Environmental Finance

Unit 05

Unit 5
Structure 05.1 Introduction Objectives 05.2 Market Approach for Pollution Abatement 05.2.1 Polluter Pays Principle (PPP) 05.2.2 Cap and trade 05.2.3 Emission Reduction Credits (ERC) 05.2.4 Demand-side management pricing 05.2.5 Pricing for water conservation

Pollution Abatement

05.3 Environmental Self Auditing and Accounting for Pollution Abatement 05.3.1 Financial incentives for eco-friendly technologies 05.3.2 Transport sector Housing sector 05.4 Summary 05.5 Glossary 05.6 Terminal Questions 05.7 Answers 05.8 Caselet

05.1 Introduction
The previous unit provided an introduction to the environmental issues associated with energy consumption, depletion of resources and the pollution problems. It is important to learn about methods used for pollution abatement. This unit will provide information regarding these methods of pollution abatement.
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One major drawback of modern living and advanced technology today is the alarming increase in pollution. Governments, organisations and the public globally are continually seeking measures to reduce and curb pollution. According to experts, the best way to control pollution is through population control as the waste production decreases with the decrease in population. Wide spread industries are posing a threat of global warming which has to be restricted to reduce pollution. Environment policy for Indian industries focuses mainly on the end products that pollute the environment. But the transfer of pollutants takes place at every intermediate stage during treatment processes and also consumes a lot of energy. This also increases the amount of waste released into the environment. So, the Ministry of Environment and Forests (MoEF) introduced a comprehensive policy for pollution abatement. This policy aims at controlling pollution at the source level, applying the best practical and technical solutions, ensuring that the polluter pays for the pollution and concentrating more on highly polluted areas. Pollution Abatement Systems Specialists, Inc. (PASS) is a corporation in southern Philippines, organised by a group of mechanical engineers involved in using Autoclave treatment for the storage and disposal of hazardous wastes. The organization supports the demand of this basic service which has not been properly addressed by both local and national government. The Montreal Protocol signed in 1987, the United Nations Framework Convention on climate change which came into force in 1994 and the Kyoto Protocol which came into force in 1997 are some of the global organisations that monitor pollution control. The World Bank calls China as home 16 of the 20 most polluted cities on earth, making the country's blighted environment a cautionary corollary to its economic success. Environmental degradation robs the nation of up to 12% of its GDP, according to the World Bank, and each year 300,000 Chinese die prematurely of respiratory ailments. "The rest of the world doesn't understand how big China's environmental problem is," says Sheri Liao, head of the Global Village of Beijing, an NGO dedicated to environmental

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education. "But they need to pay attention because our problem is becoming their problem too." China is not only contaminating itself, but crops in Japan and South Korea are withering from Chinese acid rain, which poisons a quarter of the Chinese landmass. Toxic dust from Chinese sandstorms, the result of grassland erosion and logging that have helped turn 27% of the country into desert, travels as far as U.S. shores, obscuring visibility in national parks and raising mercury levels in fish. Although the U.S. still produces far more greenhouse gases, particularly in per capita terms, China is the world's second largest polluter. A U.N. report found that emissions from China nearly doubled from 1994 to 2002. "In the next 10 years the problem will become even more serious," predicts Zhu Tong, an environmental-science professor at Peking University, who notes that Chinas sky rocketing car ownership and lax implementation of power-plant-emission regulations could be an asphyxiating mix for global air quality. With Chinas economic engine requiring ever more energy, the country is damming a significant part of its length of the Mekong River, threatening fishing and transportation in the five nations downstream. In 1998, China banned some domestic logging to protect its dwindling forests, but the Asian giant's appetite for disposable chopsticks and plywood furniture has hardly abated. Log imports--second only to the U.S.'s--more than quadrupled from 1996 to 2003, according to the World Wildlife Fund. (Source:http://www.time.com/time/magazine/article/0,9171,1074119,00.html #ixzz1aBQdCam0) This unit will provide answers to the below questions: What are the measures taken for pollution abatement? What are the benefits of emission reduction? How are the environmental self audits creating consciousness in the minds of industrialists? This unit helps in understanding the various sources of pollution, market incentives for pollution abatement, cap and trade system which has been a huge success on keeping a check on emission of pollutants and emission
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reduction credits. You will study the various pricing strategies for water conservation, fiscal incentives provided for eco-friendly technologies across the world and also the self-auditing methods used by companies to check pollution. Objectives After studying this unit, you should be able to: assess various market related incentives for pollution abatement explain the various concepts of carbon trading markets describe the role of credits for emission reduction

