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Global Solutions Meeting Local Needs

Soni, P.

2007

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Soni, P. (2007). Global Solutions Meeting Local Needs: Climate Change instruments for diffusion of cleaner
technologies in the small-scale industries in India. [PhD-Thesis – Research external, graduation internal, Vrije
Universiteit Amsterdam].

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Download date: 14. Nov. 2024

 VRIJE UNIVERSITEIT

Global Solutions Meeting Local Needs

Climate Change instruments for diffusion of cleaner technologies
in the small-scale industries in India

ACADEMISCH PROEFSCHRIFT

ter verkrijging van de graad Doctor aan

de Vrije Universiteit Amsterdam,
op gezag van de rector magnificus,
[Link]. L.M. Bouter,
in het openbaar te verdedigen
ten overstaan van de promotiecommissie
van de faculteit der Aard- en Levenswetenschappen
op vrijdag 25 mei 2007 om 13.45 uur
in het auditorium van de universiteit,
De Boelelaan 1105

door
Preeti Soni
geboren te Allahabad, Uttar Pradesh, India
promotoren: [Link]. P . Vellinga
[Link]. J.B. Opschoor
copromotor: [Link]. J. Gupta
Global Solutions Meeting Local Needs
Climate Change policy instruments for diffusion of cleaner
technologies in the small-scale industries in India

Dedicated to
My Father Kewal Krishan Soni
The doctoral research was supported by :WOTRO DC Fellowship provided by the
Netherlands Foundation for the Advancement of Tropical Research Netherlands
(WOTRO) – Netherlands Organisation for Scientific Research (NWO) (July 2002-
June 2004); UNU-INTECH (United Nations University – Institute for New Tech-
nologies) Fellowship for the Ph.D. program in Economics and Policy Studies of
Technical Change (September 1999 – September 2001); and Research Grant from
the Swiss Agency for Development and Cooperation (SDC), India for completing the
fieldwork and analysis for one case study.

© Soni, P. 2007
Global Solutions Meeting Local Needs: Climate Change policy instruments for dif-
fusion of cleaner technologies in the small-scale industries in India.
ISBN: 978 90 8569 106 0

All rights reserved. No part of this publication may be reproduced in a retrieval sys-
tem, or transmitted, in any form of means, electronic, mechanical, photocopying, re-
cording or otherwise, without prior written permission of the author. No part of this
publication may be adapted in whole or in part without the prior permission of the
author.
Email (for correspondence): preeti.soni1@[Link]

Printed in New Delhi, India

Table of contents
Abbreviations and Acronyms ix

Acknowledgements xiii

1. Introduction 1
1.1 Context 2
1.1.1 Sustainable development and climate change 2
1.1.2 Climate change instruments and diffusion of cleaner technologies 2
1.1.3 Climate change instruments and developing countries 3
1.1.4 Small-scale industries in India 4
1.1.5 Diffusion of cleaner technologies in small-scale industries in India 5
1.2 Problem definition 5
1.3 Structure of the thesis 7

2. Theoretical background 9
2.1 Introduction 9
2.2 Policy instruments for addressing climate change 9
2.2.1 Assessment of policy instruments 10
2.2.2 Regulatory versus economic instruments 14
2.2.3 National and international policy instruments 17
[Link] At the national level: Regulatory instruments 17
[Link] At the national level: Economic instruments 18
[Link] At the international level: Regulatory instruments 21
[Link] At the international level: Economic instruments 21
2.2.4 Assessment of international policy instruments 23
2.3 Small-scale industries and diffusion of cleaner technologies 24
2.3.1 SSIs in developing countries 24
2.3.2 SSIs and the environment 25
2.3.3 Clustering of SSIs 25
2.3.4 SSIs and diffusion of cleaner technologies 26
[Link] Technology capabilities 27
[Link] Collective efficiency 28
[Link] Innovation and diffusion in SSIs 29
2.3.5 SSIs and policy instruments 30
2.4 Discussion and conclusions 32

3. Research framework and methodology 35

3.1 Introduction 35
3.2 Research framework 35
3.2.1 Main elements of the research framework 36
[Link] Human activity and environmental impacts 38
[Link] International policies 38
[Link] National policies 39
 [Link] Policy implications 39
[Link] Contextual factors 40
[Link] Policy responses 40
3.2.2 Research questions 40
3.3 Research methodology 43
3.3.1 Research techniques 43
[Link] Case study selection 45
[Link] Survey techniques 51
3.3.2 Validation, reliability and objectivity 52
3.4 Recapitulation 53

4. Climate change policies 55

4.1 Introduction 55
4.2 International climate change policy 55
4.2.1 Pre-Kyoto phase: Setting the overall framework 57
4.2.2 Post-Kyoto phase: Strengthening the commitments 58
4.3 Climate change instruments and polic y implications 61
4.3.1 Climate change instruments 62
[Link] Global Environment Facility 62
[Link] Pilot Phase for Activities Implemented Jointly 63
[Link] Clean Development Mechanism (CDM) 64
[Link] Other instruments 67
4.3.2 Main policy implications 68
[Link] Policy implications and GEF 68
[Link] Policy implications and CDM 69
4.4 Climate change policy in India 72
4.4.1 National policies that address climate change 73
[Link] Organizational structure 73
[Link] Participation in climate change negotiations 74
[Link] National policies relevant for climate change 75
4.4.2 Main policy implications 75
[Link] Implications of national policy and GEF 78
[Link] Implications of national policy and CDM 79
4.5 Conclusions 80

5. National policies for the small-scale industries 83

5.1 Introduction 83
5.2 National promotional policies 83
5.2.1 Organizational structure 84
5.2.2 Promotional policy 86
5.2.3 Some policy implications 87
5.3 National environmental policies 90
5.3.1 Organizational structure 91
5.3.2 Environmental policy and policy instruments 91
[Link] Regulatory instruments 91
 [Link] Economic instruments 93
[Link] Suasive instruments – and focus on public interest litigation 94
5.3.3 Main policy implications 95
5.4 Conclusions 98

6. Iron foundry clus ter in Howrah 101

6.1 Introduction 101
6.2 SSI–environment interaction 101
6.2.1 Industrial activity 102
[Link] SSI foundry units 102
6.2.2 Energy consumption and environmental impact 103
[Link] Technology used 105
[Link] Potential for technological change 105
6.3 National policies 105
6.3.1 Organizational structure 106
[Link] Other organizations 108
6.3.2 Environmental policy 108
6.4 Policy implications 110
6.4.1 Main incentives and their effects 110
[Link] Regulatory instruments 110
[Link] Other instruments 114
6.5 Contextual factors for diffusion of cleaner technologies 115
6.5.1 Environmental factors 117
6.5.2 Economic factors 117
6.5.3 Technological factors 120
6.5.4 Organizational factors 120
6.5.5 Social factors 121
6.6 Conclusions 122

7. Glass cluster in Firozabad 125

7.1 Introduction 125
7.2 SSI–environment interaction 126
7.2.1 Industrial activity 126
[Link] Glass units and technology used 126
7.2.2 Energy consumption and environmental impacts 131
7.2.3 Potential for technological change 133
7.3 National policies 134
7.3.1 Organizational structure 134
7.3.2 Environmental policy 135
[Link] Demarcation of the TTZ 136
[Link] Public interest litigation filed 136
[Link] Supreme Court’s decision 137
[Link] Commencement of natural gas supply 137
7.4 Policy implications 138
7.4.1 Incentives 138
 7.4.2 Incentives and their effects 139
[Link] Till 1980 139
[Link] Period between 1980 and 1995 139
[Link] Period between 1996 and 2004 141
[Link] Beyond 2004 142
7.5 Contextual factors affecting cleaner technology diffusion 144
7.5.1 Environmental factors 144
7.5.2 Organizational factors 145
7.5.3 Economic factors 145
7.5.4 Technological factors 147
7.5.5 Social factors 148
7.6 Conclusions 150

8. Brick cluster in Chandigarh 153

8.1 Introduction 153
8.2 SSI–environment interaction 154
8.2.1 Industrial activity 154
[Link] Cluster profile 154
[Link] Technology used 155
8.2.2 Energy consumption and environmental impacts 157
8.2.3 Potential for cleaner technologies 158
8.3 National policies 159
8.3.1 Organizational structure 159
8.3.2 Environmental policy 164
[Link] Incentives 165
8.3.3 Policy implications 166
[Link] Incentives and their effects 166
8.4 Contextual factors 173
8.4.1 Environmental factors 175
8.4.2 Organizational factors 175
8.4.3 Economic factors 175
8.4.4 Technological factors 176
8.4.5 Social factors 177
8.5 Brick clusters in and around Pune 178
8.5.1 SSI–environment interaction 178
8.5.2 National policy and policy implications 180
8.5.3 Contextual factors 180
8.6 Conclusions 182

9. Current paradigm: Is small beautiful and clean? 185

9.1 Introduction 185
9.2 SSI–environment interaction 185
9.3 Why do SSIs not adopt cleaner technologies? 186
9.3.1 National policies 186
9.3.2 Contextual factors 188
 9.3.3 Why does environmental policy work in some cases? 193
[Link] Triggering the change 193
[Link] So, is environmental policy a driver? 195
9.4 Gaps in the current paradigm 195
9.5 In conclusion 198

10. Towards a new paradigm 201

10.1 Introduction 201
10.2 The CCI–SSI link 201
10.2.1 Climate change instruments 202
[Link] Arguments 202
[Link] Counter-arguments 203
10.2.2 Diffusion of cleaner technologies in the SSIs 205
[Link] Arguments 205
[Link] Counter-arguments 206
10.3 Policy responses to strengthen the CCI–SSI link 208
10.3.1 It is a weak link! 208
10.3.2 Potential policy responses 208
[Link] Strengthening policy incentives 208
[Link] Addressing barriers to cleaner technology diffusion in SSIs 213
[Link] Strengthen synergies between policies at different scales 215
10.4 In conclusion 216
10.4.1 Revisiting the research questions 216
10.4.2 On a concluding note 219

References 223

Summary 239

Samenvatting 245

Annexure 1: SSI case studies – technical details 253

Annexure 2: Survey questionnaires 259

List of Tables
Table 2.1: Some relative features of the policy instruments 16
Table 3.1: Research questions and the data sources 44
Table 3.2: Selection of case study SSIs 48
Table 3.3: Key differences in case studies 49
Table 3.4: Selection of case study clusters - characteristics 50
Table 4.1: Differentiated respons ibilities and key provisions for Parties 61
Table 4.2: Key issues related to the climate change policies 81
Table 5.1: Significant policy statements and packages related to SSIs 86
Table 5.2: Major functions of the Pollution Control Boards 91
Table 5.3: Minimal frequency of inspections and validity of consents for SSIs 92
Table 5.4: Incentives under the national SSI policy 97
Table 6.1: Classification of the foundry units as per their size (production) 103
Table 6.2: Furnace technologies: Some comparisons 107
Table 6.3: Incentives under the environmental policy 111
Table 6.4: Average coke to metal ratio in the cupola 114
Table 6.5. Contextual factors 116
Table 6.6. Barriers for cleaner technology diffusion – stakeholders’ perspectives 117
Table 6.7: Entrepreneurs Response – role of policy initiatives in adopting cleaner
technologies 119
Table 7.1: Registered glass units in Firozabad 127
Table 7.2: Performance of conventional furnaces 133
Table 7.3: Incentives under the environmental policy 140
Table 7.4: Glass units and natural gas 142
Table 7.5: Contextual factors 146
Table 7.6. Most important constraints perceived by various stakeholders 147
Table 8.1. Brick units around Chandigarh 154
Table 8.2. Comparison of the main kiln technologies used in India 156
Table 8.3: Some indicators related to the brick industry 167
Table 8.4: Policy implications for the cluster 168
Table 8.5: Average coal consumption by technology type 171
Table 8.6: Contextual factors 174
Table 8.7: Clusters around Pune included in the study 178
Table 8.8: Comparisons between brick units around Chandigarh and Pune 179
Table 9.1: Contextual factors (based on case studies 189
Table 9.2: Environmental policy and implications 194
Table 9.3: Towards a sustainable paradigm for SSIs 196
Table 10.1: The CCI–SSI link 209

List of Figures
Figure 1.1: Structure of the thesis 8
Figure 2.1: Cost-effectiveness (uniform taxes versus uniform standards) 13
Figure 2.2: Dynamic incentive (tax versus standards) 15
Figure 2.3: Emissions trading versus uniform taxes 20
Figure 3.1: Research framework 37
Figure 3.2: Location map: Case study areas 47
Figure 4.1: Timeline of climate change regime and transition towards market 56
instruments
Figure 4 .2: Climate change instruments - forms and financial incentives 66
Figure 4.3: Primary interests (perceived) of actors in developing a CDM project 71
Figure 4.4: Timeline pertaining to the climate change process in India 72
Figure 6.1: Organizational structure for policy making and implementation 106
Figure 6.2: Timeline and events related to environmental policy for the cluster 109
Figure 6.3: Dispersion of the furnace technologies in the cluster 113
Figure 6.5: Factors influencing decisions regarding technology adoption in the units118
Figure 6.6: Factors affecting adoption of technologies at the unit level 118
Figure 6.7: Assistance needed to facilitate cleaner technology adoption at unit level122
Figure 8.3: Diffusion of kiln technologies in the cluster 170
Figure 10.1: Strenghtening the CCI-SSI link 210

List of Boxes
Box 2.1: Theoretical foundations for economic instruments 11
Box 3.1: SSI statistical data sources 53
Box 4.1: Policies and measures complementing GHG mitigation efforts 76
Box 4.2 National policies for the energy sector in India 77
Box 8.1. Technological options for the cluster 159
Box 8.2. Technological options for the Pune cluster 180

List of Photographs
Photo 6.1: Stacked grey iron foundry products 104
Photo 6.2: A worker pouring hot molten metal in the mould 104
Photo 7.1: Action in a typical glass unit (tank furnace) 128
Photo 7.2: Action in a bangle unit (pot furnace) 128
Photo 7.3: A pot furnace for making bangles 129
Photo 7.4: Another view of the pot furnace 129
Photo 7.5: Glass spiral in a ‘belan bhatti” 130
Photo 7.6: Raw bangle spirals being stacked 130
Photo 7.7a: A conventional coal-based muffle unit 132
Photo 7.7b: A natural gas-based muffle unit 132
Photo 8.1: Brick cluster near Chandigarh 160
Photo 8.2: Conventional Bull trench kiln with a moving chimney 160
Photo 8.3a: Stacking of bricks in a conventional clamp kiln 161
Photo 8.3b: A vertical shaft brick kiln 161
Photo 8.4: Mixing of clay for preparing bricks 162
Photo 8.5: A girl carrying bricks for stacking them in a clamp 162
Photo 8.6: A Bull trench kiln with fixed chimney 163
Photo 8.7: A High Draught Brick kiln 163
 ix

Abbreviations and Acronyms

AAU Assigned Amount Unit

ADB Asian Development Bank
AIBMF All India Bricks and Tiles Manufacturers Federation
AIJ Pilot Phase for Activities Implemented Jointly
A Argument
ASI Annual Survey of Industries
BEE Bureau of Energy Efficiency
BTK Bull Trench Kiln
CA counter argument
CBA Chandigrah Brick Association
CBRI Central Building and Research Institute
CCI climate change instrument
CDCF Community Development Carbon Fund
CDGI Centre for Development of the Glass Industry
CDM Clean Development Mechanism
CEF common effluent facility/plant
CER Certified Emission Reduction
CERUPT Certified Emissions Reduction Unit Procurement Tender
CII Confederation of Indian Industry
CO2 carbon dioxide
COP Conference of Parties to the Framework Convention on Climate
Change
CPCB Central Pollution Control Board
CSE Centre for Science and Environment
CSO Central Statistical Organization
DBC double blast cupola
DIC District Industries Center
DNA Designated National Authority
DoI Directorate of Industries
x

