By Sara Schonhardt

The Indian state of Gujarat is working to set up a carbon market amid a growing trend in emissions trading.

It’s not a new idea in the heavily industrialized state on India’s west coast. But if it spreads to other parts of the country, it could become a critical tool for India to reduce emissions and meet its climate targets, say observers and those involved with the effort.

The move comes after China launched its national emissions trading system last June — creating the world’s largest carbon market by emissions covered (Climatewire, June 25, 2021) — and more than 15 years after the European Union kicked off its program.

There are now 25 emissions trading systems in operation globally, covering around 17 percent of greenhouse gas emissions, according to the International Carbon Action Partnership (ICAP), a forum about emission trading system design and implementation. Another 22 such systems are under development or consideration, mainly in Southeast Asia and South America.

Finding inexpensive ways to confront environmental challenges is of paramount importance, particularly in emerging economies such as India, said Michael Greenstone, director of the Energy Policy Institute at the University of Chicago.

He’s leading a team of researchers from the University of Chicago, Yale University and the Abdul Latif Jameel Poverty Action Lab that are helping Gujarat design its CO2 market.

It won’t be starting from scratch. The state set up the world’s first emissions trading system for particulate pollution in 2019. It since has cut emissions that contribute to air pollution by about 24 percent, according to a study Greenstone co-authored, and the effort is set to be adopted in other states in India.

“They were interested in this idea, they ran an actual experiment — like you would do for a medical device or drug — got the results from that, are scaling it up for particulate matter and are now extending it to CO2,” Greenstone said.

Like most carbon markets, the one being developed in Gujarat will set a limit, or cap, on emissions and allow large polluters in the power and manufacturing sectors to buy and trade CO2 permits equivalent to the emissions ceiling.

India announced last year that it would aim for carbon neutrality by 2070, and it agreed to reduce the emissions intensity of its gross domestic product by 45 percent by 2030. Since its climate targets are based on reducing the economy’s carbon intensity, any cap likely would be intensity-based as well.

Details of the structure are still being determined by the Gujarat government, but Greenstone said the target is to cover around 120 large polluters whose total annual combined emissions are twice the cap of the Regional Greenhouse Gas Initiative in the eastern United States.

Advisers have sketched out an ambitious timeline that could see the system up and running within the year.

The challenge will be extracting the right data from the industries involved and getting them comfortable with trading, Greenstone said.

It could still be a long haul before a carbon market rolls out at the federal level, said Maureen Cropper, a senior fellow at Resources for the Future who studies air pollution controls in India. But the move by Gujarat is a “hugely important” first step, she added.

It’s a step not unlike the one California took to create its own market. And it could be even more meaningful in a country that’s both vulnerable to the impacts of climate change and one where energy demand and emissions are growing.

“I think people are looking for things that work and the global energy challenge is in especially sharp relief in poor countries, where the trade-offs between the imperative for inexpensive and reliable energy and environmental quality are even sharper than they are here” in the United States, said Greenstone.

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