05.2 Market Approach for Pollution Abatement

The technological approach to pollution abatement was found expensive because reformulating the production process consumed time and money. Regulatory standards were put in use to control pollution. However, the cost estimation of these controls was difficult to gauge and along with other issues, it became essential to introduce a new method. Studies proved that we could control pollution in a better way by using market approach to achieve ambient air quality and reduce emissions from sources as well. The United States of America (U. S. A.) introduced the Clean Air Act Amendments in 1990. This included more market based incentives to reduce pollution. Two forms of market incentives were introduced. They are: Pollution fees - Pollution fees refer to the taxes levied on polluters depending on the amount of pollutants discharged into landfills and air shed waterways. Marketable permits - Marketable permits are tradable licences that polluters can buy and sell to reach the control levels set by regulatory authorities. These permits have been used in the United States because they do not levy large taxes on small scale industries.

The use of tradable permits in reducing the use of chlorofluorocarbons (CFCs) to protect the ozone layer became a huge success. The CFC policy was introduced in 1990 and succeeded in bringing a phase-down of CFCs in
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developed countries, mainly the United States. This was designed to allow a large number of smaller refineries to gain marketable permits and hence, saved hundreds of millions of dollars per year. This also helped technological progress and allowed a more systematic transition of refinery capacity without giving up environmental quality. 05.2.1 Polluter Pays Principle (PPP) The Polluter Pays Principle (PPP) is an environmental policy in which the polluter is made to pay for polluting the environment. This policy determines the various ways in which pollution prevention and control can be allocated. It is also known as the Extended Polluter Responsibility (EPR). The aim of this principle is to transfer the responsibility of waste management from governments to the entities that cause pollution. The scope of PPP has evolved over time and it even prevents accidental pollution. Today, this principle is recognised as International Environmental Law and is a fundamental principle of environmental policy of both the European Community and the Organisation for Economic Co-operation and Development (OECD). The implementation of PPP is usually done using the following two different policy approaches: Command-and-control approaches: These include performance and technology standards. They also include the elimination of subsidies. Market-based instruments: These include pollution taxes, tradable pollution permits and product labelling. The Kyoto Protocol is an example of application of the PPP at the international level. Parties that are obliged to reduce their greenhouse gas emissions need to bear the relevant costs. Polluter Pays Principle: Approach of the Indian Judiciary The Polluter Pays Principle came into force in India after the landmark judgement of Indian Council for Enviro-Legal Action v. UOI & Ors, Citation AIR 1996 SC 1446. This law brought under the act, the small chemical companies that were adding hazardous pollutants into the soil and polluting the nearby village.