DoSSI Directorate of Small Scale Industries

EEPC Engineering Export Promotion Council
ERU Emission Reduction Unit
ET emissions trading
FASII Federation of Associations of Small Industries in India
FCCC Framework Convention on Climate Change
FICCI Federation of Indian Chamber of Commerce and Industry
FM Financial Mechanism
GAIL Gas Authority of India
GEC Global Environmental Cell
GEF Global Environmental Facility
GHG greenhouse gas
GSC Gravity Settling Chamber
HFA Howrah Foundry Association
ICSI Indian Council of Small Industries
IDGEC Institutional Dimensions of Global Environmental Change
IHDP International Human Dimensions Programme on Global Environ-
mental Change
IIFA Indian Foundry Association
IIFA Institute of Indian Foundrymen
INC Intergovernmental Negotiating Committee
IPCC Intergovernmental Panel on Climate Change
JI Joint Implementation
KMA Kokatta Metropolitan Area
KVIC Khadi and Village Industries Commission
LPG liquefied petroleum gas
MEA Ministry of External Affairs
MNES Ministry of Non-Conventional Energy Sources
MoARI Ministry of Agro and Rural Industries
MoEF Ministry of Environment and Forests
MoI Ministry of Industry
MoP Ministry of Power
 xi

MoSSI Ministry of Small Scale Industry

NABARD National Bank for Agriculture and Rural Development Corporation
NATCOM National Communication
NGO non-governmental organization
NML National Metallurgical Laboratory
NOX oxides of nitrogen
NSIC National Small Industries Corporation Limited
ODA Official Development Assistance
ODS ozone depleting substances
OP Operational Programme (of the Global Environment Facility)
PBMA Punjab Brick Manufactures’ Association
PCB (State) Pollution Control Board
PCB Pollution Control Board
PCD pollution control device
PCF Prototype Carbon Fund
PDF Project Preparation and Development Facility (of the Global Envi-
ronment Facility)
PIL public interest litigation
PLS priority lending support
PPDC Process and Product Development Centers
PSCST Punjab State Council for Science and Technology
RQ research question
SA sub-argument
SBC Single Blast Cupola
SBI State Bank of India
SC sub counter-argument
SDC Swiss Agency for Development and Cooperation
SFC State Financial Corporation
SID BI Small Industry Development Bank of India
SIDC (State) Small Industries Development Corporation
SIDO Small Industry Development Organization
SISI Small Industry Service Institute
xii

SME small and medium enterprise

SOX oxides of sulphur
SPM suspended particulate matter
SSI small-scale industry
TDMF Technology Development and Modernization Fund
TERI Tata Energy Research Institute (The Energy and Resources Inst itute)
TTZ Taj Trapezium Zone
U.P. Uttar Pradesh
UNDP United Nations Development Progammme
UNIDO United Nations Industries Development Organization
UPTECH Integrated Technology Upgradation and Management Programme
VA voluntary agreement
VSBK Vertical Shaft Brick Kiln
WASME World Association for Small and Medium Enterprises
WCED World Commission on Environment and Development

Conversion used: 1 Indian Rupee approximately = 45 US$ or 56 Euros.

 xiii

Acknowledgements

Working on the research thesis was a pleasurable journey, full of interesting and di-
verse experiences and substantial learning. There are several people and institutions
that have helped in this endeavour, and taking this space to mention some of them is
only a small acknowledgement of the overwhelming support that they have pr ovided.
First and foremost, I wish to thank my supervisory team – [Link]. Pier Vellinga,
[Link]. Hans Opschoor and [Link]. Joyeeta Gupta. I am grateful that they were sup-
portive of my research idea and agreed to supervise me. They shared with me their
in-depth knowledge and perspectives making possible my work on sustainable de-
velopment and climate change issues against a backdrop of multi-disciplinary ap-
proach. Their guidance, comments and inputs were invaluable for the thesis – I
learned a lot, and much beyond my research topic, through the discussions and inter-
actions with them. Their unstilted encouragement, motivation and support helped me
survive the long periods of fieldwork, analysis and dissertation writing. I feel privi-
leged to be associated with them.
I am grateful to the V rije University (VU) and the Institute for Environmental Stud-
ies (IVM) for hosting me, and all the colleagues and friends at IVM, who are e x-
tremely cooperative, friendly and helped me feel at home when I was at the institute.
I would like to especially thank Ms Els Hunfeld for her support and cooperation
throughout this period. Her contribution was enormous and she also helped me in
translations. I am also grateful to Ms Avril Digby at ISS, whose bright smile always
made me feel at home whe never I visited Den Haag.
I would lik e to thank UNU-INTECH (United Nations University – Institute for New
Technologies, Maastricht) for granting me the two-year Fellowship (September
1999–September 2001). Being a part of the INTECH-MERIT Ph.D. Program brought
back memories of student life (after working for six years) and the intensive course-
work benefited a lot in refreshing the relevant theoretical concepts. I thank the Fac-
ulty, especially prof. Rene Kemp at MERIT who was always ready to discuss envi-
ronmental technological linkages and give valuable suggestions. I also wish to men-
tion the support of prof. Lynn Mytelka and Dr. Sunil Mani at INTECH, as well as
prof. Luc Soete and prof. Robin Cowan at MERIT, who provided comments on my
research proposal. I am grateful to my all my friends at INTECH – Mamata, Samia,
Geoffrey, Minh and Pedro and Ali – for the good time we had at INTECH, especially
Mamata and Samia, and for making my stay at Maastricht memor able.
Funding was critical with INTECH providing only a two-year Fellowship. I would
like to acknowledge the support I received from two additional sources. I am grateful
to the Netherlands Foundation for the Advancement of Tropical Research Nethe r-
lands (WOTRO) – Netherlands Organisation for Scientific Research (NWO) for
granting me the WOTRO DC Fellowship (July 2002-June 2004). I am also grateful
to Dr Veena Joshi, Swiss Agency for Development and Cooperation (SDC), India,
xiv

for providing me a research grant to complete (both fieldwork and analysis) of the
Howrah Foundry cluster case study. Veena ji’s insights into the climate change and
SSI linkages were also helpful for this dissertation.
The fieldwork was probably the most challenging and interesting part of the research.
It provided me with a new perspective on the whole area of environmental policy and
emissions from small scale industrial activities. I am thankful to all the small-scale
industries’ entrepreneurs, workers, association members, government officials, aca-
demicians, researchers and others who gave me their time and shared with me their
experiences and insights which are invaluable by any means. I am indebted to them.
I also thank all those who helped me during my field work at the case study sites.
The list is long, but I would especially like to mention Mr B K Rakshit (Howrah cas e
study); Mr Pritpal Singh, Mr Sachin Kumar, Manpreet Gaur and Mr Rajeev Rahlon
(Chandigarh case study); Mr Anand Damle (Pune case study); and Mr B C Sharma
(Firozabad case study). They not only introduced me to their network of contacts
within the industry clusters, but their knowledge and experiences provided insights
about these clusters which are not easily available in books or reports. I am also
thankful to Ms Purnima Joshi for helping me in copy-editing the manuscript.
A number of institutions provided me institutional support when I was in India. I am
grateful to them all. I thank Mr Somnath Bhattacharya, Dr Sameer Maithel and the
Tata Energy Research Institute (TERI), New Delhi, and Dr Christopher Scott and the
International Water Management Institute (IWMI), Hyderabad, for permitting me to
use the office facilities and providing interesting observations relevant for my work.
I am also grateful to several friends I made at the Technology and Development
Group (TDG) at the University of Twente (UT), Enschede. My husband is doing his
Ph.D. from TDG but everyone there – especially prof. Nico Schulte Nordholt, prof.
Joy S Clancy, prof Margret Skutcsh and Mr Rob van Waarde – were very helpful and
made me feel welcome at the institute. They not only let me work in the TDG library
during my stay at Enschede but also discussed my thesis and commented on my
chapters. It has been wonderful to know Joy, Giles and Margaret, who in addition to
being extremely helpful, have always been a constant source of encouragement. I
thank them for their enormous support and their generous hospitality.
Last but not the least, I thank my family and friends for their constant motivation and
unwavering support, and for helping me sustain my enthusiasm particularly during
some of the difficult periods during my research. My mother – Mrs Adarsh Soni, has
been my pillar of strength and support, and this dissertation would not have been
completed without her encouragement. She watches all documentaries and news
items on climate change and keeps collecting relevant information to share with me.
I am grateful to my sisters – Sujata and Twinkle, my niece – Sahiba, for cheering me
on and pushing me to keep wor king. I thank Amardeep Bali, my brother-in-law, who
is ready to help in any way including by helping me arrange accommodation during
my stay in Kolkata and Howrah. I thank my grandparents, cousins, uncles and aunts
 xv

for their encouragement and enthusiasm to see me graduate. I also thank my in-laws
for their support.
I am thankful to my husband – Shirish, who has always been there for me! He has
helped me most to put together this manuscript, particularly through numerous and
unending discussions, constructive ideas and constant motivation. His comments and
suggestions are always valua ble, and those relevant for this research contributed sig-
nificantly in shaping it. Shirish also helped me immensely with my field work – he
accompanied and helped me in completing my survey in the Firozabad glass cluster.
It will only be true to say that the thesis may not have been possible without his sup-
port, both intellectual and emotional, and understanding. I owe this thesis to him.
In the end, I would like to dedicate this thesis to my father – Mr Kewal Krishan Soni,
who though no longer with us, is always there in spirit and in our hearts. He was
much more than a father and I miss him greatly. The the sis is also for my mother,
who is also my best friend, and my two-month old little daughter –“Mannat” who has
just come into this world and brought sunshine in our lives.
Thank you all.

Preeti Soni.
1. Introduction

“The effectiveness of climate change mitigation can be enhanced when

integrated with the non-climate objectives of national and sectorial po l-
icy development and can be turned into broad strategies to achieve the
long-term social and technological changes required by both sustainable
development and climate change mitigation” (IPCC 2001: 303)

Human activity, such as energy use and industrial production, contributes to the ris-
ing concentrations of greenhouse gases (GHGs) in the atmosphere normally associ-
ated with global warming and climate change. A significant institutional challenge in
this regard is to equitably meet the increasing energy needs across different sectors
and countries, while lowering the rate of growth of their GHG emissions. Options in-
clude policy instruments developed or debated at the international climate change
negotiations that offer incentives for undertaking climate relevant actions and facili-
tating sustainable development. While these climate change instruments (CCIs) are
negotiated internationally, their impact lies in their ability to influence human activi-
ties at all levels of social organization. From the developing countries’ perspective,
these may be more effective when embedded within their broader national develop-
ment strategies and policies.
Small-scale industries (SSIs), in particular, are significant contributors to the socio-
economic growth in developing countries. Use of inefficient production and man-
agement processes in energy intensive SSIs contribute to GHG emissions and offer
potential for saving energy and reducing GHGs. Cleaner technologies can reduce
GHG emissions and help SSIs in facing emerging challenges due to environmental
policies and increasing competition in a liberalised global scenario. The CCIs, how-
ever, have so far largely ignored the SSIs which are characterised by small sizes, dis-
persed nature and informal structures. They tend to focus more on organized and
large sectors which bring in direct and cost-effective means of reducing GHGs.
Given their large numbers in the developing countries, leaving out the SSIs would
lead to not addressing an important segment of the climate change problem.
This thesis examines the link between the CCIs and the SSIs; that is, the role of CCIs
in facilitating cleaner technology diffusion in SSIs, and of SSIs in assis ting in global
GHG reduction efforts. Taking the case of India, it analyses the potential role and e f-
fectiveness of international policies and policy instruments in directing the local-
level human activities towards more environmentally sustainable paths.
2

1.1 Context

1.1.1 Sustainable development and climate change

Sustainable development is commonly defined as a process of change in which “the
exploitation of resources, the direction of investments, the orientation of technologi-
cal development, and institutional change are in harmony and enhance both the cur-
rent and future human needs and aspirations” (WCED 1987: 47). 1 This entails ad-
dressing environmental problems and conserving natural resources without compris-
ing socio -economic aspirations of the present and future generations.
Strategies to address climate change become extremely relevant in the context of sus-
tainable development, as the problems and possible solutions involve economic and
social activities across all countries with inter-generational and inter-temporal conse-
quences. Developing and implementing institutional and technological approaches is
especially challenging given that they impact the atmosphere which is a global com-
mon good. For over a decade, the signatories of the United Nations’ Framework
Convention on Climate Change (FCCC) have been formulating policies and have in-
troduced policy instruments, in line with the principle of common but differentiated
responsibilities, with the objective:
“…to achieve stabilization of GHG concentrations in the atmosphere at a level
that would prevent dangerous anthropogenic interference with the climate sys-
tem… within a time-frame sufficient to allow ecosystems to adapt naturally to
climate change, to ensure that food production is not threatened and to enable
economic development to proceed in a sustai nable manner”(FCCC 1992).

1.1.2 Climate change instruments and diffusion of cleaner technologies

The policy instruments for addressing climate change are largely based on the eco-
nomic theories for environmental protection and may be referred to as climate
change instruments (CCIs).
Climate change instruments (CCIs) are policy instruments for climate
protection that are developed and introduced under the global regime for
addressing climate change.
The CCIs that are relevant for developing countries aim at facilitating sustainable
development on two levels, that is, the global (GHG mitigation) and the national
(economic, social and local environmental benefits). They tend to focus on ‘addi-
tional’ host -country driven approaches. However, CCIs have to be considered in a

1
Sustainable development is a context related concept, and there is no universally accepted defi-
nition. It is more commonly defined as “development that meets the needs of the present without
compromising the ability of the future generation to meet their own needs” (WCED 1987: 8).
Even this definition has shortcomings (e.g. ambiguity regarding the concept of needs). The three
dimensions (or pillars) of sustain able d evelopment include economic, social and environmental
sustainability (Munasinghe 2000).
 3

political setting wherein several stakeholders are involved and their motivations have
a bearing on the design and effectiveness of the policy instruments. While CCIs are
designed at the international or national levels, their implementation is dependent on
the national policies and policy instruments, as well as human actions (and decision
making) at the local levels. Thus, it is important that correct and adequate “CCI sig-
nals” and information about their incentives and objectives are transmitted to various
stakeholders involved for the desired impact.
Diffusion of cleaner technologies provides an option through which the CCIs may
achieve their objectives in the developing countries. Technology, in general, is im-
plicated in climate change as both a source and potential solution to the problem.
Cleaner technologies are techniques, processes and products that help diminish or
avoid environmental damage (Kemp 1995). For the energy intensive industries in
particular, these technologies may improve energy efficiency, and thereby reduce the
associated GHG emissions and local environmental impacts. 2 For this thesis ther e-
fore, cleaner technologies and their diffusion are defined as follows:
Cleaner technologies for energy intensive industries include energy
efficient technologies, including techniques, processes and products,
that help reduce local and global environmental damage.
Diffusion of cleaner technologies is the process by which cleaner tec h-
nologies spread (and are transferred) across potential markets and sectors.

