Assessing Policy Choices for Managing SO2 Emissions from Indian Power Sector

Air quality management has become a focal issue in public policymaking in India since the 1990s. Among the different sources, coal consumption in large point sources (LPS), especially power plants, is a major source of air pollution. In the case of power generation, 82 power plants, accounting for more than 70% coal-use, contributed to around 54% of all-India SO2 emissions in 2000. But, replacing coal with other energy sources could lead to national energy security concerns, since coal is an indigenous resource in abundance, while other hydrocarbon resources are limited in supply. Thus, a growing concern for policymakers is to utilize coal cleanly and the paper addresses some of these concerns.

The paper analyses policy choices for managing SO2 emissions from the LPS, especially from power plants. We compare the existing technology-push policy instruments with alternate instruments like emissions trading that would control SO2 emissions from these plants in an economically efficient manner. An energy-environment model, Asia-Pacific Integrated/Local Model (AIM/Local), is used for mapping future SO2 emissions from power plants and comparing the implications of alternate instruments.

Compared to a technology-push instrument, an emissions trading system generates an annual average cost-savings of US$ 96 million during 2005-2030 for equivalent emission reductions. This is because an emissions trading system allows every plant to consider factors that influence their abatement costs, such as economic and logistical constraints, fuel quality and efficiency in operations and then make their abatement choice by comparing these costs vis-à-vis the allowance price. But, the technology-push instruments specify the abatement measure to be adopted by each plant, thereby resulting in higher compliance costs. The paper lays emphasis on the need for stringent local air quality standards to complement an emissions trading system. It further highlights the design elements of an emissions trading system in India. This is an initial assessment and other sources could participate in later phases of the program.