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The Supreme Court of India stated that the aim of the Polluter Pays Principle was not only to compensate the victims of pollution, but also to reimburse the cost of environmental degradation. So, the court directed the private companies to compensate for the damages by taking measures to clean the environment and also reimburse the victims of pollution. 05.2.2 Cap and trade Cap and trade is a system introduced to control pollution in which economic benefits are granted for reducing the emission of greenhouse gases and other pollutants. Cap and trade programmes have been successful in reducing emissions on a large scale and improve the air quality exhibiting controlled costs. This policy sets a cap on pollution by limiting the emission of carbon dioxide and other industrial pollutants. This concept includes two parties; the governing body and the units that emit pollutants. This policy allows the companies to trade their extra permits when their methods of reducing pollution are comparatively inexpensive. In this case, the company that sells gets incentives and the company that buys permits pays for its negative impact. Pros and cons The Waxman-Markey bill was passed in the U.S.A in June, 2009. This bill defines a broad cap and trade system for regulating CO2 emissions. The bill has set a target level of around 3% reduction by 2012; 20% by 2020; 42% by 2030; and 83% by 2050. The Kerry-Boxer "Clean Energy Jobs and American Power Act" is another bill that is similar to the Waxman-Markey bill. It aims to reduce CO2 emission levels by 80% by 2050 using a market driven solution for reducing pollution. The targets of these leading legislative bills will significantly decrease global warming where more funds can be allocated to consumer energy programmes. The cap and trade system is likely to have a negative impact on the consumers indirectly. If the businesses and corporations are made to pay for emitting pollutants, they tend to compensate that cost by increasing the price of their products. This causes a decrease in demand for the same. However, energy products are inelastic goods so the demand does not decrease.
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Alternatively, the government can also utilise the raised revenues to help lessen the consumer costs. For example, the funds obtained from cap and trade method can be re-invested in producing clean technology like fuel efficient cars and bring about cost reduction in other energy sectors. The government of India recently set up a carbon cap and trade scheme that proposes to reduce domestic energy consumption by 5% by 2015 using market-based mechanism. A gradual adoption of this concept by other countries will help in reducing pollution globally. A Successful Cap and Trade Example In 1995, the United States Environmental Protection Agency realised the intense acid rain occurrences in the Northeast and the Midwest. So, the EPA developed the Acid Rain Programme which became one of the first market based cap and trade mechanisms in the country. The high levels of sulphur dioxide emitted from coal burning electrical plants led to acid rain across the Midwest region. To decrease this emission, in the year 2000, the sources were limited to 9.5 million tons of SO 2 (compared to 1980 emission levels of 17.3 million tons). The EPA then allotted each plant a certain number of credits, equal to one ton of SO2 emissions. At the end of every year, each plant had to report to the EPA whether or not they had enough credits for their emissions, (i.e. a plant that emitted 7,000 tons of SO2 would need to hold 7,000 credits). The companies that had excess credits could save them for future use or sell them to other companies who exceeded the limits. The cap and trade method granted financial incentives to plants that emitted less SO2. The plant that crossed the limit was made to pay fine to EPA for every extra ton of SO2 emission. The success of acid rain programme has influenced in lowering SO2 emissions drastically. The level of emission has decreased from 17.3 million tons in 1980 to 8.95 million tons in 2010. (Source: http://www.ecomii.com/ecopedia/cap-and-trade) 05.2.3 Emission Reduction Credits (ERC) An Emission Reduction Credit (ERC) is a credit granted to those emission sources that emit fewer pollutants than the fixed limit. ERC is a legal ability
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of an industry to release pollutants up to a specified quantity as fixed by the committee. According to the regulations of South West Clean Air Agency (SWCAA), ERCs can either be sold or preserved for future use. It can also be traded and leased. They provide incentives to the companies that reduce emissions less than the required level. Emission Reduction Credits are offered for numerous environmental pollutants such as carbon monoxide (CO), nitrous oxide (NOx), volatile organic compounds (VOCs), particulate matter (PM) and reactive organic gases and also to developers constructing refineries, heavy industrial facilities or new fossil-fuel power generation facilities. ERCs must be obtained before constructing a new facility. ERCs are created in one of several ways: The shutdown of an industry that has a valid permit restricts it to emit a fixed quantity of pollutants annually and produces a number of Emission Reduction Credit equivalents to the number of tons emitted in a year. Emission Reduction Credits in the non-attainment regions can be generated by setting a cap on the running capacity of the plant. Credits can be granted once the operators agree to revise their working limits and control the emission. They can also be generated by permanently reducing emissions through voluntary installation of emission-reducing technology. On the other hand, the plant can use an alternative fuel source that has a lesser annual emission rate than the original fuel.

The companies that emit pollutants can follow one of the above methods to make full use of ERCs and keep the environment clean. Activity 1: Assume that you are the manager of a refrigerator manufacturing unit. Your company is granted the license to discharge CFCs to a permissible limit and you have not crossed the limit. What would you do with your extra permits?
(Hint: Refer section 8.2 for detailed guidelines.)

