted and localized, factoring the institutional capacities, maturity and preparedness of the stakeholders especially industry/business, status on data and technology and of course the extent of political support.

Environmental Governance typically consists of two broad approaches – viz. Monitoring & Enforcement (M&E) and Market based Instruments (MBI). M&E is most commonly followed with the help of laws and regulations and setting up enforcing bodies such as the Pollution Control Boards (PCBs). M&E alone cannot ensure compliance as institutional capacities of PCBs are limited, number and geographical spread of polluters is large and most of the polluters in country like India are Small and Medium Enterprises (SMEs) who are difficult to chase.

MBI have been practiced in several countries in the world but more so in the developed economies. Typically, MBIs create financial incentives/disincentives to motivate the polluter to make a move (self-primed) that is beneficial to both environment and the business. Generally, it has been found that MBIs provide a cost-effective solution when well supported by M&E. In some cases, however, there have been mixed results as the success cannot be solely attributed to the MBIs alone.

Few applications of MBIs have been made in the developing economies, mainly driven by Development Financing Institutions such as the World Bank and by the Environmental Economists at the Business Schools of MIT & Harvard and the like. As a primer, I will recommend to see the Guidance Note prepared by the World Bank at  http://siteresources.worldbank.org/INTRANETENVIRONMENT/Resources/
GuidanceNoteonMarketBasedInstruments.pdf. This document though a bit outdated now – may still be useful as a first read.

India is relatively a late entrant in the MBIs and we do not have much experience on designing and operating the MBIs.  In the Environment and Energy market-space, we are operating currently three schemes, the Renewable Energy Certificates (REC); Perform, Achieve and Trade (PAT) and a Pilot Emissions Trading Scheme (ETS).

The REC are managed by the Ministry of New and Renewable Energy with a Registry in place. PAT is managed by Bureau of Energy Efficiency (BEE) and has just completed its Phase I and is yet to establish the market. Both the schemes have not performed well.

The Pilot ETS initiated by the Ministry of Environment and Forests (MoEF) is championed by the Central Pollution Control Board (CPCB) in the States of Maharashtra, Tamil Nadu and Gujarat. After much fancy, and great PowerPoint presentations, the scheme is practically limping or dead today.

In the quest of building “accurate” database on national basis and create “benchmarks of emission intensities” across the highly polluting industrial sectors, the CPCB has created now a monster of Continuous Emission/Effluent Monitoring System (CEMS). The hope being that if the Pilot ETS gets implemented as planned and becomes successful then the idea could be implemented across the country. ETS focusses on particulate emissions – a bizarre choice made by some of the top researchers from international universities, including  Environment Minister then, Jayaram Ramesh – a savvy IIT Bombay Alumni (and my 3 years senior!)

We know that India is desirous to meet the voluntary GHG emission targets pledged internationally. These targets have been reflected in her Intended Nationally Determined Contributions (INDCs) during COP21. Reduction in the GHGs means improved energy efficiency, reduced absolute energy consumption (that is promoted through PAT) and a shift towards renewable sources of energy (as through the REC). All these efforts would lead to reduction in the emissions (not just particulates) that would lead to improvement in the air quality – which is an interest of the ETS. Further, the industrial sectors of focus in the three schemes are pretty much common. So fundamentally, all the three schemes are “interlinked” and can help India to address GHG emissions related targets rather effectively if “unified” or “orchestrated” in a symphony. It is pity that we still operate in silos in the space of energy, environment and climate change markets and sing different songs!

To keep the blog short, I am attaching a PDF of my notes with some useful references that provide details on ETS, PAT and REC. There is also an interesting section on CEMS Vs PEMS (Predictive Emission Monitoring Systems). I would encourage research scholars to take up the task of a comparative assessment of the three schemes using this base note. I will be delighted to help.