1.1.3 Climate change instruments and developing countries

Although the developed countries have contributed to the major share of anthropo-
genic GHG emissions, the developing countries’ share is rapidly increasing. India,
for instance, is among the ten largest GHG emitting countries. It also ranks high on
the vulnerability to impacts of climate change (MoEF 2004a). In most developing
countries, climate protection is an important issue but not a priority in light of the
more pressing development priorities such as economic development and poverty a l-
leviation. Diffusion of cleaner technologies, however, could help them meet their de-
velopme nt priorities while decreasing the rate of growth of GHG emissions (DIFD
1999; Goldemberg and Reid 1998). The CCIs can facilitate diffusion of cleaner tech-
nologies by: leveraging low -cost finance and state-of-the -art technologies; creating
incentives for cleaner technology adoption; promoting international co-operative in i-
tiatives; and fostering capacity building (Parikh 2000; TERI 1998a).
The challenge faced by de veloping countries is the adaptability of the CCIs by ana-
lysing the risks and opportunities they encompass, in order to safeguard their own in-
terests during the negotiation process and adoption of the policy instruments. Many
developing countries, including India, had initially adopted a cautious approach to-
wards the CCIs during the negotiations (Gupta 2001; Gupta et al. 2001); their con-

2
The GHG emissions may also be reduced through use cleaner fuels and renewable energy tech -
nologies . The focus of the thesis is however on improving energy efficiency.
4

cerns included additionally, ethics, equity, project eligibility, transparency, simplicity

of procedures and sustainability (FCCC 2000). It was also argued that the CCIs may
be restricted in their coverage, focusing on a few sectors and technologies (Gupta
2000). However, the interest in CCIs, particularly the market-based CCIs, has in-
creased rapidly and quite significantly over the last few years. Several projects have
been developed or are being conside red that lend themselves to the CCI criteria. In-
dia, in fact, is a leading host country for such projects (MoEF 2004a). Many of the
projects, however, are still considered to be driven by investors or consultants, and
thereby are motivated more by their interests and less by national development pri-
orities. Given that the CCIs are integral to the climate change policy regime, the de-
veloping countries need to strategize to utilize the CCIs effectively given their own
national institutional structures and development priorities while ensuring adherence
to the overall global environmental objectives.

1.1.4 Small-scale industries in India

SSIs are directly relevant for socio-economic development in developing countries as
they generate significant employment opportunities, build local capacity and contrib-
ute to economic growth. There is no uniformly accepted definition of SSIs, and lit-
erature defines them in several ways (for example, based on employment, capacity
and investment). In fact, a more commonly used term for SSIs is small and medium
enterprises (SMEs). In this thesis – as the focus is on India – the official definition of
SSIs in India is used:
Small-scale industries (SSIs) include all industrial units in which the invest-
ment in plant and machinery does not exceed Rs 10 million3.
The SSIs in India are often referred to as the engine of growth. Their relevance is
aptly described in the words of Mahatma Gandhi: “I believe in the production by the
masses and not mass production” , who had emphasised the role of SSIs to usher
economic development in post-independence India. At present, the SSIs account for
around 95% of industrial units (3.2 million registered units), 80% of manufacturing
employment (second largest employer directly employing 18 million people), 40% of
manufacturing output, and 36% of exports (MoSSI 2001, 2004) .
SSIs in India, as in several other developing countries, are often associated with the use
of inefficient production and management processes leading to adverse environmental
impacts, especially at the local level (Beckerman 1995; Bhalla 1995; CSE 2002).
There are no accurate estimates for the environmental impacts of SSIs. However,
studies have considered environment impacts of SSIs as quite significant (Bala
Subrahmanya and Balachandra 2002), and the estimated contribution of the SSIs to
the total local industrial pollution in India is 65-70% (Bhalla 1995; CSE 2002; MoEF
2002c). The polluting SSIs, include many energy-intensive SSIs such as metal foun-

3
That is, approximately US$ 220,000 or Euro 180,000.
 5

dries and forges, steel re-rolling, brick, glass, pottery, ceramics and mini-cement
plants.

1.1.5 Diffusion o f cleaner technologies in small-scale industries in India

Diffusion of cle aner technologies in the energy-intensive SSI units can lead to sig-
nificant energy savings and reductions in associated GHG and local environmental
impacts. At the same time, they can bring additional benefits such as improvements
in productivity, working conditions and competitiveness of the SSIs along with e m-
ployment generation and poverty alleviation. This is especially desirable in the pre-
sent scenario wherein many SSIs face the challenge of increased competition from
within the sector, as well as from large industries and imports. Studies indicate an
energy-saving potential of 10–15% by improvements in operational and maintenance
practices, and an additional 30–35% through upgrading the technology in the SSIs in
India (PCRA 2000). However, there are significant barriers to the diffusion of
cleaner technologies in the sector (Worrell et al. 2001), which depend not only on
micro-level decision-making but are also related to the characteristics of SSIs and
their social, economic, political and cultural milieus (Dasgupta 2000; Frijns and Vliet
1999).
There is more than one pathway for facilitating diffusion of cleaner technologies in
SSIs, including national policies and community initiatives. For Indian SSIs, there
are promotional policies (such as fiscal, credit and institutional support), and those
that address local pollution (SIDBI 2000) . These policies have resulted to some e x-
tent, in the adoption of end-of-pipe solutions (like pollution-control devices, common
effluent plants), and relocation and closure with social implications (such as in Delhi
and Agra). However, they have had little impact on the actual production processes.
Policies for energy conservation and related cleaner technologies in SSIs are largely
restricted to awareness creation and demonstration projects, with limited take-up.
The demonstration projects in foundry (cokeless cupola), mini-cement (oil-fired ver-
tical shaft kiln), and brick industries (vertical shaft kiln) show considerable energy
savings (TIFAC 2001).
An additional pathway to encourage cleaner technology diffusion in the SSIs could
be the use of the CCIs.

1.2 Problem definition

The concern of the SSIs at present is their own sustainability linked to increasing
global competition. The proponents of cleaner technology diffusion in developing
countries argue that the associated barriers can be removed through national, private
sector, and community initiatives (IPCC 2000). However, in India, a lthough there are
national policies for the promotion of SSIs, those for the diffusion of cleaner tech-
nologies in general target the large-scale industrial sectors. There is not much thrust
given to the sector, in the business-as-usual scenario, in terms of cleaner technology.
6

It is also argued that the CCIs can promote cleaner technologies in developing coun-
tries by providing economic, technological and capacity-building inputs. But, again,
these instruments tend to focus on specific sectors such as power generation and re-
newable energy technologies. T here is still a limited, albeit increasing, focus on e n-
ergy efficiency improvements in SSIs in climate change policy discussions and the
projects developed within the CCIs portfolios. There are also diverging views on the
use of CCIs for the SSIs. The GHG impacts of SSIs are often assumed to be limited,
and their GHG reduction potential ignored due to their cha racteristics , for example,
small sizes and scattered nature. However, studies show that certain SSIs have ad-
verse environmental impacts and potential for GHG reduction (Scott 1998; TERI
2000a, 2002). Climate relevant projects involving SSIs have also been developed il-
lustrating their GHG relevance, and sustainable development benefits of adopting
cleaner technologies. On the other hand, studies also show that SSIs have less access
to financing (including national and international), and even small investments in
cleaner production are often not made (van Berkel and Bauma 1999) . At the same
time , the projects under CCIs are likely to have transaction costs, which discourage
the involvement of SSI given their limited resources (finance, information, etc.).
In the light of the characteristics of SSIs and their impor tance in national economies,
given the dual objectives of CCIs, what is required is a set of innovative solutions
(institutional including policy, and technological) within the CCIs framework. This
essentially is the focus of this research. The proposition is that the CCIs will not fo-
cus on the SSIs, unless appropriate measures are applied. The issue is how to provide
a conducive scenario and effectively utilize the CCIs for the SSIs in developing
countries like India such that reductions in GHG emissions and local pollution be
achieved alongside other benefits like improvements in SSI cost-effectiveness, com-
petitiveness and working conditions. This entails examining the instruments, and the
context and circumstances in which they would ope rate.
The main objective of this study is:
To determine whether the climate change instruments can facilitate the diffusion
of clea ner technologies in the small-scale industries in developing countries lea d-
ing to sustainable development benefits, by examining the synergies and conflicts
between these instruments and national policies in India.
The study examines the link between the CCIs and the SSIs. If such a link exists then
how can it be strengthened; and if not, then should it and how can it be established?
This provides theoretical and policy lessons for the design and implementation of
policy instruments under the climate change negotiations. The ultimate scientific
aim of the study is to deepen the understanding regarding the effectiveness of global
regimes at local levels.
 7

Thus, the central research question is:

Under what circumstances can climate change instruments induce the small-scale
industries sectors in developing countries to contribute towards the global efforts
for addressing climate change and at the same time assist the process of sustain-
able development at the national level?

1.3 Structure of the thesis

The thesis is structured as follows (F igure 1.1).
Chapter 1 has presented the background, rationale and the relevance for examining
the link between the CCIs and the SSIs. It has defined the main objective and the
central research question for the study.
Chapter 2 discusses the theoretical background and concepts related to the two basic
themes, which are (a) the policy instruments for climate protection and (b) diffusion
of cleaner tec hnologies in the SSIs.
The theoretical background forms the basis of Chapter 3, where the research frame-
work is developed and the research methodology defined. The research methodology
used is largely qualitative, including literature survey, primary interviews and mult i-
ple case studies (involving primary survey and interviews). The central research
question is sub-divided into more focused research questions in Chapter 3.
In line with the research framework, Chapter 4 examines the climate change policies
and policy instruments at the international and national levels. It focuses on their
evolution and the implications of CCIs for India and for the SSI sector.
Chapter 5 deals specifically with the national policies in India, and how they influ-
ence diffusion of cleaner technologies in the SSI sector.
Chapters 6, 7 and 8 present case studies of three SSIs clusters in India, where the
national environmental policies have brought about a change in terms of cleaner
technology diffusion, and in that sense, have been “diffusion forcing ”. This not only
helps to draw lessons for drafting international environmental policies, but also to
examine the barriers and drivers that exist that may influence these policies. Al-
though it is not imperative to read these chapters in detail in order to understand the
conclusions, they are interesting and informative for the full story emerging from the
thesis.
The conclusions from the case studies are revisited in Chapter 9. Chapter 9 draws
inferences based on the discussions in these in-depth case studies, for the SSI sector
in general, and identifies the gaps in the current paradigm whereby diffusion of
cleaner technologies in the sector is constrained.
Finally, the main conclusions are discussed in Chapter 10 . The chapter brings out
the linkages, both synergies and conflicts, between CCIs and SSIs and vice versa .
8

Chapter 1. Introduction

Rationale for examing the link between the

climate change instruments and the SSIs

Chapter 2. Theoretical Background

Theoretical perspective related to two relevant themes:

(i) climate change instruments
(ii) diffusion of cleaner technologies in the SSIs

Chapter 3. Research Framework and Methodology

Developing the research framework for examing the link between climate change
instruments and the SSIs, defining the research sub-questions,
and describing the methodology used

Chapter 4. Climate change policies and policy instruments

Examining the climate change policies and policy instruments, at the international
level and in India.

Chapter 5. National policy for small scale industries

Examining the national policies relevant for the SSI sector in India

Chapter 6. Case study of the foundry industry

Chapter 7. Case study of the glass industry

Chapter 8. Case study of the brick industry

Chapter 9. Current paradigm: Is small beautiful and clean?

Examining the cleaner technology diffusion paradigm in the SSIs

Chapter 10. Towards a new paradigm

Drawing conclusions, and making sceintific and policy recommendations

Figure 1.1: Structure of the thesis

The thesis, therefore, focuses on SSIs which have not been adequately addressed in
the climate change literature. It does not limit itself to assessing the generic nature
and potential advantages or disadvantages of the CCIs but attempts to examine and
provide empirical evidence for the potential interaction between these instruments
and national sustainable development goals, with particular emphasis on the SSI sec-
tor in India.
 9

2. Theoretical background

2.1 Introduction
This research aims to examine the link between CCIs and SSIs. The rationale for ex-
amining this linkage is provided in Chapter 1. This chapter pr ovides the theoretical
background. The research essentially deals with two main themes at the theoretical
level: (i) policy instruments for environmental protection (specifically for addressing
climate change), and (ii) diffusion of technologies (specifically cleaner technologies)
in small and medium enterprises in developing countries (specifically agglomerations
or clusters of small-scale industries or SSIs). In doing so, it uses and combines theo-
retical perspectives related to two streams in economics: (i) ecological economics for
assessing the climate change policies and instruments for diffusion of cleaner tec h-
nologies at various levels, and (ii) evolutionary theory of technological change for
providing insights into the complexity of factors influencing cleaner technology dif -
fusion in the SSIs.
The chapter deals with the two theoretical themes in Sections 2.2 and 2.3. Though
the two themes are important individually, a combination of the two provides a holis-
tic perspective regarding the macro–micro linkages addressed in this research – and
is more than just a sum of the parts. The aim is to provide a discussion of the relevant
concepts, and draw conclusions in Section 4.

2.2 Policy instruments for addressing climate change

There are several policy instrume nts for environmental protection in the literature
that may also be used for addressing climate change.4 These may be classified on the
basis of the routes they take to influence actions and decisions of the relevant actors
(here, entrepreneurs or industrial units is the focus of the thesis), and provide incen-
tives for them to undertake steps for environmental protection 5. They include regula-
tory, economic and suasive instruments, and these may be used in isolation or in
combination with each other (Opschoor and Turner 1994). The regulatory instru-
ments alter the set of options available to the actors, e.g. standards, limits, norms,
bans. They identify the appropriate course of action and make particular forms of ac-

4
The foundation of policy instruments lies in the theory of externalities (in environmental eco-
nomics) that the use of natural resources as a factor of production is not internalised suffi-
ciently and is reflected in market prices leading to external costs or externalities (pollution),
and, thereby, the socially optimal level of economic activity doesn’t coincide with the private
optimum (Baumol and Oates 1971). One way of achieving the social optimum is by the use
of policy instruments. See Box 2.1.
5
Incentive here is broadly taken to mean stimulus for change and not only incentive in financial
terms.
10

tion mandatory. In an ideal situation, therefore, the actor (polluter) is left with no
choice and has to either comply or pay the penalties. The instruments can range from
specification of thresholds or ceilings to location of pollution activities. In most
cases, the polluters are required to adhere to standards (which may be technology- or
performance–based). 6
The economic instruments alter the relevant cost–benefit ratios of the options using
economic incentives or market stimuli, e.g. in the form of changed relative prices
and/or financial transfer. Thereby, they do not provide explicit directives to dictate a
particular technology/behaviour, but allow the actors to choose the method “best” in
their particular circumstances. This built– in flexibility helps in achieving the envi-
ronmental goal at a lower cost. These instruments may be market creating (e.g. trad-
able quotas, permits) and non-market creating (e.g. taxes, subsidies, deposit-refund
schemes).
The suasive instruments alter the sensitivity or preference for environmental aspects
of the options using moral suasion, e.g. awareness creation, eco–labelling. They aim
at full ‘internalization’ within the preference structure of the actor (Opschoor 1995) ,
and can play an important role in influencing the market. In fact, it may be argued
that due to public opinion, the trajectories of today’s technological revolutions are
inherently less environmentally exploitative than those of the past, and environ-
mental concerns and social values have started gaining wide acceptance in the tec h-
nology and business strategies of industry (Freeman and Soete 1997) . 7
Another instrument that has emerged is voluntary agreements (VA), or deals (negot i-
ated contracts) between governme nt and industry to undertake measures specifically
to achieve an environmental benefit (for example, agreements to phase out chloro-
florocarbons). VAs may be prompted due to unforeseeable social demand or a threat
of regulation. In case of non-compliance, government may impose a regulations or
coercive measures at the end of the contract period.