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05.2.4 Demand side management pricing Demand side management pricing refers to the pricing strategy followed for balancing the consumption of energy with the available resources. DSM programmes plan, implement and monitor the usage of electricity to help consumers modify their ways of usage to save energy. Earlier, most DSM programmes provided cost effective energy resources to accept new sources of power including generation facilities, transmission and distribution capacity additions and power purchases. Nowadays, DSM is also used for enhancing customer service. Regulations combined with the incentives can be a new method for cleaning the environment. The pollution control costs are allocated based on the market. The regulatory body issues tradable permits to affected companies. The companies try to reduce their emissions and sell their permits to reap profits. Technologies used in demand side management Some of the technologies employed to reduce the use of total energy are as follows: Load levelling - This is a method used to flatten the rise and fall in energy demand. It is done by decreasing consumption at peak times, which is known as peak shaving, increasing it during off-peak times known as valley filling, or shifting the load from peak to off-peak periods to effectively utilise the base load generation and decrease the need for spinning reserves. Load control - Energy management control systems (EMCSs) act as stabilizers. They are used to switch the equipment on or off to keep the load under control. They are typically used for cooling, heating, ventilation and lighting loads and also to invoke on-site generators and reduce demand for electricity. Problems concerning the Implementation Demand Side Management Solutions Include Rate Schedules, Public Benefits Programmes, Power Factor Charges, Real-Time-Pricing and Time-of-Use Rates. Rate schedules - Utilities can revise billing structures to encourage the consumers to use electricity effectively.
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Time-of-use rates - Time-of-use rates refer to charging higher prices for peak electricity in order to shift the demand to off-peak periods. Power factor charges - Power factor charges can be employed to avoid the wastage of energy that occurs due to partially loading the electrical equipment and hence reduces loss of energy. Real-Time Pricing - Real-time pricing refers to the electricity price that varies continuously on hourly basis depending on the utility's load and the various power plants that have to be operated to fulfil the demand.

These are the technologies which can be used efficiently to reduce the total energy in the demand side management. 05.2.5 Pricing for water conservation Water is an economic good. Though it is a renewable source and comes under one of the basic necessities, the use of water is increasing tremendously. With the increase in population it is becoming a challenge for the respective authorities to cater to everybodys needs. Hence, water conservation, purification and reuse are very essential. Therefore, governments encourage cost effective technologies for water purification. Pricing becomes a prime factor to avoid wasting and polluting water. The government provides incentives for users to curb consumption without affecting prices on water. The government of the state of Victoria in Australia has established the following financial incentive programmes to help business and industry in reducing its water consumption: The Storm Water and Urban Recycling Fund This is a $10 million programme that supports the development of local storm water and urban recycling projects. The Smart Water Fund - This fund has made investments of $28 million in about 170 innovative water conservation, water recycling and biosolids management projects. The Living Victoria Water Rebate Programme This offers rebates for small businesses connected to an urban reticulated supply that have 20 or less employees to enhance the water efficiency of their business..
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Seasonal pricing is another strategy to discourage excessive use of water. The water rates are increased during summer when the use of water reaches its peak. It is important to improve the effectiveness of conservation programmes. For this, the billing system has to be upgraded and people need to be educated about the scarcity of water. Education will make them aware of the reasons for being billed so that a more conscious effort is made to curb their water charges by using water prudently. Apart from personal awareness, initiative and effort, the governments effort and initiative plays an important role in maintaining water cleanliness, storage and consumption. Financial instruments depend on market forces and fluctuation in prices to change the perspective of polluters in a way that supports environmental protection. Some of the financial instruments are: Subsidies - Subsidies refer to the tax incentives like tax exemptions, investment tax credits and low interest loans that aim at reducing pollution. These subsidies encourage the industries to reduce the quantity of emission of pollutants and obtain incentives for the same. Deposit refund systems - Deposit refund systems refer to the surcharges paid by the consumers when they buy a potentially polluted product. This instrument is mainly used for products that are reusable. The consumers are offered a discount when they take appropriate measures for disposal or return the product to the approved centre for recycling. Enforcement incentives - Enforcement incentives are created to encourage polluters to adhere to the environmental standards and regulations. These incentives include non-compliance fees which are charged to polluters not to exceed the fixed levels of pollutant emission.

