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Using emissions trading and insurance to clean up pollution

Using emissions trading and insurance to clean up pollution
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First Published: Wed, Aug 17 2011. 09 06 PM IST

New mechanism: A file photo of a sponge iron unit. Under the proposed emissions trading scheme, the limits on the industrial pollutants will be set by the states and this cap is expected to help in cu
New mechanism: A file photo of a sponge iron unit. Under the proposed emissions trading scheme, the limits on the industrial pollutants will be set by the states and this cap is expected to help in cu
Updated: Wed, Aug 17 2011. 09 06 PM IST
New Delhi: On Christmas day in 2009, former environment minister Jairam Ramesh gave several industrial clusters in Maharashtra, Punjab and West Bengal an unpleasant surprise. He said 85% of India’s industrial clusters were so polluted they couldn’t be allowed to expand unless they cleaned up.
The report that prompted Ramesh’s action was prepared by the Indian Institute of Technology, Delhi, and the Central Pollution Control Board. It found that 10 industrial clusters scored at least 80 out of 100 in a pollution index, or were emitting effluents and pollutants at an alarming level; 33 scored between 70 and 80 (critically polluted); and another 32 scored between 60 and 70 (seriously polluted).
“The high levels of pollution and its relation with public health is a serious concern”, Ramesh said.
New mechanism: A file photo of a sponge iron unit. Under the proposed emissions trading scheme, the limits on the industrial pollutants will be set by the states and this cap is expected to help in cutting pollution levels at lower overall costs of compliance.Photo Indranil Bhoumik/Mint
While several of those clusters, the bulk of which were in the three states, have got fresh clearances since, experts say the problem of industrial pollution needs creative solutions, as opposed to mere fines and heightened monitoring.
“There is no question that the polluter must pay, and pay heavily,” said Feroze Mehta, an environmental lawyer, with the Environment Law Forum. “Fines alone lead to corruption. There has to be more creative ways, better and continuous monitoring for instance.”
Taking a cue, Tamil Nadu and Gujarat announced last year they would soon have India’s first domestic emissions trading scheme, which will be tied to air pollution. A cap on air pollutants will be set by the respective state pollution control boards as a pilot for the rest of the country for six months.
In the proposed scheme, a ceiling on emissions of a certain pollutant is set, based on its desired concentration in the atmosphere. The government then issues or auctions free permits to industrial units in accordance with the amount of pollutants they are allowed to emit. If the plant exceeds the level, it has to buy these permits from others and vice-versa. The limits on the industrial pollutants will be set by the states themselves in consultation with the Central Pollution Control Board. Similar to the carbon market, the cap will help in lowering pollution levels at lower overall costs of compliance.
This will allow the regulator to set a cap on the aggregate level of pollution permitted, and then allow a self-regulating system to ensure that pollution does not exceed this cap. A system of credits that can be traded is most commonly used for industrial units falling above or below the pollution limits.
Limited impact
Independent experts have, however, said that such schemes would work best in the organized sector, whereas the bulk of India’s industrial pollution load—between 65% and 85% according to several estimates, comes from the unorganized sector.
A programme covering oxides of sulphur and nitrogen in the US did work but “this kind of emissions trading scheme presupposes lots of things,” said Anumita Roychowdhury, associate director at activist group Centre for Science and Environment. “It will need a very transparent mechanism, robust monitoring and will have to be quantifiable, for which a lot of institutional preparedness will be required. If these emissions are in the unorganized sector, it will be very hard to monitor. Plus, it might also need third-party checks.”
This won’t be the first market-based regulatory instrument in the environment sector in India. Under the national mission on energy efficiency, India will soon have the perform, achieve and trade mechanism for energy efficiency, which will cover facilities that account for more than 50% of the fossil fuel used in India, and help reduce carbon dioxide emissions by 25 million tonnes a year by 2014-15.
Varad Pande, a former official in the environment ministry said that Tamil Nadu was chosen because it has been progressive in its monitoring of air pollution. The state at present has real-time online monitoring of pollution loads at the industrial unit level, which will be scaled up and rolled out across the state.
“Gujarat was chosen because they also have shown interest in innovations in controlling pollution,” Pande said. “Right now, they are studying the impact of third-party monitors on pollution loads.”
Insurers such as Tata AIG General Insurance Co. Ltd and Marsh India Insurance Brokers are offering to cover firms whose effluents cause gradual harm to property, as well as pay for physical harm in cases of accidental outbreak.
Until now, Indian laws have been notoriously lax in penalizing industrial polluters—the 1984 Bhopal gas tragedy in which a toxic leak from a Union Carbide India Ltd plant caused thousands of deaths being a case in point.
But with the government now instituting regulations such as the Environment Protection Authority and National Green Tribunal, which will have the same powers as a civil court to redress environmental disputes, a number of companies want to play safe and opt for insurance cover.
Pollution premium
Tata AIG announced a pollution liability policy last year, which covers a company against any damage to property or bodily injury to a third party. It also pays the company the cost of decontaminating the environment up to the regulatory norms.
Crucially, the policy even covers pollution that occurred before a company signed up for the insurance, but was discovered later.
“Earlier, policies paid claims only if the impact of pollution was felt within 72 hours. It then increased to five days,” Gaurav D. Garg, chief executive and managing director of Tata AIG, said in a earlier interaction with Mint, “But now, we have done away with the limit. We cover third-party damages, the cause of which damage can be traced to the incident.” Indicatively, the premiums for this policy range between 1% and 4% of the sum insured. “Companies take a cover from Rs 5 crore up to Rs 25 crore,” Garg said. He declined to name clients or the number of such policies sold.
Indian companies have largely avoided punishment for causing pollution, unlike firms in the US, where they attract huge penalties and punitive damages.
A notable exception are the tanneries in Vellore, Tamil Nadu, which were held responsible for widespread contamination. Damages of Rs 26.82 crore were awarded in 2001 to 29,193 families owning 15,164 hectares of agricultural land in 186 villages.
Cliff Warman, environmental practice leader (Europe, West Asia and Africa) for Marsh, said although general liability policies can write an environmental component, they usually have a pollution exclusion.
“Historically, these policies were quiet on pollution. The problem has been over time, especially with experiences in the US and the EU (European Union). With asbestos and waste cases, costs have become enormous and every general insurance company has started to exclude the amount of pollution cover they will include in general insurance,” Warman said.
Marsh said there were about 50-60 clean-ups a year in the past decade, in India. Warman said most clients looked for a cover of $10-30 million (around Rs 46-136 crore).
jacob. k@livemint.com
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First Published: Wed, Aug 17 2011. 09 06 PM IST