2.2.1 Assessment of policy instruments

In traditional environmental economics, economic instruments are preferred over
regulatory instruments as they offer a more cost-effective way of achieving environ-
mental goals (Figure 2.1). 8 However, this is only in theory as it ignores issues like
uncertainty, feasibility, acceptability and market distortions (Box 2.1 specifies some

6
The standards include: ambient quality, emissions, behavioral, process and product standards.
7
This is observed as several corporations are attempting to appear ‘green’ (especially as the pub-
lic has starting placing a premium on it). Even expensive ‘cleaner’ products (e.g. recycled
paper, organic food) make business sense. In the case ofclimate change, people as well as
developmental/environmental NGOs play a role in the negotiations and discussions.
8
The theoretical comparisons of the instruments have been dealt with at length in the literature
(e.g. Bohm and Russell 1985). Some others include (Baumol and Oates 1971; IPCC 2001b;
OECD 2000; Opschoor 1995; Panayatou 1994; Tietenberg 1985).
 11

restrictive theoretical assumptions). 9 What may be efficient in economic terms and in

the first best setting, may not be acceptable or feasible for socio–political reasons
(also known as the administrator’s dilemma), or may not be as efficient in a distorted
world with market failures (or in the second best setting) 10.
Box 2.1 : Theoretical foundations for economic instruments
Pigou (1920) suggested that in the face of an externality (such as pollution) in a market
economy, a per unit tax (Pigouvian tax) equal to marginal external social damage caused by
the last unit of pollution at the efficient allocation on the emissions from a polluting activity
may be levied. The tax offers a lower cost method of achieving a given environmental goal
as compared to a standard. However, the setting of the “optimal level ” is based on the as-
sumption that the costs and benefit functions are known, and will be acceptable (in economic
and political terms).
Coase (1960) emphasized the importance of property rights and bargaining between polluters
and sufferers – rejecting intervention by the government (e.g. in the case of Pigovian taxes)
in favour of market bargaining underpinned by appropriate property right in order to achieve
the social optimum. The ‘Coase theorem’ lays down that, regardless of the ownership of the
property rights, there is an automatic tendency to approach the social optimum via bargain-
ing. However, this does not hold in case of existence of imperfect markets, high transaction
costs, difficulties of polluters and sufferers, identification and threat marking behaviour or
differences in negotiating power (a scenario nearer to the climate change negotiations). This
theorem brought to the fore the importance of bargaining and transactions costs.
Baumol and Oates (1971) offer the same advantage as a Pigouvian tax or charge but in a
more cost-effective manner in a collective sense, by giving the polluters a chance to trade
their pollution rights (emissions/discharge permits). They demonstrated formally the general
properties of a system as was anticipated Dales (1968) and Crocker (1966) (for water and air
respectively). Their paper was about a charge system designed to meet a predetermined envi-
ronmental target, and was not explicitly about a marketable permit system but it did give a
formal basis for it. It illustrated that as long as transactions are beneficial, a market for pollu-
tion rights will function.
Both taxes and tradable permits tend to equate the marginal cost of emissions abatement for
all affected sources. The difference is that the government sets the tax (administered pricing)
and the level of emissions is determined by the responses of the affected sources; whereas in
a tradable permit system, the government determines the overall level of emissions, and the
market determines permit prices.
References: (Baumol and Oates 1971; Coase 1960; Crocker 1966; Dales 1968; Pigou 1920)

For evaluating (and selecting) the policy instruments, there are a number of criteria
provided in the literature. 11 These may be broadly categorised into two (Opschoor

9
Select authors (Adar and Griffen 1976; Weitzman 1974b) show that uncertainty (e.g. regarding
marginal abatement costs and benefits/damage) may lead to preference of one instrument
over another depending on the uncertainty, and elasticity of damage and control functions.
10
For instance, (Goulder et al. 1999) show that the overall costs and cost-effectiveness of instru -
ments may be affected by market distortions like pre-existing taxes; i.e., extending the litera-
ture on choice of instruments for a second best setting (relatively a more realistic situation).
11
For an overview, see (Fischer et al. 1998; OECD 1997).
12

and Turner 1994). Firstly, there are the optimality criteria that are concerned with the
issue – whether instruments will do the desired job and at an acceptable perfor mance
level. These include environmental effectiveness (in meeting the environmental
goals) and economic eff iciency (cost-effectiveness – static and dynamic)12. Secondly,
there are the concordance criteria that are concerned with the acceptability of the in-
struments.13 These may include social and political acceptability (including the mot i-
vation, information and resources of various actors – regulators, entrepreneurs and
other stakeholders) 14, and administrative feasibility (including implementation re-
quirements and existing policies and institutions, and being supportive of and consis-
tent with broader policy objectives). In this thesis, the relevance of specific policy in-
struments for a particular sector is analysed and the feasibility and acceptability is-
sues are especially important.
The contention is that the performance of the policy instruments depends not only on
their design and characteristics and thereby the potential incentives they may pr o-
vide, but also on the context and the circumstances in which they are applied, hig h-

12
Efficiency refers to capability for maximizing net benefits. However, given scientific uncer-
tainty related to costs and benefits as well as their economic consequences, this is usually re -
ferred to as cost-effectiveness (minimizing costs of abatement).
13
Environmental economics tends to emphasise the optimality criteria, specifically economic ef-
ficiency. It may bring in aspects of concordance in terms of costs (e.g. implementation costs),
and dealing with them in optimality terms. Riordan et al (1998) distinguish between three
types of costs relevant for neo-classical analysis: production, implementation and public fi-
nance (price distortions). Others (e.g. Jaffe et al. 1995) provide a set of associated costs. In
general these are treated separately. Also, it is not possible to convert all implementation and
acceptability issues into cost terms. However, though the approach is a powerful tool for pro -
viding theoretical insights for partial and generic analysis – it is restrictive in terms of its un -
derlying assumptions and applicability to real life situations (esp. related to social context).
Ecological economics, being trans-disciplinary, may consider both sets of criteria
within the social context. Though it lets various perspectives be incorporated in order to pro-
vide a “realistic” and broader scenario, it does not recommend a superior or “appropriate”
perspective or methodological tools for analysis (these may differ based on the behavioural
assumptions or questions b eing researched). It allows for (as in this thesis) using environ -
mental economics tools in combination with other theoretical perspectives, like a political
economy approach, addressing both sets of criteria and also issues of scale.
14
This draws from the political economy approach. The approach treats the policy instruments
within a ”political market” consisting of interest groups with a stake in the policy instru-
ments (demand side) and regulators and administrators involved in design and implementa-
tion (supply side) that may favour different instruments based on their interests and motiva-
tions (Keohane et al. 1999). Specifically, the “contextual interaction theory” deals with the
implementation of policy instruments as separate from their selection (i.e. turning “envis -
aged” incentives into “real” incentives), and dependent on the behaviour of the target groups
(a complex rather than individual actor) – by focusing on the characteristics of the actors in-
volved, particularly their motivation, information, and power/resources, and their interactions
(all other factors are external circumstances that influence these core circumstances)
(Bressers 2003).
 13

lighting the role of prevailing policies (and institutions) 15.16 This is especially signifi-
cant as sustainable development is increasingly being recognized as a context-
specific concept, and particularly in the case of climate change policies where polit i-
cal considerations and bargaining processes may play a pivotal role in their selection
and performance.17
Costs,
Tax
MAC4

MAC3

MAC2 D

C
MAC1
T1 T2 T3
T T4

O P1 P
S =P2 P3 P4 Pollution

Figure 2.1: Cost-effectiveness (uniform taxes versus uniform standards)

Assuming four units with different marginal abatement costs: MAC1<MAC2<MAC3<MAC4.
To bring down pollution, a uniform tax may be fixed at the level T, or a uniform standard fixed at level S.
With standard : Abatement levels are same for all firms (S). Thus, the total abatement is = 4*PS. And, the total
abatement costs = PAS + PT2S + PCS + PDS

With tax: Abatement levels are different for the four units. The unit with lowest MAC, abates maximum (but
pays the lowest tax), and vice versa, providing a more cost-effective option. Total abatement = PP1 + PP2 + PP3
+ PP4. And, the total abatement costs = PT1P1 + PT2P2 + PT3P3 + PT4P4.

15
Policies (and policy instruments) and institutions are important in influencing and shaping each
other. Institutions may be defined as a s et of rules, norms that facilitate coordination of hu-
man behaviour (section 3.2). Institutions are important for picking up signals, balancing in-
terests and executing agreed decisions; and may be weak when interests are dispersed.
16
The context has been treated differently in the literature. The contextual theory in political
economy literature describes these in terms of interest groups and their interactions. And, the
literature on social institutions and environmental regimes (e.g. IHDP-IDGEC literature) de -
scribes these circumstances as contextual factors that affect the effectiveness of institutions
and policy instruments (chapter 3).
17
For example, authors (Fredriksson and Svensson 2002) have examined the influence of politi-
cal instability and corruption on environ mental policy formulation. Political instability in a
country may have a negative effect on the stringency of policy instruments if corruption is
low, but a positive effect if corruption is high.
14

2.2.2 Regulatory versus economic instruments

In general, regulatory mechanisms are effective provided they are properly e nforced.
Their main weaknesses are that they are: (i) static : lack incentive for polluters to take
action beyond the regulated level, and may also deter them from adopting superior
technologies fearing a revision in standards to make them more stringent (Figure
2.2); (ii) inflexible and inefficient: they may not encourage most cost-effective op-
tions; (iii) narrow in terms of expecting uniform behaviour in heterogeneous situa-
tions and actors; and (iv) difficult to enforce in case of many actors. On the one hand,
use of existing regulatory structures and institutions may help reduce administrative
costs – in fact, where there are relatively few sources of a pollutant, regulation may
be the most administratively feasible option. On the other hand, they may be con-
strained due to weak enforcement, especially in developing countries, with insuff i-
cient monitoring and enforcement mechanisms, and limited technical and financial
resources available. Political consensus in these cases is also difficult to achieve, and
is often subject to negotiations between government and private sector/independent
players.18
Economic instruments, on the other hand, while offering dynamic advantages19 (en-
courage diffusion of cleaner technologies) and flexibility , also tend to be easier to en-
force (especially in case of emission trading where prices are fixed by markets) and
have the potential to yield fiscal benefits (e.g. in case of taxes, auctioned permits, re-
ducing subsidies). However, their effectiveness may be reduced due to lack of infor-
mation and uncertainty (e.g. data regarding the mar ginal costs-and-benefits func-
tions), and at times macroeconomic impacts (especially the fiscal instruments – rais -
ing issues of distributive equity). In some cases, they may not be feasible as the re-
quired governance structure or the political structure where economic agents respond

18
World Bank 1997 argues that the regulators and polluters are involved in a complex game. The
regulators need information to establish “acceptable” pollution levels and polluters want to
maximize private benefits without antagonising the inspectors. Thereby, the game is associ-
ated with two kinds of decisions – the regulator’s dilemma (choice of optimal solution/ spec i-
fication) and the polluter’s dilemma (to pay penalties or incur costs of abatement). While the
former is dependent on enforcement levels and information, the latter is associated with size,
market conditions, worker skills and environmental management in the polluting unit, and
together they may alter the effectiveness of the regulations.
19
Using the neo -classical approach and building on the basic model illustrated in Figure 2.2, the
discrete technology choice models analyse and compare incentives for the firms under differ-
ent policy instruments (Jung et al. 1996; Milliman and Prince 1989; 1992 - for heterogeneous
firms). The main conclusion is the standard one that economic instruments provide better in -
centives for technology adoption and innovation by firms than direct control (uniform stan-
dard). However, they do not consider policy making under uncertainty, and do not distin-
guish between different technologies. These concerns are addressed to some extent in a
model (Kemp 1995), which is based on a political economy model of regulator’s behaviour
(Nentjes 1988). In contrast to the earlier results, Nentjes showed that in most circumstances,
a tax provides less incentive for innovation, and tradable permit more than direct control or
standard. Kemp (1995) extended this model to show that innovation waivers and tradable
quotas may be better than direct regulation and taxes in promoting innovation.
 15

sensitively to the changes in incentives may not be available/adequate. For example,

this may be the case in countries or sectors with tight government control, socialist
regimes, societies with strong business lobbies, or in the case of many developing
countries that may not have the required institutional and governance structure and
sufficient experience in implementing the economic instruments20.

Costs,
Tax

MAC1

MAC2

T* T2 T1

O P2 S* = P1 P Pollution

Figure 2.2: Dynamic incentive (tax versus standards)

A uniform tax is fixed at the level T*, while the uniform standard is fixed at S*. In case of technical progress,
abatement costs decrease and the marginal abatement curve shifts from MAC1 to MAC2.
With tax: Polluter has to bring down pollution (or increase pollution abatement) – and therefore, pollution abat e-
ment increases from PP1 to PP2 (now at a lower cost): implying a dynamic incentive for the polluter. However,
he now pays a lower tax. Thus, the cost saving = saving in abatement costs + tax savings. Thereby, polluter has
double incentive for technical change.
With standard : The polluter does not have to bring down pollution level more than the specified amount S*, im -
plying no dynamic incentive unless the standard is revised. The pollution abatement remains unchanged at PP1.
And, cost saving = only abatement cost saving.

Thus, it seems that that regulatory instruments fare better in terms of effectiveness,
while economic instruments score higher in terms of efficiency. In terms of other cr i-
teria, however, the theoretical outcomes are not so explicit. All policy instruments
require some kind of institutions capable of establishing rules of conduct, monitoring
performance and enforcing compliance (Blackman 2000). 21 And, though ma rket-
based mechanisms are considered to reduce administrative and enforcement costs, it

20
Also referred to as “bureaucratic inertia” – that governments may prefer regulatory instruments
as they are known and long used.
21
For example, the environmental institutions in developing countries are generally weaker than
in developed countries, along with complementary judicial, legislative and data-collection in-
stitutions, and fiscal and technical resources are limited – this affects the performance of the
instru ments adversely.
16

cannot be categorically stated as such. 22 Acceptability on the other hand, is depend-

ent on the perceptions of various interests groups and the existing socio -political sce-
narios.