These financial instruments when properly implemented, help in controlling pollution effectively and bring down the pollution abatement costs. Self Assessment Questions 1. ____________________ is an environmental policy in which the polluter is made to pay for polluting the environment.

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2. Economists have been debating constantly whether the cap trade or ___________ is more effective in reducing emissions. 3. The use of tradable permits in reducing the use of____________ to protect the ozone layer became a huge success. (Pick the right option) a) Chlorofluorocarbons (CFCs) b) Carbon dioxide c) Nitrous oxide d) Sulphur dioxide 4. The high levels of sulphur dioxide emitted from coal burning electrical plants led to acid rain across the Midwest in USA. (True/False) 5. Polluter pays principle is a fundamental principle of environmental policy of both the European Community and the _________________. 6. Which of the following is a financial instrument used to conserve water? (Pick the right option) a) Subsidies b) Taxes c) Penalties d) Incentives

05.3 Environmental Self Audit and Accounting for Pollution Abatement

Environment audits refer to reviewing of a companys operations to assess the compliance with environmental rules and regulations. They cover a wide range of business activities, commercial developments and engineering hazard and operability studies. Environmental audits are popular as they are frequently used with real estate transactions these days. They identify the environmental problems like chemical contamination emerging from past and current practices and estimate the cost for treating them. The buyer of the audit can ask for compensation or clean-up costs from the seller if the audit has some issues.
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Self audits are the voluntary environmental audits which are a valuable business resource for many companies. This practice benefits the company as it addresses many facets of a companys operations. For example, Barbara Ceizler Silver, the author of Environmental Self-Audit for Small Businesses, described the self-audit as a valuable diagnostic tool that can be used by companies to identify and report compliance problems relating to air, water, land use, solid waste and hazardous materials before submitting formal permit applications or other business processes. Some of the basic concepts that organisations need to understand about self auditing are as follows: Self-audit context and purpose Before late 1990s, the U.S. Environmental Protection Agency (EPA) did not offer many incentives for small businesses to self-report, audit and rectify violations of environmental laws. The regulated entities refused to report environmental violations as they feared penalties. Therefore, in the late 1990s the EPA developed the policy of self audits to reduce penalties and prevent criminal prosecutions for businesses which helped in resolving the violations of environmental laws. Voluntary or systematic discovery The violation of environmental laws can be detected either by voluntary or systematic discovery. A regular monitoring system or the audits created by the organisation to ensure compliance comes under systematic discovery, whereas a flexible sampling or monitoring process comes under voluntary discovery. Prompt and independent disclosure The EPA expects the organisations to disclose the discovered violations sincerely within 21 days without the government or a third party prompting them to do so. To simplify this process the EPA enables the regulated entities to submit disclosures online through the agency's Central Data Exchange. The regulated entities need to register in CDX before submitting their disclosure forms. These self disclosure forms allow the entities to provide a detailed checklist that includes all the conditions of a self-audit.

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Correction, remediation and future prevention The final self-audit process includes a quick correction of violations by the regulated entities. According to the EPA policy, the regulated entities cannot claim incentives when they repeatedly violate laws. The federal register states that the correction or remediation efforts should be completed within 60 days. Financial incentives In India, the state law makers support self auditing and hence it receives significant legal protection in 26 States. The body of law states that the companies that voluntarily test for violations and rectify them need not pay penalty. According to the Environmental Protection Agency (EPA), environmental groups and other observers, if the self-audit results are not revealed, the companies tend to pollute the environment more. However, supporters of secret audits claim that if the results remain confidential it encourages stewardship of the environment. David Ronald, a chemical waste litigation reporter from the U.S. A, cited some of the valuable incentives granted to companies that follow self auditing efficiently. They are as follows: Reduces exposure to penalties if the company identifies and corrects the noncompliance issues before the government takes action. Increases the number of investors. Improves reputation and assures citizenship among shareholders and creditors. Provides information on planning for future growth.

Finally, Ronald stated that a sincere self audit helps in retaining the loyalty of the consumer and gains valuable contracts for companies that have made environmental considerations part of their purchasing and contracting practices.

