Weak Carbon Market May Encourage Indian Firms to Keep Polluting

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(Bloomberg) — Weak penalties and expected low allowance prices mean India’s planned national carbon market will deliver little incentive to steelmakers, cement producers and other heavy industries to quickly curb emissions, according to a new study.

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Trading in the nation’s carbon credit system, which initially covers nine major sectors, is scheduled to begin by about October, according to the Bureau of Energy Efficiency. Polluters included in the market began measuring emissions against new intensity targets from last year.

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Credits are initially expected to trade at around $10 per ton of carbon dioxide equivalent, a rate that’s too low to provide a catalyst for action and far lower than in similar markets globally, said the report by Climate Risk Horizons, a Bengaluru-based think tank. The cost of purchasing credits to cover emission shortfalls would on average equate to 0.6% of annual profit for aluminum smelters, 1% to 2% for cement producers and 7% for steel companies.

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“Financial incentives to adopt low-carbon industrial processes must be strengthened for the policy to be truly effective,” said Anirudh TR, a research analyst at the think tank and lead author of the study. “For many high-margin polluters, ‘paying to pollute’ could become a preferred business strategy.”

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India’s Bureau of Energy Efficiency, responsible for administration of the carbon credits market, didn’t immediately respond to a request for comment.

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The market’s impact will also be limited by the absence of the power sector, which is not covered in the initial stages and accounts for about 55% of India’s greenhouse gas emissions, the report said. Additionally, a focus on emission intensity means the absolute volume of pollution could still increase — not fall — as production from included industries grows.

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India, the world’s third-largest source of greenhouse gases, has long remained resistant to setting absolute limits on emissions as it attempts to balance economic growth and action on global warming. A new climate target set in March by Prime Minister Narendra Modi’s government seeks a 47% reduction in emissions intensity — the amount of pollution generated per unit of gross domestic product — by 2035 from 2005 levels, only a modest advance on a previous plan.

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