Table 2.1: Some relative features of the policy instruments

Characteristic Regulatory Economic Suasive
Route for influencing Alteration of the set of Alteration of the cost- Alteration of actors’ sen-
decisions available options benefits ratios of avail- sitivity or prefe rences
able options (direct, in -
direct by fiscal means,
or market creation)
Potential incentive Avoid penalty or action Economic incentive Avoid social isolation
(for actors) (judicial/administrative Flexibility of choice Project “green” image
procedures) Flexibility of choice
Potential advantage Effectiveness Efficiency Acceptability
(from regulator’s May use existing regu- Dynamic Feasibility (less costs)
point of view) latory framework (d e - May have fiscal benefits
creased administrative May be easier to admin-
costs) ister
Potential disadvan- Are static Macro-economic impli- Uncertainty
tage Enforcement difficult cations Free riding
(from regulator’s or costly (esp. for many Distributive and equity
point of view) actors) considerations
Uncertainty
Reduced control over
industrial operations
Examples of poten - Behavioural, techno l- Taxes (energy, carbon, Awareness programmes
tial instruments for ogy standards (e.g. for emission) Eco-labeling
climate protection emission or energy ef- Permits or quotas (na- Voluntary agreements
(national level) ficiency) tional, sectoral) (VA)
Bans Subsides (reduction./
Mandatory energy au- temporary allocation)
dits Financial (grant, loan)
Examples of poten - Non-tradable quotas Taxes (harmonized or Voluntary commit ments
tial instruments for (quantitative targets) international) Awareness and capacity
climate protection International standards Emissions trading (e.g. building
(international level) Kyoto mechanisms) VA
Financial (e.g. GEF)

22
Economic instruments are generally considered to be easier to implement as they are “fixed”
by the markets. However, there is little evidence of monitoring costs of different instruments,
and there is no reason to believe that costs for economic instruments are lower than regula-
tory instruments (IPCC 2000). Bla ckman (2000) divides the policy instruments into direct:
that require the regulator to monitor emissions; and indirect: that do not require emissions to
be monitored (e.g. technology and process standards, taxes). He states that it may be fair to
say that in general the direct economic instruments (emission permits) are more demanding
than direct regulatory instruments (emission standards).
 17

The issue in practice, however, is not that of economic versus regulatory instruments,
especially since, as noted by Opschoor and Turner (1994), the environmental policy in-
struments in practice typically come as a combination or mixes of the pure elements
(whereby economic instruments complement regulations by providing additional incen-
tives for pollution abatement). 23 The issue is to choose, design and implement instru-
ments that may are suitable in the particular circumstances.

2.2.3 National and international policy instruments

Policy instruments for addressing climate change can be set both at the national and
the international (bilateral, multilateral or global) le vels. While the main focus of this
thesis is on instruments provided at the international level, we begin with a discus-
sion of national instruments (that form the basis of the international instruments).
The emphasis is on those instruments that provide incentives for relevant actors to
undertake GHG mitigation/abatement activities and encourage diffusion of cleaner
technologies in industries.
The criteria for evaluating instruments for climate protection are also similar to those
for environmental protection. However, in the context of global environmental is -
sue s, there is a difference as we are dealing with (i) a global public good24 (ii) scie n-
tific uncertainty, and (iii) a large number of (heterogeneous) actors (there is evidence
to show that complexity of policy instruments is positively correlated with the num-
ber of the actors involved) 25. Therefore, issues of scale and equity become important
especially for international instruments.

[Link] At the national level: Regulatory instruments

At the national level, there is a significant role for regulatory instruments for address-
ing climate change. In most developing countries, regulatory instruments form the
basis of environmental policy. However, there is evidence that in many cases, they
tend to be inadequate, and often there is lack of capacity to enforce them. 26,27 Some
specific examples are regulation in the energy supply sector regarding natural gas
flaring and safety controls in coal mines and oil rigs; in the transport sector regarding

23
Evidence indicates that countries with better institutional capacity developed through regula-
tory standards are generally more successful in implementing economic instruments (Russel
and Powell 1996).
24
Public goods are defined as those which are non -excludable and non -rival. Global public goods
are the public goods whose benefits extend to all countries, people and generations (Kaul et
al. 1999).
25
This includes a multiplicity of decision -makers, ranging from global decision-making to micro-
level firms .
26
See (Dasgupta et al. 2001; O'Connor 1996; Pargal and Wheeler 1995; Scott 2000) .
27
In terms of only micro-level decision making, entrepreneurs will comply with regulatory in -
struments when the marginal cost of compliance is less than marginal cost of non-compliance
(may be a function of penalties, probability of prosecution). With weak enforcement, costs of
non-compliance decreases and shifts the marginal cost curve, and effectively decreasing the
incentive for change for the polluter.
18

emission norms and banning of older vehicles; in the forestry sector regarding defor-
estation and usage of forest produce, and in industries – mandatory energy and envi-
ronmental audits, and energy efficiency standards.
Regulatory instruments can be explicitly designed to be “technology forcing” or
technology “diffusion forcing ”, and can make technologies materialize much faster
(Bohm and Russell 1985). However, they tend to be enforceable to the extent that
technological possibilities exist or are likely to be developed (Barde 2000). Perform-
ance -based standards are, in general, more fle xible and thereby more efficient, than
the technology-based standards. On the other hand the technology standards may be
easier to monitor and enforce. They are considered especially relevant in the initial
stages of environmental policy development (Cole and Grossman 1998).

[Link] At the national level: Economic instruments

The use of economic instruments though limited is slowly increasing in developing
countries. Although theory offers market creating and non-market creating instru-
ments (Panayotou 1994) , the focus in practice has been on the latter.
The non-market creating instruments include taxes (may be based on energy, carbon
or emissions – CO2 or GHG) 28, and subsidies or financial incentives such as grants
(non-repayable forms of financial assistance), soft loans (loans with interest rates be-
low market rates) and tax allowances (exemptions, rebates and accelerated deprecia-
tion). In theory, both taxes and subsidies lead to similar outcomes in case of homo-
geneous firms (taxes increase and subsidies decrease the costs of abatement). 29 In
case of subsidies, incentives may be provided by both reduction of the relevant sub-
sidies (fiscal instrument) 30 as well as deploying subsidies to encourage use of cleaner
technologies (financial instrument) 31 – that is, by eliminating permanent subsidies
that encourage fossil fuel use, and offering temporary subsidies for activities aimed
at limiting GHG emissions.

28
A carbon tax as a proxy for GHG emissions tax for fossil fuel use is generally considered more
efficient than other forms of taxes.
29
However, taxes are considered more efficient especially in the long run. In the short run in case
of heterogeneous firms, subsidies may allow firms to continue operating that would not be
able to continue in case of a tax, but they do add to the burden on the public resources. Both
taxes and subsidies are associated with distributional effects, which play an important part in
their feasibility and acceptability, and at times overshadow the efficiency aspects in practice.
30
Reductions in or elimination of subsidies normally results in environmental benefits and mone-
tary savings to the Treasury. Evidence shows tapping even part of the potential saving from
reducing subsidies could go a long way to meeting the need for new financial resources to
help developing countries achieve sustainable development (World Bank 1997).
31
While the use of targeted subsidies goes against the general trend of reducing government in-
tervention in the market place, their use can be justified, particularly if offered on a temp o -
rary basis to encourage use of new technologies during market introduction or development.
Thus, though they are not encouraged in pure economic terms but are relevant in terms of de -
velopment and equity issues.
 19

By the use of market creating instruments, like emissions trading, markets may be
developed for tradable permits or quotas (e.g. for GHG emissions) which could be
formulated at the national or sectoral levels. 32 Emissions trading provides a more
cost-effective option than uniform taxes or subsidies (Figure 2.3). These could be
negotiated for a single gas, a group of gases, or as an aggregate of CO2 equivalent.
However, there are many practical problems associated with trading, such as (i) its
complexity regarding trading rules and design such as allocation of initial rights33,
banking provisions; (ii) dependence on infrastructure or mechanisms required to
monitor transactions; and (iii) reliance on market forces. 34
In theory, permits and taxes also exhibit symmetry. While permits set the level of
control, taxes (and subsidies) set marginal costs of control. In practice, however,
there are significant differences between taxes and emissions trading. 35 Trading has
advantages in terms of: (i) less uncertainty as pollution may be fixed a priori accor d-
ing to the number of permits, (ii) automatic adjustments for external circumstances
(like inflationary pressures and technical change) unlike taxes that have to be ad-
justed36, (iii) accommodation to industry change (new entrants can theoretically buy
permits from existing firms and state does not have to intervene), (iv) acceptability
by polluters/ industry (compared to taxes), and (v) cost-effectiveness. On the other
hand, taxes have advantages in terms of (i) dynamic incentives (ii) revenue – taxes
provide rent to the government, while trading may or may not depending on the trade
rules, (iii) less uncertainty – as overall cost is set before hand, unlike trading where it
depends on the market (iv) transaction costs and strategic behaviour – trading is as-
sociated with higher transaction costs in terms of monitoring (taxes may use existing
mechanisms) and is usually more susceptible to strategic behavior and needs com-
petitive market conditions, and (v) acceptability by governments (they retain their
control on the industry).

32
The most important example is the US trading of SO x and NOx emissions, which is being im-
plemented with reasonable success. Another example, is auctionable permits for consumption
of ozone-depleting substances in Singapore. The experience with such trading at the interna-
tional level, however, is limited, e.g., CFC production -consumption quota trade in the EU.
33
Initial allocation may be by auction, lottery or allocation criteria. (Montgomery 1972) shows
that the initial allocation does not affe ct the cost-effectiveness of the trading. However, this
holds only when there is one goal that may be satisfied by the initial allocation (Tietenberg
2000). (Zhang 1999) shows that initial allocation can also affect the rules for new entrants.
34
A good summary of these issues is provided by Tietenberg 2000.
35
General – (Stavins and Whitehead 1992), due to uncertainty - (Weitzman 1974a), due to trans-
actions costs – Baumol and Oates 1982 and (Stavins 1995), and polit ical feas ibility.
36
There is evidence that, in some cases, the inflationary forces have eroded the effect of emission
charges, like in case of select Eastern European countries (Bluffstone and Larson 1997).
20

permit price
Costs, tax
MAC2

S*

MAC1

T1 T2
P* = T*

MAC=MAC1+MAC2

O Pollution,
Q1 Q2 Q*
pollution permits

Figure 2.3: Emissions trading versus uniform taxes

Assuming 2 units or countries with different marginal abatement costs MAC1<MAC2. The policy requirement is
to reduce the total pollution level to 0Q*. This may be done using a uniform tax or trading.
With tax: Unit/country with lower marginal cost abates more but pays lower tax, and vice versa.
With permits: total number of permits is OQ*. Demand for permits is less for unit/ country with lower costs =
OQ1 and more for country with higher costs OQ2. The unit/country with higher abatement costs may buy it from
the country with lower demand, thereby, bringing in cost-effectiveness.

For emissions trading to work efficiently, the “right” market conditions are required
(Tietenberg 1998, 2000) . Some major issues (concerns) related to emissions trading
are also relevant for international trading. These include, firstly, the transaction costs
– three potential sources have been identified by Stavins (1995): search and informa-
tion, bargaining and dec isions, and monitoring and enforcement, that add to the cost
of implementation of the instruments 37. Secondly, market power – the potential for
some economic agents to influence permit price and market power in output market
can lead to market distortions (Hahn 1984, 1989; Malik 2002). Thereby, smaller
players are likely to have less information (about market conditions, abatement costs,
etc.) and negotiating power, and thus may have a disadvantage. However, there are
possibilities of formation of cartels and groups to exercise market power. And,
thirdly, compliance – implementation, monitoring and enforcement, including free
riding and leakages is an area of concern (Barrett 1994).

37
Other costs may be included. For example, some (Dudek and Wiener 1996) also include insur-
ance and approval costs.
 21

[Link] At the international level: Regulatory inst ruments

At the international level, there is little scope for using direct regulation over and
above non-tradable emission quotas (country- or sector-wise). However, adoption of
a fixed and non-tradable quota may lead to inefficiency as marginal abatement costs
differ among countries (IPCC 1996a). This is in line with the theoretical indications
regarding implementation in case many players are involved.
Another potential option for the use of regulatory instruments is setting international
technology standards for GHG emissions across sectors or industries, or specific
GHG-mitigation technology. Combined wit h suasive instruments and increasing
awareness, these could lead to a change in actor preferences towards cleaner tech-
nologies. Developing effective regulatory standards, however, requires national and
international leadership to balance different interests while creating sufficient socie-
tal support and incentives for implementation (IPCC 2001b: 412). And, establishing
uniform standards will be hard, as it will be difficult to achieve consensus on appro-
priate standards as they may limit domestic policy choices of individual countries.
These standards, on the other hand, for example, could be included within the Inter-
national Standards Organisation (ISO) environmental series of standards38.
At the international level, GHG abatement targets (discussed further in Chapter 4)
have been set for the developed countries (at least a proportion of which have to be
complied with by domestic action – and therefore, is non tradable). However, they
are not really based on scientific reasoning but rather mainly on a political consen-
sus. 39 Without a proper compliance mechanism, these commitments may not be met,
in light of problems such as leakages and free riding. This is so as costs and benefits
of abatement are not uniform across nations (in fact, it is the developing countries
which are likely to be more vulnerable, given their lower economic and technological
capabilities).

[Link] At the international level: Economic instruments

Literature narrows down the discussion of the international policy instruments for
addressing climate change to three main economic instruments, namely (i) subsidies
(financial), (ii) tax, and (iii) trading (IPCC 2001b). They may bring in incentives for
diffusion of cleaner technologies by way of financial, technological and capacity-
building benefits (IPCC 2000).
International subsidies: These include international financial transfers (and technol-
ogy transfer) in the form of grants, loans , etc. The main contention for providing fi-

38
Internationally, the ISO 14000 series of environmental management standards of the Interna-
tional Organization for Standardization (ISO) can foster a greater ecological conscience in
industrial sectors.
39
There have been discussions at the climate change negotiations and literature about entitle -
ments, sharing of the “carbon space” and “convergence and contraction” to an agreed emis-
sion limit based on scientific principles (such as per capita emissions, energy intensity, GDP
or a mix), but little progress has been achieved.
22

nancial incentives at the international level is based on the principle of “common but
differentiated responsibilities”. Climate change is a global concern and needs to be
addressed by all countries. However, as the developing countries may be constrained
in terms of financial resources and other limitations (like technology), it is recog-
nized that in order to address climate change issues (also given their other develop-
ment needs) they may require financial assistance.
International taxes: At the international level, a tax can be implemented in two
ways: (i) a harmonized tax whereby an international agency would impose a tax on
participating countries (and a formula for redistributing the reve nues), and (ii) uni-
form taxes wherein the countries could agree that each would levy comparable taxes
domestically (and a formula specifying share of total revenues for various countries).
However, the main weakness with this instrument pertains to its acceptability and
feasibility (along with adjustments for external changes). To achieve political con-
sensus at an international level is difficult – a tax imposed by an international agency
would impinge upon national sovereignty, and, given the differences in resource en-
dowments, consumption patterns, climatic situations and other factors like the exist-
ing tax regimes among countries, a uniform tax rate would be complex and dif ficult
to implement.
International tradable permits or quotas: In case of international trading, countries
negotiate national limits on emissions of GHGs as either voluntary or legally binding
targets/quotas. The exchange could be based on “emissions permits”, or alternatively
on emission reduction units or ‘abatement credits’. Trading may use other instru-
ments – e.g. carbon trading is actually a combination of a regulatory measure (i.e. the
total volume accepted) and an economic one (trading quota within that minimum).
Together with the issues listed above (Section 2.3.2), there remain several design is-
sues such as sovereignty, equity, eligibility, procedural issues, monitoring and verif i-
cation, compliance, endorsement and certification body, banking, liability. In addi-
tion, trading with countries without property rights or abatement targets or permits
may raise issues regarding environmental effectiveness. Some of these issues will be
touched upon in Chapter 4 while dealing with the CCIs under the UNFCCC and the
Kyoto Protocol.
Emissions trading can take various forms; for instance, (i) international trading and
(ii) bilateral trading. 40 The latter is based on an innovative system of “Joint Imple-
mentation (JI)”, which facilitates co-operative abatement projects in countries where
the abatement costs are lower, with sharing of credits. (T his has also led to the estab-
lishment of the Clean Development Mechanism or the CDM on similar lines, which
is discussed in Chapter 4). It deals with a particular form of emissions trading, based
on bilateral or multilateral negotiated deals between companies or governments of
countries wherein the credits/permits of abatement of one country may be used by
another country to meet its quantified emissions abatement targets. Based on these