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05.3.1 Financial incentives for eco-friendly technologies There are many companies that are coming up with alternative energy sources to encourage green technology. So, the government provides financial incentives to such companies that employ eco-friendly and cost effective technologies. The various grants provided to such companies across the world are as follows: Grants available for solar heating installation in France and India The French government has introduced a scheme that reduces the tax bill for those who use solar heaters. These heaters use solar radiations to heat the house or to create hot water. This is a cost-effective method for households and hotels. In South India, the United Nations Environment Programme (UNEP) started a project of installing solar heaters in 18,000 homes. Canara Bank and Syndicate Bank, in India, provided loans exclusively for this purpose. Buyers had to pay only 15% of the cost price and were given five years to pay back the loan amount. By June 2006, more than 17,000 loans had been granted. This was considered the largest Solar Home System Loan Programme. Grants available for Go Green projects in San Francisco The San Francisco Department of the Environment has launched the SF Home Improvement & Performance (SFHIP) incentive programme. This programme aims at increasing the affordability of green home improvements for the residents of San Francisco. San Francisco is one of the few cities in California that provides governmental incentives as well as state and federal incentives for going solar. Qualifying projects include adding insulation, air sealing windows, walls and crawl spaces, installing upgraded heating and cooling systems. Fiscal incentives for Green cars in Indonesia The Indonesian government is encouraging the development of eco-friendly cars that are both fuel-efficient and affordable. To prevent the harmful effects of pollution on the environment, the government has taken certain

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initiatives. The government has decided to provide fiscal incentives to the car makers that produce low-cost eco-friendly cars by 2012. 05.3.2 Transport sector The process of self auditing makes the industries keep a check on the emission of pollutants for the fear of paying penalty. Apart from the pollutants emitted by industries, hazardous gases are liberated from automobiles. Transport sector plays an important role in moving goods and other essential items. Fossil fuels have been the source of energy. This is not only leading to depletion of non-renewable resources but is also causing a great deal of pollution. So, conservation of energy in transport sector becomes very important and it can be done by limiting the use of fossil fuels and replacing them with the ones that carry high efficiency. Biofuels and their economic advantage Biofuels are the products derived from agriculture and organic feed stock. The most commonly used biofuels in transport sector are bioethanol and biodiesel. The use of bio fuels helps in reducing carbon emissions, improves vehicle efficiency. Their cost of production is relatively low compared to the other fuels. Bioethanol production is based on fermentation of starch obtained from sugar based food crops. These fuels do not emit any hazardous chemicals after combustion. Biodiesel is produced from vegetable oils and fats. This is later mixed with the conventional diesel or used as pure biodiesel. Today, 10% of people across the globe use biofuels for transport. There are ongoing research processes for improved products.

Hybrid cars Hybrid cars are the cars that use dual engines. They use gasoline and electricity. The car runs with the help of electricity where gasoline is used to charge these electric engines. The first hybrid car introduced in the market was the Honda Civic Hybrid. Some of the advantages of hybrid cars are as follows:
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Reduced pollution as they are driven by electricity Lesser tax on hybrid cars Reduced wearing out of spare parts Regenerative braking system to charge the batteries

Velib cycle Velib is a bicycle introduced in France which is an efficient form of urban transportation. These cycles can be used 24 hours a day and are more efficient than the other bicycles. This is one of the best ways to reduce carbon emission as it does not use any fuel. Countries have begun to take the implications of carbon emission seriously as the ill effects are felt worldwide. 05.3.3 Housing sector Green buildings are buildings that not only conserve energy but also provide a healthier and more resource-efficient living environment. These buildings include innovative energy technologies like solar water heaters, radiant walls and roof barriers. The U.S. EPA agency has set guidelines for energy efficient homes. Houses that conform to these guidelines are labelled Energy Star homes. These houses are at least 15 per cent more energy efficient when compared to other houses. Energy Star rated homes have the following energy efficient features: High performance windows Higher levels of insulation Tight exterior construction Non-leaking ducts Energy efficient heating and cooling equipment