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My Professor Friend was busy in organizing a 3 days residential retreat for the top brass of BEE, MNRE and MoEFCC and CPCB  at Ranikhet. Actually, the destination was kept a secret and care was taken to ensure that mobile phones won’t be able to receive signals. Food menu was meticulously designed to meet the interest of Mehtas, Mathurs, Tripathys and the like as well as Birlas and Shrirams (who represent industry associations). Few consultants were also invited but menu was not customized for them as the consultants are generally not particular about the menu and are used to have a free lunch. Ministers of Power (Goyal) and Environment (Javdekar) were to preside. “Lot of my energy is going in designing this dam food menu” Professor said. That’s what most of these participants are particular about.

But what’s the idea Professor of this Retreat? I asked.

“The idea is to make each other understand what is happening in India’s energy and environment market (and the various MBI proposed) and develop something common, cutting across and synergistic for the benefit of industry/business and national and State governments to meet the GHG emission targets. I want that the commonalities and differences get discussed thread bear, challenges faced are expressed rather candidly and the Team comes up with practical solutions – well coordinated, well communicated, planned in phases and in a transparent manner” Professor said this while lighting his cigar.

“Oh, you are so thoughtful” I said “This three days of brainstorming session will really help, as right now the three schemes seem to follow X-Y-Z axes that are pretty perpendicular and seemingly independent of each other”

Well, as you are in the environmental profession – let us take up this ETS for discussion – Professor ordered for a coffee.

I being on the side of the Government started with my pitch

“Do you know Professor, Officials at CPCB/MoEF claim that the ETS proposed for particulates in India is first of its kind in the world – Don’t you think we should encourage MBIs that have not been ever tried. Shouldn’t we be the first?”

Professor retorted “Dr Modak, particulate emission trading was attempted way back in 1992 in Chile.  An “Emission-Offsets Trading Program” was established by Supreme Decree No. 4 (DS 4) in March 1992 to control total suspended particulate emissions (TSP) from stationary industrial sources in Santiago, Chile. (See https://gupea.ub.gu.se/bitstream/2077/21313/3/gupea_2077_21313_3.pdf)

This emission trading program suffered from serious flaws in design and implementation. Rights to trading were not clarified, as well as the sanctions. Institutions engaged were not efficient and process followed was not transparent. The market created under the program performed poorly due to regulatory uncertainty, high transaction costs, lengthy and uncertain approval processes, and inadequate enforcement. It was unfortunate that in its pursuit of progress toward attaining ambient quality standards, the environmental authority paid insufficient attention to setting up conditions for helping the market to develop. Only benefit of the scheme was creation of a baseline emission inventory. Interestingly, there was an improvement in the air quality – but not because of the MBI, but due to factors exogenous to the program such as the price-based introduction of natural gas. Use of cleaner fuel made the difference to air quality and not emission trading!”

“Understood”, I retreated (wondering that we will probably replicate the Chile “experiment” as our situation is no different!)  “But then why are we focusing on particulates?” I could not resist asking.

“It’s bizarre to understand why the pilot made a choice on particulates as the pollutant to trade – Professor said this with a smirk on his face. “The argument made was that the particulate concentrations in residential areas (cities) are way above the standard, leading to severe health impacts. Indeed this is a fact – but oddly, the industrial clusters where ETS is piloted are essentially industrial zones with mixed land use and relatively less resident population! A typical case of right statistics but used in a wrong place!

Further, Particulate Matter (PM) is a diffused parameter with a very complex profile. ETS for particulate matter would involve number of uncertainties in the measurements. Further, installation of CEMS is expensive for industries, especially to the SMEs.

PM emissions in an industrial cluster comprise not just emissions from industrial stacks, but are contributed by host of other sources such as transport emissions and others (especially open burning) that may play a significant role. Further, there could be distant sources outside the “bubble” (i.e. of 75 kms radius as defined in the ETS) that could contribute as transported by wind. Finally, focus of emission reduction is on point or stack based emissions of particulates whereas many times particulate emissions release in industries is due to fugitive sources like in handling and storage of materials.