40
See (Bohm 1998; IPCC 2001b; Tietenberg 2000; Yamin 1998).
 23

the price of credits/permits may be an international price set by the market or a price
negotiated by the involved parties.41

2.2.4 Assessment of international policy instruments

Evaluations of the three international policy instruments in the literature suggest that
if only economic efficiency criteria are considered, the most cost-effective interna-
tional economic instruments are tradable quotas or permits, and international carbon
taxes (IPCC 1996c, 2001b). On the other hand, however, if acceptability (and feasi-
bility) issues are also considered then the most feasible options may be the subsidies
and emissions trading (and not taxes). Thus, it seems that emissions trading will be
the most preferable option, provided of course the transactions costs are not very
high and there are no significant prevailing market imperfections (both very restric-
tive assumptions when there are numerous heterogeneous players involved).
As mentioned before, the effectiveness of the instruments in practice would depend
not only on how they are designed (and the kind of incentives they offer – directly or
indirectly), but also on the context and the circumstances when and where they are
used (contextual factors). A government may apply different weights to the criteria
when it evaluates or implements different GHG mitigation potentials, depending on
national and sector leve l circumstances (such as socio -economic settings, governance
structure, vulnerability to climate change impacts). Moreover, it may apply different
weights when it evaluates national and international level instruments (depending on
the pollution abatement costs, political considerations , etc). Developing countries
form a large and heterogeneous group with numerous options for GHG abatement
and in many cases they possess less economic and information resources (to assist in
negotiations and meet the compliance requirements of the international instruments).
These circumstances present quite a complex scenario for the international policy in-
strument, particularly since they are negotiated internationally in a political setting
(i.e. affected by perspectives of member parties, national representatives and differ-
ent interest groups), and their implementation is dependent on the national levels
(that are different in terms of the socio -economic, institutional and political struc-
tures). 42 And, implementation is at t he local levels where the mitigation activity is ac-
tually undertaken (the impact on the target group will depend on the situation on the
ground). A major issue here is compliance and implementation – to what extent can

41
Normally these may be higher than the incremental costs provided by GEF (Ghosh et al 1998)
42
IPCC (1996) points out that to some extent the choice of the instruments will be dictated by ex-
isting institutional infrastructure and experience, and domestic policies. Enforcement also
varies between the countries depending on their political will and institutional capability.
24

the countries adhere to provisions of the international instruments within their na-
tional contexts.43
The instruments that are selected and designed at the international levels should ul-
timately provide incentives for change at the local levels. This brings in the issues of
interplay between different scale s and levels. Thus, the design and implementation
(including their acceptability and relevance) of the international instr uments may be
at three levels: the international, national and local. The implementation of the inter-
national instruments would have to be through the national level instruments and
policies, and will be dependent on the willingness and ability of the national gov-
ernments (their interaction between different interest groups) and their particular cir-
cumstances. It is possible that international instruments may be accepted at the inter-
national level, but their use is restricted at the national level, or the design of the in-
strument at the domestic level may be different from that at the international level;
for example , there may be several options for designing domestic systems to com-
plement international instruments.
Therefore, using a broad perspective, it may be fair to say that the performance of
policy instruments is affected by the policies (within the overall contexts) at different
relevant levels of social organization and decision-making, together with their design
and characteristics. There is a possibility of design changes for each category of in-
struments as well as using a combination of instruments to improve the incentive
structure that they represent.

2.3 Small-scale industries and diffusion of cleaner technologies

This section deals with how SSIs are treated in theoretical literature, particularly in
relation to the diffusion of cleaner technologies and the relevance of policy instru-
ments in this regard. But first, what are SSIs?

2.3.1 SSIs in developing countries

There is no uniform definition of SSIs across different countries, and how they are
handled in the literature. The more commonly used term in the literature is small and
medium scale enterprises (SME). They are defined in various ways: on the basis of
their size, number of workers employed, turnover, etc. As pointed out in Chapter 1,
in India , SSIs are defined on the basis of investment in plant and machinery, and this
is the definition used in this thesis. This thesis essentially deals with those SMEs or
SSIs in developing countries engaged in industrial activities (manufacturing) that are
energy intensive and are therefore important from an environmental (particularly
climate change) point of view.

43
For instance, it is pointed out (Evans 2003) that the manner in which international emissions
trading is implemented at the national level – including its international credibility and feas i-
bility to launch the system politically and manage it administratively – will be critical to its
effectiveness.
 25

Studies have shown that SSIs can play a key role in socio-economic development
and objectives in developing (Schumacher 1989, UNIDO 1999). As per the estimates
of the Asian Development Bank (ADB 1997) , they account for over 90 percent of in-
dustrial establishments, generate between 20–40 per cent of industrial value added,
and employ over 50 per cent of the industrial labour force (this can be as high as 80
per cent in the less industria lized countries).

2.3.2 SSIs and the environment

Often the environmental impact of SSIs (or the SSI–environment interaction) is as-
sumed to be limited given their small size , and their GHG reduction potential tends
to be ignored in literature and in practice. However, studies show that certain SSIs
lead to adverse environmental impacts and are inefficient with respect to resource
use (Beckerman 1995; Bhalla 1995; Blackman 2000; Kent 1991; Mani and Wheeler
1998). There have been some attempts to quantify the impacts but the most com-
monly quoted (but not validated) figure is that they may collectively be responsible
for 70% of all (local and global) industrial pollution (Hillary 2000). However, there
are no concrete estimates available for their collective influence on GHG emissions.
Studies also provide evidence that certain SSIs have GHG reduction potentials
(Dasgupta 1999; Scott 1998; TERI 2000a), and indicate significant potential for
cleaner technologies (UNIDO 1995). However, the literature on environmental as-
pects, especially from the global environmental point of view, remains limited.

2.3.3 Clustering of SSIs

SSIs, although they have common characteristics, form a heterogeneous group of
production units of diverse size, managerial and technical skills, levels of sophistica-
tion and growth potentials (Bhalla 1992; Mead and Leidholm 1998). The sector-
specific characteristics include (Dasgupta 2000; Frijns and Vliet 1999) : (a) depend-
ence on traditional processes (path dependency), (b) resistance to change and short-
term perspective, (c) unorganized and dispersed nature, (d) high transaction costs and
low negotiating power; and (e) fixed markets.
Often SSI units tend to be located close to each other in what is known as “clusters”
– that is, the spatial or sectoral agglomerations of SSIs (Schmitz 1993). SSI clusters
seem to be a common feature in developing countries (however, the related research
was popularized only after late 1980s) 44. Clusters usually develop and derive a clear
competitive advantage from (UNIDO 1995): (i) proximity to sources of raw inputs,
(ii) availability of suitably customized business development services, (iii) abun-

44
The research on “clusters” in developing countries is inspired by work on “industrial di stricts”
in developed countries, but evolve own concepts and framework. A special issue of the
World Development (1995) was dedicated to comparing the potential of clusters in develop -
ing countries, and the “industrial districts”. The difference is largely in terms of their organ i-
zation and inter-firm relations. Knorringa 2001 also discusses the differences between their
growth trajectories.
26

dance of clients attracted by the cluster tradition in that industry, and/or (iv) presence
of a skilled labour force. Clustering induces various inter-firm relations ranging from
casual exchanges of information and tools to highly collaborative forms of produc-
tion relations, usually depending on local socio-cultural factors (Schmitz and Musyck
1993).
Thereby, clustering in general opens up what is called the “collective efficiency” 45
over the individual gains (positive externality) – it compensates for diseconomies of
scale and scope through vertical specialization and horizontal cooperation (Schmitz
1995). That is, it raises possibilities of external economies as well as joint action
gains. On the other hand, the geographical clusters also lead to collective or conce n-
trated adverse impact on the environment (negative externality) – which is more evi-
dent in terms of local environmental problems. 46 GHG reduction potentials also be-
come more pronounced when SSI clusters are examined. Thus, clusters are important
for this study not only due to their collective environmental impact, but also as a tar-
get for policies and policy instruments47.

2.3.4 SSIs and diffusion of cleaner technologies

This section deals with diffusion of cleaner technologies in SSIs within the broader per-
spective of technological change. Technological change comprises of im provements in
the products, production processes, material and intermediate inputs and management
methods in the economic system. It can be divided into: invention (generatio n of new
ideas), innovation (development of new ideas into marketable products) and diffusion
(new products and processes spread across potential markets) (Schumpeter 1942;
Stoneman 1983) . For SSIs in developing countries, invention is more often imitation
of technologies that have been adopted elsewhere (Romijn 2000). Typically, diffu-
sion of a technology over time is represented by an “S-shaped ” curve – rising slowly
at first with the introduction of new technology (or imitation by proactive units), then

45
This concept dates back to Marshall (1890) who argued that economic gains could be had
when small firms within a specific industrial activity are clustered in close proximity to each
other with a specific knowledge poll available to all. So far, however, the collective effi-
ciency studies have concentrated mainly on the economic benefits, while the technological
factors that supposedly underpin these benefits have been given rather cursory treatment
(Caniels and Romijn 2001)
46
Although the individual environmental impact of the SSIs (e.g. wastes, emissions) may be
small given their small sizes and production capacities, the aggregated impact of all the SSIs
clustered together in the geographical region may be quite significant. This is illustrated in
the three cases (Chapters 6–8) in this thesis.
47
SSI clusters in general constitute ideal targets for a support agency – they may facilitate inter-
vention because of the similarity of needs and support requirements, and diffusion of tech-
nologies may be faster because of demonstration effect and potential to share tools and
equipment (Kennedy 1999; Mead and Leidholm 1998).
 27

experiencing a period of rapid growth followed by a slowdown (as most units have
switched to it).48
The theoretical work on technology innovation and diffusion in SSIs is closely linked
to the evolutionary theory on technological change. The evolutionary approach treats
technological change as a complex (part of a broader socio -economic system), non-
linear and path-dependent process (Dosi et al. 1988; Nelson and Winter 1982; Sahal
1985). It is especially relevant for the SSIs, which are often driven primarily by
short-term benefits and characterized by path-dependent development based on tradi-
tional methods of production (sector -specific characteristics). 49
Diffusion of cleaner technologies is dependent on technical as well as socio-
economic, environmental, political and cultural factors (Heaton et al. 1991). The lit-
erature identifies several factors that influence diffusion of cleaner technologies (ba r-
riers – factors that cons train; and drivers – factors that encourage reaching the diffu-
sion potential). Two related streams within the SSI literature that focus on the micro-
level technological capabilities of and technology mastery by the enterprise, and the
(already introduced) regional or meso-level concept of “collective efficiency”, are
also especially relevant within the diffusion literature and are discussed below.

[Link] Technology capabilities

This approach is concerned with the long-term development of the diffusion proc-
esses. The main focus is on the micro level – the SSI unit, which interacts with the
socio-economic environment. The process of change is seen as an interplay of factors
that emanate from within and outside the firm in framing what is known as the
“technological capability” of the units. Technical capabilities are defined as the tech-
nical skills, knowledge and organizational capacity to make the right investment
choices, run a given technology efficiently, and engage in continuous upgrading of
quality and design (Lall 1992). These are usually divided into three: (i) production

48
The main theoretical explanations are provided in terms of information and learning (epidemic
models that link diffusion with spread of disease – infective and contagious (Griliches
1957)), characteristics of potential adopters (rank models (David 1969), characteristics of
technology and scarcity of critical inputs (order models) and sensitivity of output prices to
technological change (stock models).
49
Within the stream of evolutionary theory of technological change, environmentally saving
technological change, in particular, addresses the issue of how to induce and sustain a shift
towards cleaner technologies. Also linked to this approach, new frameworks are being deve l-
oped which may are useful in examining the link between industrial activities and enviro n-
mental perspectives. These include: (i) ecological modernisation – suggesting that economic
and environmental goals can be integrated within a framework of industrial modernization
(Gouldson and Murphy 1998; Mol 1995); and (ii) industrial ecology – systems view of the
interactions between industrial and ecological systems (Fischer and Scott 1995; Garner and
Keoleian 1995). Though these studies focus on policy instruments and technological change
in industrial processes, they are limited more often to the micro -processes (such as inves t-
ment and technology decisions of firms) than macro -processes or especially the macro–micro
linkages (Vellinga and Herb 1999).
28

capabilities – skills and knowledge to operate established plants and use existing
technology efficiently, (ii) innovative capabilities – skills and knowledge to make
changes to improve and modify existing technology, and (iii) investment capabilities
– skills and knowledge to help in choosing, acquiring or installing new tec hnologies.
Technological capabilities is close to the evolutionary theory concept of “dynamic
core capabilities” whereby the selection routines define a set of things that the firm
can do in a confident manner (Nelson 1991; Romijn 1996). Firms follow selection
routines (often irrespective of prices) that produce new findings or blueprints (varia-
tion as in biological mutations), which may or may not succeed in the selection envi-
ronment comprising of market and institutional structures (Nelson and Winter 1977).
This approach highlights the aspect of heterogeneity within an industry or cluster,
and their organizational aspects. A distinction can be made, however, between tech-
nological capability at the unit level (as described above) and at the cluster level.
This is because it may be possible that due to heterogeneity within the cluster a l-
though some individual firms do not enhance technological capabilities , the cluster in
which they are located as a whole may be growth-oriented with rising capacities. The
latter is more relevant for cluster-oriented studies.

[Link] Collective efficiency

Collective efficiency, as introduced before, implies the potential to facilitate growth
in a cluster, and may be planned (active) or unplanned (passive) (Nadvi 1996;
Schmitz 1995). Passive efficiency may accrue to the cluster-based units in the form
of externalities just by virtue of their location (unintended or incidental by products
of economic action like labour market pooling, technological spillovers, market ac-
cess). On the other hand, the former require active and deliberate cooperation or joint
action. This may be in the form of horizontal or vertical cooperation (bilateral or
multilateral), and underscores the importance of inter-firm linkages and networks.
For instance, joint action may facilitate adoption of a technology that may not be fea-
sible for individual SSI units by sharing costs (e.g. technological know-how, hiring
consultants etc) or technologies (like common waste treatment plants or monitoring
and testing equipment).

However, the potential for collective efficiency is not always realizable. 50 The liter ature
shows that the growth patterns of clusters vary widely – while there are artisan and sur-
vival clusters with little dynamism (McCormick 1999), there are others which have bro-
ken into the international markets (Knorringa 2001, Tenberg and Stamer 1999). The
former are characterized by fragmented knowledge and limited information flow, latent
conflicts and absence of discussion forums, and thereby have poor perceptions regarding
joint action. Thereby, clustering may bring out collective efficiency provided there exist

50
The special issue of the World Development (Schmitz and Nadvi 1999) is devoted to the topic
of industrial clusters in developing countries with a focus on collective efficiency and aimed
to “specify circumstances in which clustering boosts industrial growth and compet itiveness”.
 29

trade networks connecting them to sizable markets, and trust that sustains inter -firm rela-
tions 51 (Schmitz and Nadvi 1999).