Green building trends also exist in Europe. The Passivhaus of Germany are energy efficient homes. These houses are super-insulated and have highly efficient windows.
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Subsidies provided by the government will encourage the building of more energy efficient homes. The Office of Energy Efficiency and Renewable Energy (EERE) in U. S. A. aims to increase the use of renewable energy and energy efficiency technologies. It offers financial assistance opportunities for the development and demonstration for such technologies. The Energy Policy Act of 2005 of U. S. A. provides tax credits to consumers for energy efficiency home improvements and installation of solar energy systems and fuel cells. India too has many Leadership in Energy and Environmental Design (LEED)-certified green buildings. Bio-diversity Conservation India Limited (BCIL), a Bangalore based builder, has built some energy efficient residential homes in Bangalore, India. Self Assessment Questions 7. Environment audits refer to reviewing of a companys operations to assess the compliance with environmental rules and regulations. (True/False) 8. The regulated entities need to register in ___________________before submitting their disclosure forms. 9. The alternative fuels that can be used to conserve energy in transport sector are _________ and __________. 10. The San Francisco government has introduced a scheme that reduces the tax bill for those who use solar heaters. (True/False) 11. Hybrid cars use _____________ to charge their batteries. 12. The supporters of ____________ claim that if the results remain confidential it encourages stewardship of the environment.

Summary
Let us recapitulate the important concepts discussed in this unit. Pollution abatement is a major challenge faced globally and financing for the same is the major concern. There are two forms of incentives introduced as a market approach to pollution abatement. They are pollution fees and marketable permits.
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Polluter pays principle is a policy that was enforced to control pollution by making the polluter pay for polluting the environment. Cap and trade is a method of reducing pollution where a cap is set on the amounts of pollutants that can be discharged into the environment and the permits obtained by the companies can be traded. Emission Reduction Credit (ERC) is a credit given to an emission source whose emission levels are lesser than the fixed limit. These permits can be sold or banked for future use. Demand side management pricing is a method in which the energy consumption is balanced depending on the available energy. Pricing of water conservation and using financial instruments are necessary to avoid the wastage of water as water is an economic good. Environmental self audits refer to the voluntary audits conducted by the respective industries to keep a check on the emission of pollutants. Financial incentives are provided to companies that use cost effective, eco-friendly technologies to conserve energy and prevent pollution. Planning transport effectively by using biofuels also saves energy and avoids pollution. Green buildings are buildings that not only conserve energy but also provide a healthier and more resource-efficient living environment.

Glossary
Autoclave treatment: An autoclave is a strong, pressurised, steam-heated vessel used for laboratory experiments, sterilization, or cooking. Autoclave treatment involves applying steam under pressure. Car-pooling: It is an arrangement whereby several participants or their children travel together in one vehicle, the participants sharing the costs and often taking turns as the driver. Deionized water: Water that is free of salts and ions. Non-attainment regions: A locality wherein the air pollution levels regularly exceed the National Ambient Air Quality standards.
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Terminal Questions
1. Explain the polluter pays principle. 2. Briefly explain the pros and cons of cap and trade method. 3. What are the financial instruments that help in water conservation? 4. List out the fiscal incentives provided for eco-friendly technologies. 5. What are the rules to be followed to conserve energy in the transport sector?