Professor continued

“We have to realize that for the success of a combination of M&E and MBI, we need a sustained, long term and a transparent regulatory push while addressing technical glitches and building requisite institutional capacities. Take example of the US. They focused on the utility industries and developed a program addressing various pollutants step by step. E.g. Ozone -2008; SO₂-NO_X-Visibility 2009-2010;Cross State Air Pollution Rule (CSAPR) 2011-2012, Effluents – 2012-2013, PM/PM_2.5 2013-2014, Ash- 2014-2015, MATS 2015-2016 and CO₂ – 2017

Idea was to stimulate “innovation” in this process. The focus on particulates alone is not going to lead us much to any innovations”

I thought the Professor made a good point. We often operate on a knee-jerk basis, piece meal and that typically happens when our Ministers visit IVY League universities.

I thought of asking the Professor about the CEMS imposition. Most industries are looking today for either cheap or reliable CEMS solution providers. There are challenges on both the fronts. Almost all CEMS are imported into India (there is no Make in India wave in this sector), pretty expensive with not much local support in terms of calibration, operation and maintenance. The on-line results are not very reliable.

Do these CEMS actually work? How accurate are they? And what does the PCB do with the data received? These questions came to my mind and I took a large gulp of the coffee.

Given the poor technical capacities at CPCB and SPCBs on data analytics, these institutions will not adapt their decision-making procedures to take advantage of the new information CEMS will provide. Data will remain in coffins.

The installations of CEMS have become a scam, with overcrowding of overnight equipment suppliers. Professor paused for a while and lighted another cigar.

“Have you heard about Predictive Emission Monitoring Systems (PEMS). PEMS is gaining acceptance worldwide including the EPA at the United States.

Both CEMS and PEMS provide emissions readings on a continuous basis, but by different means. CEMS measure physical or chemical attributes of stack gases directly. With regular maintenance, CEMS can be accurate and reliable, and are necessary to meet federal, state and local regulatory requirements. However, CEMS represent a large expense that does not make processes more efficient or profitable. In addition, CEMS cannot predict the future or the consequences of contemplated process changes. The only way to do these is to use a mathematical model.

These models are developed empirically from sample data collected by CEMS, which are installed in a stack for a trial period and then removed when the PEMS becomes operational. Empirical methods include ordinary least squares, polynomials, and artificial neural networks (ANNs).

A PEMS model gives it the capability to do “what ifs”, that is predicting the consequence of taking a control action to change the course of a process. PEMS model can also be “inverted”, such that for a given set of uncontrolled inputs and a desired output, a search program can iteratively determine values for the controlled inputs to yield the desired output. If variables such as quality, yield, and throughput are also measured, the PEMS can be used to predict and control the process to maximize these parameters to great financial benefit. And compared to CEMS, PEMS are significantly cheap with low O&M hassles”

I thought that it’s a high time that CPCB and PCBs start looking at the PEMS approach, involving the industries and PEMS service providers. We seem to be so bogged down only to the CEMS! I wonder if there are any vested interests or simply lack of information!!

“Any final thoughts Professor?”, I asked this question – noticing that Professor was about to extinguish his cigar.

“Well, I am really thinking of organizing a hands on or practice training for experiential learning for some of the top Professors of IVY League Universities to come to India and see the realities before making recommendations to some of our Ministers. For the ETS Pilot Project for instance they should have visited the industries (especially the SMEs), looked at the stacks, met the PCB staff (especially the middle level) and spent a few days with the PCB stack monitoring teams. I don’t like when we get used as a “laboratory” or an “experiment” by these much respected Professors to try out policies – sometimes to secure research grants or sometimes for the interest of a publication!

Well, well Professor – I scorned – that’s a bit too hard and rather harsh to say. I dont like it and I rather disagree – But perhaps you do have a point!

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Cover image sourced from Image  sourced from http://www.greenreport.it/rubriche/co2-e-mercato-delle-emissioni-quale-futuro-per-lets-dopo-la-cop21/ (I love this image)

Notes to the Post_Environmental_Emissions_Market (do download and read)