[Link] Innovation and diffusion in SSIs

Both the technological capabilities and the collective efficiency approaches focus on
the dynamics of the firms or clusters, but they are limited in their treatment to exter-
nal factors. However, they emphasise the external context in shaping the unit and
cluster characteristics.52 As in the evolutionary approach, the search possesses of
firms or clusters are informed by technological paradigms (Dosi 1982) or technical
guideposts (Sahal 1981), which are available at the level of the sector or technologi-
cal communities (Rip and Kemp 1998) .
The recent literature also emphasizes the challenges of liberalization and globaliza-
tion for the SSIs, and that technological upgrading is necessary to respond to these
challenges. 53 The question is how this technological upgrading is achieved? On the
one hand, it calls for individual initiative or joint action by the industrial units. There
is evidence that many clusters in developing countries (most of which are survival
clusters) have limited potential for endogenous upgrading due to the complexity of
factors that affect it (Knorringa 2002). Although it is argued that clustering facilitates
collective efficiency (including mobilization of financial and human resources), reli-
ance on joint action may not be enough to improve efficiency. There is evidence that
responses to the challenges have been highly differentiated between the clusters. In
general, there is a positive correlation between growth and cooperation and joint ac-
tion in view of the challenges (joint action has also led to addressing environmental
issues – such as se tting up common waste management facilities – which may not be
possible on an individual basis). However, they have also led to increased differe n-
tiation and heterogeneity within the clusters (mainly due to bifurcation of firms sur-
viving in a domestic market and a few large ones (Rabellotti 1992)).
On the other hand, the SSI clusters may require external impetus that would enable a
transition towards more efficient and sustainable (cleaner) technological paths. How-
ever, SSIs at different technological levels and organizational structures (internal fac-
tors) may react differently to external stimuli (van Dijk and Sandee 2001). Also, dif-
fusion may not necessarily lead to upgrading of technological capabilities (which as

51
Lack of trust (may be due to socio-cultural factors) brings in discount on the learning
(Knorringa 1996).
52
As in evolutionary theoretical approaches, even within firms, search processes are informed by
technological paradigms (Dosi 1982) or technical guideposts (Sahal 1981) , which are avail-
able at the level of the sector or technological communities (Rip and Kemp 1998). A techno -
logical paradigm is both an exemplar – an artefact that is to be developed and improved – and
a set of heuristics (Dosi 1988).
53
A related concept – “global value chains” – is addressed in the literature and is essentially con-
cerned with understanding the dynamics of how firms are globally interconnected given the
globalization paradigm (e.g. see Bair and Gereffi 2001).
30

defined before is the ability of SSIs to choose, adopt, adapt and improve technologies
endogenously ).
Sandee 1995 distinguishes between producer-driven (where the entrepreneur is the
main driver, and focus is on learning by doing for individual firms or on social learn-
ing for clusters), supplier- or buyer-driven (driven by traders and other intermediar-
ies, especially relevant where there are vertical linkages), and institution driven
(driven by government agencies, NGOs etc. – institutions here function more like
support agencies) diffus ion for SSIs (Sandee 1995) . The institution-driven diffusion
may then be regarded as that directly motivated by external factors such as an envi-
ronment policy specification, or may be aimed at increasing the technological capac i-
ties or facilitating or stimulating joint action within the clusters. 54 IPCC 2000, on the
other hand, distinguishes between government, private sector and community-driven
pathways for technology diffusion (and transfer) at a more general level (and not
only for SSIs). Combining the two, the levers for change for diffusion of cleaner
technologies in SSIs are divided into (i) private (entrepreneurs), (ii) community
(other stakeholders like buyer/supplier, trade networks) or (iii) policy-driven change.
This focus is categorically on the issue of policy- driven change. However, in analyz-
ing this, it also becomes necessary to look within as well as beyond the clusters to
their socio-economic settings and contexts.

2.3.5 SSIs and policy instruments

The predicament faced by many developing countries is how to address environ-
mental issues related to SSIs without comprising their competitiveness and economic
ability to survive. One of the issues is how can environmental policy instruments be
used to provide incentives so as to induce towards greater diffusion of cleaner tec h-
nologies (policy driven change) and meeting the “needs” of the sector. 55
SSIs, in general, do not have enough political clout to influence design of state poli-
cies, and their needs are not completely understood by the policy makers (Schmitz
1993). This implies that challenges may exist in terms of not only environmental but
also support policies for the SSIs. Support policy at best focus on creating favorable

54
Supplier- or consumer-driven change can also be considered to be external to the cluster as the
suppliers or consumer may lie outside the cluster. However, we do not consider them as “ex-
ternal” but as other stakeholders directly associated with the process within a cluster. The
only external factor here is the government agencies, etc. who do not have direct stake in the
production process as such.
55
IPCC (2001a) provides a framework for achieving climate change mitigation potential of tech -
nological options – which includes market, economic, socio-economic, technological and
physical potentials – by addressing the barriers that prevent the full exploitation of the
cleaner technologies. In principle, policy instruments can be designed to provide incentives
to influence these factors; that is, removing the barriers and building on the drivers (or oppo r-
tunities as in IPCC framework). This implies that identification of the factors specific to the
target sector will be necessary, and different sectors may require different levels of policy in -
tervention depending on their “needs”.
 31

conditions on the supply and demand side of SSIs (though policies in developing
countries have focused on the supply side like provision of training, credit and infra-
structure). The literature also reveals that there is no right way to promote SSI deve l-
opment (there are several wrong ways though, like providing assistance that does not
help or is expensive), and the design of effective policies and policy instruments
must be built on the understanding of the complexity and the diversity (and different
needs) of the SSIs (Mead and Leidholm 1998).
For clusters, in general the “triple C” approach is advocated by researchers
(Humphrey and Schmitz 1996) for cluster development, arguing that policy ap-
proaches (both towards general development and for cleaner technologies) may be
effective if they are: (i) customer oriented; (ii) collective (lowers transaction costs
and helps generate relationships between enterprises); and (iii) cumulative (generate
capacity to upgrade and be less dependent on outside support). Thus, the objective of
policy intervention at the micro level may be geared to develop the capability of
groups of firms to generate processes of improvement deriving from inter -firm link-
ages and contact with the market. However, these principles need to be applied d if-
ferently to different categories of clusters (Schmitz and Nadvi 1999) . This reinforces
the earlier arguments regarding the importance of contexts and circumstances for any
policy implications.
The focus in terms of environmental policies in developing countries has been on the
regulatory instruments (may be focused on local pollution and not CO2 emissions,
but may have indirect implications for GHGs as well). They normally emphasize use
of end-of-pipe technology, rather than cleaner technologies. However, the enforce-
ment of regulatory instruments amongst the SSIs is, in general, quite difficult (feasi-
bility) as they are small, numerous and geographically dispersed, and also include in-
formal units that may have few pre-existing ties with the government (Blackman and
Harrington 2000). This is the case even for technology standards that are considered
easier to enforce than emission standards. Empirica l studies show that in most deve l-
oping countries, enforcement has been ad hoc and ineffective (and in many cases ig-
nored), and typically does not achieve the desired results. Extreme cases of enforce-
ment of regulation have been relocation or closure of units in some countries which
in turn has social implications. In addition, relocation just means “relocating” the en-
vironmental problems, which is not useful especially for GHG emissions reductions
unless accompanied by use of cleaner technologies.
On the other hand, the issue for many SSIs is survival (as opposed to profit-making
as predicted by “rationality” based neo-classical theorists – building our case for an
evolutionary approach), and thereby they tend to ignore or rather at times cannot af-
ford to a ddress environment concerns. Regulatory instruments generally assume that
industry has the ability and willingness to respond to the environmental standards
and regulations. However, SSIs face several constraints; for instance, lack of know l-
edge and skill about environmental problems and no access to appropriate and af-
fordable technologies (Blackman 2000; Frijns and Vliet 1999). As many of them
work on small profit margins even small investments in cleaner technologies may be
32

difficult to undertake. Even in case of economic incentives (economic instruments)

they may not be able to use them owing to several factors, which may be organiza-
tional (related to the unit) or external (related to outside the unit), or ma y just be lack
of information or motivation to bring about the change or even resistance faced from
workers. Many countries rely on subsidies as an option for encouraging cleaner tech-
nologies, or even enforcement of standards; as well as on suasive instruments such as
awareness creation, and capacity building. However, only a small number of SSIs are
effectively reached (Tezler 1993).
Thus, addressing environmental problems with respect to SSIs is rather complex and
multi-dimensional, as it is constrained by low reactive , adaptive , and adsorptive ca-
pacities, limited technological and financial strengths, as well as low awareness not
only about technological options to comply with existing regulations but also about
the regulations themselves. Dasgupta (2000) argues that with reference to SSIs, a
sanc tion-based enforcement strategy is only a uni-dimensional conceptualization of
what is fundamentally a multidimensional problem. The relation between SSIs and
technology are more influenced by the socio-economic and cultural context than by
the efficiency needs of the production process. 56 Thereby, using a blanket approach
(like unifor m standards) fails to address the problem of intra-sectoral diversity, and
ignores the question of affordability (and, thereby, their acceptability). SSIs cannot
be considered as a unified category and expectations regarding policies should vary
among different types, locations and industrial sectors (Frijns and Vliet 1999).

2.4 Discussion and conclusions

This thesis aims to examine the link between CCIs set at the international level and
SSIs at the local level (Chapter 1). The analysis of such macro-micro linkages in the
literature remains limited. While discussing the policy instruments, the literature spe-
cifically on CCIs has been mainly of a generic nature or has tended to focus on a few
sectors (like large-scale industries such as power generation, iron and steel, cement;
and renewable energy technologies or RETs). There is a growing emphasis on small-
scale projects. These too, however, deal with small projects in large industries or
RETs, and do not specifically address the special needs of the SSIs. The literature on
technology diffusion in SSIs again has tended to focus on policy-driven diffusion –
but only in general terms, and does not really address their relevance from the per-
spective of the international climate change policies and policy instruments (other
than some financial instruments). This study is a modest attempt to try and bridge
this gap in order to draw lessons for the performance of international policy instru-
ments at the local levels.

56
She argues that to be effective, enforcement strategies would need to acknowledge the imp lica -
tions of the technology at the firm level; and address the tensions between the environmental
imperatives and the socio-economic exigencies of maintaining sustainable livelihood oppor-
tunities for the workers.
 33

For this, basically two distinct theoretical themes are used. The first theme is the pol-
icy instruments: to assess the relevance of the international policy instruments for the
micro level. CCIs are based on economic theories of policy instruments for environ-
mental protection. They may provide specific incentives for influencing the actions
and decisions of relevant actors (policy implications). There are also associated is-
sues such as uncertainty, transaction costs, market power (bias towards certain sec-
tors), which may weaken these incentives. Thereby, the performance of the policy in-
struments is dependent not only on their economic efficiency (optimality criteria) but
also factors such as feasibility and acceptability (concordance criteria) – that is, not
only on their performance characteristics but also the circumstances in which they
are used (contextual factors). An ecological economics approach allows for a multi-
disciplinary analysis of the policy instruments within the overall contexts comprising
of prevailing policies (and institutions) and interest groups, which is especially rele-
vant for international instruments at the international and national le vels.
Most top-down assessments of policy instruments, however, are rooted mainly in
static analyses. They do not accurately present the implications of a dynamic policy
regime (for example, how the policy regime evolved and the policy instruments de-
veloped over time) and cannot adequately capture the sectoral details and dynamic
complexities of human actions. The international policy instruments are relevant at
several levels of social organization from global through national policy making sce-
narios and at the micro-level. A m ultiplicity of actors and scales implies limits to col-
lective actions and diversity of responses of the actors to particular policy instru-
ments (IPCC 2001b: 607) , which may be generalized in top-down approaches (and
this is where bottom-up or micro approaches are useful).
The second theme used is diffusion of cleaner technologies in SSIs: for analysing the
factors that influence technological diffusion at the micro level that are relevant from
the point of view of policy instruments. There is evidence that clustering of SSIs in
developing countries brings in “collective efficiency” advantages, and ma y provide a
better target for policy instruments than the individual units. The evolutionary ap-
proach is especially relevant for the SSIs as it focuses (in line with ecological eco-
nomics) on diffusion of technologies within an overall context and specifies the im-
portance of selection routines and path dependency (and technological capabilities),
and technological trajectories and paradigms (including external factors). Cleaner
technologies, which may make economic sense theoretically, may not diffuse easily
because of several factors that influence the diffusion process. Policy instruments can
be used to influence the decisions of relevant actors to bring about technological
change within the clusters (policy-driven change). These could include the CCIs as
one of the levers.
This kind of analysis can provide useful insight into human actions and decisions,
and the circumstances or contexts within which the policy instruments would operate
at the local level. While focusing on the details, however, the wider picture regarding
the macro-context (like that provided by the top-down approaches), and the com-
plexities related to implementation of the policy instruments at higher levels of social
34

organization (which are taken as given) may be left out. Using evolutio nary ap-
proaches also allows for including the dynamic aspects of the analysis in terms of
contextuality, path dependency, networking and externalities, and learning processes
(for example, it will help in understanding issues such as why the country or sector
adopted a particular policy instrument when it did).
The two themes essentially form the theoretical basis of this study, as a combin ation
to provide a holistic assessment. O n the one hand, it deals with analys ing the policy
instruments in terms of the incentives they may provide for the SSIs (using the ec o-
logical economics approach). On the other hand, it also deals with addressing the
needs of the SSIs by inducing policy-driven technology diffusion (using the evolu-
tionary approach). Both these are lin ked and are dependent on the national policies
and institutions (for different reasons of course). Thereby, the macro approach (with
a focus on policy implications) is reinforced by the feedback from conditions and ac-
tions of actors at the micro level, and visa versa. It is felt that the co-evolution of the
two approaches – ecological and evolutionary, and levels – broad macro and the mi-
cro level (fundamental level for change), may provide a better understanding of the
issues in each in order to acquire ins ights regarding their linkages (especially in
terms of how micro level can respond to marco level policies, and in turn how these
policies may be built to have the desired impact on the micro level) (also see Op-
schoor 2002). It thus, also becomes imperative to base our analysis within the global,
national, sectoral and local contexts. These theoretical pe rspectives are used to build
the research framework in the next chapter
3. Research framework and methodology

3.1 Introduction
Given the theoretical background in Chapter 2, this chapter develops the research
framework, and describes the methodology used in the study. The research frame-
work has been developed on the basis of the framework provided by a core group of
IHDP–IDGEC (International Human Dimensions Programme on Global Environ-
mental Change–Institutional Dimensions of Global Environmental Change). 57 It
deals with examining the “macro–micro link” between the climate change policy in-
struments and diffusion of cleaner technologies in the SSIs (Chapters 1 and 2). The
research design is multi-disciplinary, qualitative and analytical.
This chapter is organized as follows. Section 3.2 presents the research framework
and examines the elements included in it. Based on these, the research questions that
are addressed in this study are defined. Section 3.3 discusses the research methodol-
ogy giving information about the research methods, techniques and tools used.
Lastly, a brief recapitulation of the discussions is provided in Section 3.4.

