“The idea for an emission trading system germinated after a team of the Central Pollution Control Board (CPCB) and J-PAL (Abdul Latif Jameel Poverty Action Lab research centre at the Massachusetts Institute of Technology) came to Surat sometime in 2012”. This is Jitubhai Vakharia, president of the South Gujarat Textile Processors Association. “During a meeting with them, I realised we were wasting money on compliance with environmental laws under a corrupt inspector raj,” he says.
Jitubhai was recalling the days when some 300 dyeing and printing mills in Surat were notorious for vomiting noxious gases through their chimneys. Today, ten years after that momentous meeting in 2012, Jitubhai – as he prefers to be addressed – stands at the vanguard of an innovative green movement.
Persuaded by committed climate change researchers from J-PAL, Energy Policy Institute of Chicago (EPIC) and Yale University, the textile processing industry in Surat led by Jitubhai has emerged as the first industry in the world to practise trading in SPM (suspended particulate matter) through NeML, a wholly owned subsidiary of the National Commodity and Derivatives Exchange Ltd (NCDEX).
A presentation of this unique initiative was given at the recently concluded COP27 meet at Sharm El-Shaikh in Egypt, during which a short film was also screened. Neither Jitubhai nor the processors’ association he represents were invited to the event, though this entire project would not have kicked off without the unprecedented enthusiasm of the Surat industry.
“It is not important who gets or doesn’t get the credit,” says Jitubhai. “It is more important that a major task has been implemented. If I put myself over this critical project, it won’t give the result it is giving now.”
As many as 170 textile processing units in Surat out of nearly 350-odd mills are partners in the SPM exchange and they trade in SPM every Tuesday.
How does this trading work
“It is simple,” says Jitubhai. “The Gujarat Pollution Control Board (GPCB) has put an emissions cap of 150 SPM per month, known as compliance period. Those overshooting this cap must buy emission permits (or credits) from those who have emitted less than 150 SPM. The most ideal situation will be when there are no buyers of these emission permits left in the market.”
The pricing and trading process
The monthly cap on emissions is decided based on GPCB’s standard for particulate matter, or PM (150 mg/Nm3), along with the emission flow rate observed in sample industries. Cap for industries has been gradually reduced to ensure compliance with stricter PM norms and a cleaner environment.
Price Determination: The price for the market is decided by uniform price auctions held every Tuesday. The mechanism through which the price is decided is based on the quantity and timing of sell and buy bids placed by participants. The price at which the first seller and buyer place for matching quantities gets cleared in the market.
Initial Investment: NCDEX has been providing the portal for this market since Oct 2020. There has been no investment made by GPCB for the portal and NeML has been providing the infrastructure on a goodwill basis, charging only nominal subscription fees from industries.
Floor price: Current price is ₹5 per unit set by GPCB and is the minimum price for permit trade.
Says Jitubhai, with a humility not often seen in public life these days, “The SPM footprint has been brought down by 29% by these efforts. But mind you, these are only 50% of more than 325 textile processors in Surat. We have converted this into a movement and are now taking to the highly polluting sugar mills and chemical factories in the South Gujarat region.”
Jitubhai has received accolades from eminent researchers of the world’s premier institutions for his efforts in curbing toxic emissions.
“There is a second phase which aims to cover the rest of the dyeing/printing mills by December-end and others a few months later in the next phase,” says Ankita Jain, CEO of the Common Effluent Treatment Plant management firm at industrial suburb Pandesara – the hub of textile processors.
According to the official NePL website, the SPM trading system has shown an average increase of around Rs 8.6 lakh a year.
While this Emissions Permit Trading System (EPTS) is the first in the world, it is also unique as its success is being driven by the Surat’s textile industry. A similar idea discussed for Gujarat’s commercial capital Ahmedabad city is yet to take off because the polluters there count the cost of reducing emissions more than the long term business and ecological benefits.
But achieving this wasn’t a smooth ride either in Surat. Jitubhai explains how it all began. To make this scheme a success, it was of paramount importance that the industry players saw a “financial advantage” in it. “I understood early on that implementing these conservation measures could in fact reduce our operating costs, drastically cut overheads and help the efficiency of our own processes,” says Jitubhai.
Awareness on financial gains
“What’s in it for me? This usually is the first question of any businessman. I explained this to them. The dark black smog that you see billowing out of the chimneys is because of the unburnt coal, J-PAL experts taught the industry about this. The unburnt coal is a direct loss – first because of the avoidable cost of the coal and, significantly, it adversely affects the life of the boilers installed at our processing units. The boiler is the heart of the unit,” says Jitubhai.
To reduce this and other costs, the processors’ association launched an Environment Clinic while they installed special high-resolution cameras that can capture from a distance the nature of emissions as well as the name of the firm.
“Ever since the trading started, laser beam technology was installed to exactly measure the SPM emission from every unit. Every firm’s emissions are recorded here and everyone gets real-time data, while the Gujarat Pollution Control Board can monitor emission levels from each unit to ensure transparency in the entire exercise,” Jitubhai explains.
Recounting the initial years, he said once the concept of ETS was introduced and internalised in 2012, the scheme was put on the drawing board in 2015 and after continuous mock trading sessions, formal trading was inaugurated by former chief minister Vijay Rupani (who was sacked in 2021) in September 2019.
According to an official note by the Gujarat Government, the ETS has resulted in minimising costs to the industry by reducing air pollution and maximising flexibility while simultaneously ensuring that the prescribed pollution limits are not breached.
Former chairman of the GPCB Rajiv Gupta, now retired, had stated at the launch of the scheme that after the success of the Surat scheme the State Government decided to launch the scheme in Ahmedabad, Ankleshwar and Vapi.
But those are yet to take off.
Words of praise
“Dear Shri Jitubhai Vakharia,
The launch of the world’s first Emissions Trading Scheme for Particulate Matter is a major milestone in India and the broader world. With your incredible work on this project, and all the assistance you have extended from the beginning has ensured that this novel Emissions Trading Scheme has been able to be established. We hope for it to continue with the same fervour under your auspices. Your leadership has made it happen in Surat, Gujarat, and you have brought all the industries along with you on the path that created history. We are looking forward to your continued support and cooperation for implementation of the scheme in other cities and states of India.”
(This letter has been signed by Michael Greenstone, Milton Friedman Distinguished Service, Professor in Economics, University of Chicago; Rohini Pande, Henry J. Heinz II Professor of Economics, Yale University; Nicholas Ryan, Assistant Professor of Economics, Yale University; and Anant Sudarshan, Executive Director (South Asia), Energy Policy Institute of Chicago).