Answers
Self Assessment Questions 1. Polluter pays principle 2. Carbon tax 3. Chlorofluorocarbons 4. True. 5. European Community and the Organisation for Economic Co-operation and Development (OECD). 6. a. Subsidies 7. True 8. Central Data Exchange ( CDX) 9. Compressed Natural Gas (CNG) and propane 10. False. The France Government has introduced a scheme that reduces the tax bill for those who use solar heaters. 11. Gasoline 12. Secret audits Terminal Questions 1. The Polluter Pays Principle (PPP) is an environmental policy in which the polluter is made to pay for polluting the environment. This policy determines the various ways in which the pollution prevention and control can be allocated. For more details, refer sub-section 05.2.
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2. The leading legislative bills project that by 2050, the cap and trade system can bring down the carbon dioxide emission rates to about 80% when compared to emission levels in 2005. This will significantly decrease global warming and the government can spend the remaining billions of dollars on consumer energy programmes. For more details, refer section 05.2. 3. Financial instruments depend on market forces and price fluctuation to change the perspective of polluters in a way that supports environmental protection. Some of the financial instruments are: Subsidies - Subsidies refer to the tax incentives like tax exemptions, investment tax credits, and low interest loans that aim at reducing pollution. These subsidies encourage the industries to reduce the quantity of emission of pollutants and obtain incentives for the same. For more details, refer section 05.2. 4. There are many companies that specialise in alternative energy, ecofriendly and green technology. The government provides financial incentives to such companies that employ eco-friendly and cost effective technologies. Grants available for solar heaters in France: The French government has introduced a scheme that reduces the tax bill for those who use solar heaters. For more details, refer section 05.3. 5. Some of the rules to be followed to conserve energy in the transport sector are as follows: planning transport in such a way that it avoids wasteful driving. For more details, refer section 05.3.

Caselet
Hunter River Salinity Trading Scheme The Hunter River, located north of Sydney, Australia, faced the problem of drastic variance in salinity due to the variation in flow rate. Whenever there was excess rain the flow would increase and natural salts would be picked up and the salinity level would increase considerably and under low-flow conditions, salinity levels would be low. An arrangement had to be made to discharge more saline water and balance the salinity level.
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Setting the cap To overcome the problem of salinity, the affected communities decided to set a cap on salinity concentrations. The water in the river was divided into several blocks and salinity levels were monitored at these checks points. Defining the property rights The different levels of salinity was monitored and a proportional discharge right was allocated accordingly, ensuring that the cap was not breached. When the salinity levels were low, the property rights for discharge of saline water would be high and in case of high salinity, rights to discharge saline would be low. Allocating and trading property salinity credits The industries had to obtain license in order to discharge saline water. The license was originally granted to existing users based on environmental performance and their economic output. The participants were allowed to trade their licenses and to maintain transparency; the trading scheme was made available on the internet. Thus, the structure of the market and trade facilities encouraged the ongoing innovation and efficiency. Discussion Questions: 1. What was the main problem with the Hunter River? (Hint: Refer Hunter river salinity trading scheme in the given caselet.) 2. How did they tackle the problem? (Hint: Refer By monitoring various checkpoints across the river and controlling the variation in salinity.) (Source:http://www.marketbasedinstruments.gov.au/LinkClick.aspx?fileticket =6ERqKm2euyg%3D&tabid=83&mid=748)
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References Streeter, S. The Capitol Net & Thomas L Hungerford. 2010. Cap and Trade. U.S.A.: The Capitol.Net. Yudelson, J. (2008). The Green Building Revolution. U.S.A: Island Press.

E-References http://cogeneration.net/emission-reduction-credits/ October 3, 2011. Retrieved on

http://www.lawisgreek.com/how-to-understand-the-polluter-paysprinciplehttp://mriduverma.hubpages.com/hub/Polluter-pays-principle Retrieved on October 3, 2011. http://traininganddevelopment.naukrihub.com/challenges-ofoutsourcing.html - Retrieved on October 3, 2011. http://www.wisegeek.com/what-is-cap-and-trade.htm October 3, 2011. Retrieved

on

http://edugreen.teri.res.in/explore/n_renew/transport.htm - Retrieved on October 4, 2011. http://www.energy-savingnews.com/2009/08/cap-and-trade-india/ Retrieved on October 4, 2011. -

http://water.epa.gov/polwaste/nps/chap3.cfm - Retrieved on October 4, 2011. http://www.chillibreeze.com/articles/top-10-green-buildings-in-India1011.asp - Retrieved on November 7, 2011. http://www.ecomii.com/ecopedia/cap-and-trade November 7, 2011. Retrieved on

http://www.eoearth.org/article/Polluter_pays_principle - Retrieved on November 7, 2011. http://www.epa.gov/greenbuilding/tools/funding.htm#national2 Retrieved on November 7, 2011. -

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http://www.water.vic.gov.au/saving/industry/incentives - Retrieved on November 7, 2011.

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