What is it?

Launched in Surat by Gujarat Government, the Emissions Trading Scheme (ETS) is a regulatory tool that is aimed at reducing the pollution load in an area and at the same time minimising the cost of compliance for the industry.

ETS is a market in which the traded commodity is particulate matter emissions.

It is also being described as the world’s first market for trading in particulate matter emissions.

How is it being implemented?

The Gujarat Pollution Control Board (GPCB) sets a cap on the total emission load from all industries.

Various industries can buy and sell the ability to emit particulate matter, by trading permits (in kilograms) under this cap. For this reason, ETS is also called a cap-and-trade market.

How does the trading take place?

1. At the beginning of every one-month compliance period (during which one emission permit is valid), 80 per cent of the total cap of 280 tonnes for that period is distributed free to all participant units.
2. These permits are allocated based on an industry’s emission sources (boilers, heaters, generators) as this determines the amount of particulate matter emitted.
3. Remaining 20 per cent of the permits will be offered during the first auction of the compliance period, at a floor price of Rs 5 per kilogram. Participating units may buy and sell permits among each other during the period.
4. The price is not allowed to cross a ceiling of Rs 100 per kilogram or fall below Rs 5 per kg, both of which may be adjusted after a review.

Significance and benefits:

1. The reason for trading is that in a cap and trade market, the regulator will measure pollution over a period of time and industries must own enough permits to cover their total emissions.
2. Factories who find it very expensive to reduce pollution, will seek to buy more permits. Those who can easily reduce pollution are encouraged to do so because then they have excess permits to sell.
3. Eventually, after buying and selling by plants that find it cheap to cut pollution and those for whom it is expensive, most pollution is taken care of.
4. Whatever the final allocation, the total number of permits does not change so the total pollution is still equal to the predefined cap. And yet the costs to industry are decreased.