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Assessing policy choices for managing SO2 emissions from Indian power sector

As India moves on the path of economic development, the use of energy resources is bound to increase, thereby increasing air pollution. Especially, the consumption of coal in industries makes them significant contributors to local and Green House Gases (GHG) pollutants. This has led to a growing concern about the use of coal as a major fuel in industries. The paper takes the case of coal-based power plants, which provide focused opportunities for SO2 mitigation from coal consumption and evaluates alternate policy options.

After providing an overview of the energy-environment scenario in India, the paper studies the structure of the coal-dominated power sector in India and analyses the trends in the composition of the installed capacity and generation. Moreover, the paper:

  • studies the air quality management processes in India in terms of existing policies, instruments and institutions
  • compares two alternate policy instruments, namely technology-push and the emissions trading system
  • highlights the design elements of an emissions trading system in terms of the emissions cap, allowance allocation, institutional issues and other challenges

The authors use an energy environment model to analyze future SO2 emissions from power plants and study the cost implications of using alternate instruments. It is shown that, for the period 2005-2030, an emissions trading system would result in 44% cost savings over a technology-push instrument for equivalent reductions. This is because an emissions trading system allows every plant to make their abatement choice depending on factors such as economic and logistical constraints, fuel quality, efficiency in operations and abatement costs vis-à-vis the allowance price. As opposed to this, the existing technology-push instruments specify the abatement measure to be adopted by each plant, resulting in higher compliance costs.

The paper also points out the issues related to the political-economic legal structure and the organizations that influence the process of policy implementation of an emissions trading system in India. It further highlights the spillover benefits of an emissions trading regime, while also identifying the challenges that exist in developing this regime.

The author’s concludes that considering the energy security concerns, an SO2 trading instrument would promote the use of the large indigenous coal resources efficiently and with minimal environmental externalities. This is because it tackles the problem of local air quality impacts of coal use by promoting the use of technologies such as coal washing and clean coal technologies such that they reduce sulphur emissions in an efficient manner.