3.2 Research framework

The research framework for the study is illustrated in Figure 3.1. It is based on the
IHDP–IDGEC framework, modified to suit the objectives of this study. 58
The IHDP–IDGEC framework focuses on the role that social institutions play as de-
terminants of the course of human–environment interactions (Young et al. 1999) . It
defines institutions as a system of rules (formal and informal), decision-making pro-
cedures and programmes that give rise to social practices, assign roles to the partici-
pants in these practices, and guide interactions among the occupants of the relevant
roles. 59 Institutions figure both as sources of environmental problems and as ele-
ments in the responses humans make to actual or anticipated environmental problems

57
IHDP is an international, interdisciplinary and non -governmental research programme, aimed
at integration of research on human dimensions of global environmental change .
58
It also uses related themes from the IHDP–Industrial Transformation Research (governance and
transformation processes), which seeks to understand the complex society–environment in-
teractions, identify driving forces for change, and explore development trajectories that have
a smaller burden on the environment on a global scale (Vellinga and Herb 1999).
59
In common language, the term ‘institutions’ has a different meaning and is generally under-
stood to mean organizations. However, it is important here to distinguish between organiza -
tions as ‘actors or players’, and institutions as the ‘rules of the game’ (where the world is a
game). Although some authors (World Bank 2003b) do consider organizations as part of in -
stitutions; in the economic literature, in general, institutions are treated as distinct from or-
ganizations. Thus, institutions are not actors or players in their own right, but the rules that
influence their behaviour and actions.
36

(institutional causes or implications, and institutiona l responses), and operate within

socio-economic and political settings that can and often do affect the outcomes they
produce (other causes or contextual factors).
The focus of the research framework for this study, however, is on the policies
within the international institutions for addressing climate change. The aim is to ana-
lyse the role that international policy instruments as features of the international in-
stitutions for addressing the environmental impacts of human activities on the cli-
mate, may pla y in shaping the SSI–environment interactions (basically by fostering
diffusion of cleaner technologies in the SSIs). This link between the climate change
policies at the international level and the SSIs at the local level is developed by look-
ing into the national- level policies (explained in 3.2.1).60 The research framework,
thus, focuses on a specific human activity that is productive activity in the SSIs, and
on policies as a specific part of institutions (as in the broader IHDP–IDGEC frame-
work).
The re search framework shows that the role of international policy instruments in
shaping the SSI–environment interactions is dependent on: (a) the policy implica-
tions of the international policies and policy instruments, i.e. in terms of the incen-
tives they provide; (b) the relevant national policies and their policy implications,
and (c) the contextual factors, i.e. the factors – both barriers and drivers – for diff u-
sion of cleaner technologies at the local levels. Based on these, the policies may be
structured or altered, i.e. undertaking (d) policy responses in order to provide in-
creased incentives for change in the SSIs.
This is in line with the arguments in Chapter 2 that the performance of international
policy instruments is dependent on their characteristics in terms of the incentives
they may provide and the circumstances in which they operate. The circumstances
here include both the national policies and the local contextual factors. The research
framework provides a way of examining these interrelations.

3.2.1 Main elements of the research framework

Basically, the research framework comprises of the following main elements: human
activity, environmental impacts, international policies, national policies, policy

60
The international policies can influence the SSIs directly or through the national policies. In
both cases, national policies play an important role. On the one hand, they form an essential
part of the context within which the SSIs operate, and thereby influence the implementation
of the international policies and their role in shaping SSI–environment interactions. On the
other hand, they themselves provide incentives for the SSIs, which may complement the in-
ternational climate change policy objectives. In addition, they also influence how the interna -
tional climate change policies and policy instruments are formulated and developed. It be-
comes important therefore to study the implications of the national policies when looking at
the international policies. Due to their significance in the entire scheme, the national policies
are included as a distinct element in our framework unlike the IHDP– IDGEC framework.
 37

International policies

Climate change policy and policy

instruments

National policies

National policies & policy instruments

[(a) Climate change;
(b) Small-scale industry]

Policy implications
Policy responses
Incentives
Altering policies and policy
[(a) climate change instruments;
instruments
(b) national policies]

Environmental impacts
Human activity
(a) Local impact (environment
Small-scale industries and development); (b) global
impact (GHG emissions)

Contextual factors

Barriers and drivers

Figure 3.1: Research fram ework

Source: Modified from Young et al. (1999)

implications, contextual factors, and policy responses. The central tenet is the SSI–
environment interaction, a combination of two elements human activity and envi-
ronmental impacts, which is linked with the other elements. These elements are e x-
amined in detail below. The foundation for the framework has already been outlined
38

in Chapter 2, which discussed the concepts and theory related to the CCIs and diffu-
sion of cleaner technologies in the SSIs.

[Link] Human activity and environmental impacts

SSIs, on the one hand, contribute to socio -economic development, and on the other
hand, are associated with inefficient energy use that leads to environmental impacts
(Section 1.2.2). SSI –environment interaction (in terms of the SSI-related impacts,
environmental and social and economic development) is dependent on the internal
characteristics of SSIs (such as energy intensity, technical capability) and external
factors (such as socio -economic, technical, including policy-related factors).
The element “human activity” deals with the descriptive characteristics of SSIs in
India (technology used, management practices, level of activity, etc.). With emphasis
on their energy consumption, the element “environmental impacts” deals with the
impacts of the SSIs on the local (pollution, particularly air pollution) and global envi-
ronment (CO2 emissions), and their potential to reduce the adverse impacts through
adoption of cleaner technologies. The SSIs are examined with respect to their contri-
bution towards economic development in terms of value added and e xport potential;
and to social development in terms of employment potential (taken as a proxy for in-
come generation, livelihoods and thereby poverty eradication) and working condi-
tions. These elements have already been addressed at some length in Chapter 1 while
discussing the significance of SSIs in developing countries and in India.

[Link] International policies

This element identifies the provisions of the international policies and policy instru-
ments for addressing climate change that may be relevant for the SSIs. CCIs are im-
portant features of the emerging climate change regime. They are aimed at facilitat-
ing the parties (member countries) undertake steps towards meeting its objectives
and targets (Chapter 4).
CCIs that are relevant for developing countries (Chapter s 1 and 4) aim at incentives
for reduction of GHG emissions (sustainable development at the global level). In ad-
dition, they may facilitate sustainable development at the national level. These in-
struments are negotiated at the international level, and their design and modalities are
influenced by the negotiating stances and policies of the parties involved as well as
different interest groups (including industry associatio ns, multilateral organizations
and NGOs). 61 Their implementation, however, will be based more at a national (and
local) context. They may in turn also influence the national policies of various coun-

61
For example, perspectives of developed and developing countries differ on issues of quantit a-
tive commitments for developing countries, and inclusion of sinks in the carbon trading
mechanisms (most developed countries support inclusion as they can provide cost-effective
options; developing countries within Latin America also support it due to their vast sink re-
serves and opportunity for getting external funds; while, other countries with limited sink op -
tions do not support it). Similarly, oil companies and environmental groups support a differ-
ent approach for addressing climate change. These issues are discussed further in Chapter 4.
 39

tries. Thus, there are synergies between the CCIs and natio nal policies. To under-
stand these, it is necessary to examine the underlying structures and values at the na-
tional levels (IPCC 2001b).

[Link] National policies

This element identifies the features of the national policies that may influence the
link between CCIs and SSIs. The term ‘national policies’ is used broadly to include
state and sectoral policies as well. 62 The national policies that are relevant here in-
clude (i) national climate change policies, and (ii) national SSI policies (promotional
and environmental). These too will be influenced by the perceptions of various inte r-
est groups at different levels of social organization, as well as the related policies and
development goals.
National policies can influence SSIs and their environmental impacts directly (Chap-
ter 5). 63 They are also important in terms of implementation of international policy
instruments. For instance, in terms of the willingness and the capability for imple-
mentation of the key provisions of the climate change regime in the national contexts
(Section 2.4). 64 The horizontal and vertical integration of the policies at different
levels of social organization is therefore important in shaping human actions at the
local levels.

[Link] Policy implications

International policies and policy instruments may influence the SSIs through policy
implications, guided by the set of incentives (including direct incentives, disincen-
tives and penalties) provided by these instruments based on their characteristics.
These are determined by material (characteristics of the policy instruments) as well
as the cognitive conditions (interests and values of the actors involved) that may
strengthen or weaken the incentives (Young 1999). Weak or non-existent incentives
to control GHG emissions or induce cleaner technologies will be unable to make a
significant influence on SSI–environment interaction.
This element identifies the incentives provided by international and national policies
for SSIs, by examining the main features (objectives, criteria, motivations and inter-
ests) of the instruments, past experience and current status. It also identifies the is-
sues that may weaken these incentives, such as associated uncertainties, transactions
costs and market power or bias. The emphasis is on optimality as well as on concor-
dance criteria. First, climate change policies (at international and national levels) are
examined to identify the incentives provided in general, and their relevance in rela-

62
In India, the policies of the Central Government provide the basic framework within which the
state- and sectoral-level policies are based and designed.
63
For example, technology upgradation schemes for SSIs can help bring in cleaner technologies.
64
This includes taking steps through the national policies providing incentives for reducing emis-
sions of GHGs, or adhering to provisions of the UNFCCC. For example, submitting national
communications, ratifying the Kyoto Protocol, etc.
40

tion specifically for the SSI sector. Second, the national policies are examined to
identify the incentives they may provide specifically for SSI–environment interac-
tions. These include both the direct and indirect implications (direct effects arise
from the operation of environmental policy, that is, policy explicitly created to deal
with human/environment relations; and indirect effects are unintended effects of
promotional policies for SSIs and other national policies).

[Link] Contextual factors

Energy use in SSIs and the related environmental impact are influenced by policies
as well as the contextual factors. These are related to the characteristics of SSIs (in-
cluding internal dynamics and decision-making processes) and their social, eco-
nomic, and cultural milieus (including market conditions and influence of stake-
holders). The contextual fa ctors determine the local context for implementation of
the policies and policy instruments and thereby affect the outcomes they produce.
For the purpose of analysis, this section integrates the range of contextual factors into
two categories, (a) barriers (obstacles or constraints) and (b) drivers (which assist or
facilitate) (Gillisen et al. 1995; IPCC 2000; van Dijk and Sandee 2002; Vellinga and
Herb 1999) . It then subdivides them as organizational (e.g. technological capabilities,
management structures), economic (e.g. access to finance, market conditions), tech-
nological (e.g. access to technology, know -how, infrastructure), environmental (e.g.
local emissions, safety considerations), and social (e.g. attitudes, culture, collective
efficiency, influence of interest groups).

[Link] Policy responses

The policy responses deal with the weakness of the existing policies in leading to de-
sired policy implications for the SSI–environment interaction (for instance, due to
weak incentives). This element picks up signals of the problems and needs (World
Bank 2003b) in order to design the responses to correct these weaknesses (at the in-
ternational, national and/or local levels). This may include alter ing the policies and
policy instruments by modifying the set of incentives they represent (directly or by
influencing the contextual factors) or introducing new instruments.
Thus, the framework provides a “macro–micro link ” between the CCIs and the SSIs.
The framework examine s at different levels – global, national (including state and
sectoral), and micro levels (units or clusters), by focusing on the policy implications,
contextual factors and making some recommendations for policy responses. In doing
so, it deals with examining the issue of causality (link between the SSIs and their en-
vironmental impacts, and responses for addressing them by the national policies and
CCIs), and makes recommendations for their design.

3.2.2 Research questions

Based on the above elements, specific research questions are defined in this section.
The first aspect is related to the international climate change policies and the ince n-
 41

tives they provide for the diffusion of cleaner technologies in the SSIs. To under-
stand these, it is important to study how these policies are formulated, which policy
instruments are used, how have the policy instruments developed over time and to
what extent do they address human activities in developing countries in general and
SSIs in particular. The strength of the incentives that may be created by these policy
instruments in bringing about a change in SSIs will depend on their characteristics
(objectives, modalities) and motivations (like actor interests, biases), specifically
with respect to the sector.
The research framework shows that the relevance of the international climate change
policy instruments, particularly for the SSI sector in India, will be greatly influenced
by the national policy related to climate change in the country. It is, therefore, impor-
tant to examine the national policies as well. That is, what is the national policy on
climate change in India, how has it evolved and how does it view the international
climate change policies and policy instruments (especially their acceptability, appli-
cability and translating the provisions in the national context). In addition, what in-
centives does the national climate change policy pr ovide for the diffusion of cleaner
technologies across different sectors and for SSIs in particular; and how do they in-
fluence or complement the incentives provided by the international instruments. This
includes both direct and indirect incentives, and implies not only examining the cli-
mate change policy per se and perspectives of various stakeholders in the country re-
garding these issues, but also understanding their implications for the SSIs (i.e. to
examine climate change policies vis-à-vis the SSI sector).
Research question 1:
How do climate change instruments create incentives for diffusion of cleaner tech-
nologies in the small-scale sector in developing countries? How do the national poli-
cies address climate change in India? What are the policy implications of climate
change policies and policy instruments for the small-scale industries in India?
It is not just climate change policies that are relevant for looking into SSI –
environment interactions and the potential of CCIs to influence these interactions.
National SSI policies, promotional(or support) and environmental policies (other
than climate-related) are relevant as well. This means focusing not only on policies
specifically designed for SSIs but also macro policies and development goals that
have had implications for the sector, such as liberalization and globalization aspects
and poverty alleviation and social objectives.
As the next research question, we look into the main provisions of the national SSI
policies that may create incentives for the diffusion of cleaner technologies, and
study whether these are strong enough to shape SSI –environment interactions and
whether they complement or conflict with the climate change policies.
Research question 2:
Which national policies address the small-scale industrial sector in India? What are
the implications of the national policies for the diffusion of cleaner technologies in
the small-scale industries in India?
42

The potential of the policies to influence the SSI –environment interactions depends
on the interplay of the incentives they provide and the context or the circumstances
within which they are used. It then becomes necessary to identify the driving or con-
straining forces, or in other words, the contextual factors that influence diffusion of
cleaner technologies in the SSIs and thereby the performance of the various policy
instruments? It implies not only understanding the internal dynamics of the industrial
units and perceptions of the micro-level decision makers, but also the external fac-
tors, such as cooperative networks, local initiatives, influence of civil society, and
socio-economic and technological considerations. A nalysing these factors and how
they have influenced the prevailing policies can help draw some lessons for the in-
ternational policies as well. This then helps formulate research que stion 3.
Research question 3:
What are the main drivers and barriers related to diffusion of cleaner technologies in
the small-scale industries in India?
While research question 1 addresses how CCIs may be able to benefit the SSI sector
in India, questions 2 and 3 look into the Indian conditions and local circumstances
within which these instruments would have to operate. Research question 4 examines
these two aspects together, categorically for SSIs in India – what are the conflicts and
synergies between CCIs and SSIs? Where are the gaps vis-à-vis the national policies?
Can climate change policy instruments address these gaps and under what circum-
stances? It also helps to identify the possible policy responses that could help influ-
ence the SSI–environment interactions positively. These are based on quasi- or con-
dition-scenario making (for example, if the government is to undertake a specific ac-
tion as a particular policy response, then will the incentive for diffusion of cleaner
technologie s in the SSI become stronger or not?). The scenario building is not the
major part or focus of the thesis; however, the element concerning policy responses
is built up by making assumptions regarding possible policy responses wherever
needed.
Research q uestion 4:
How can small-scale industries benefit from climate change instruments and con-
tribute towards a reduction in greenhouse gas emissions? How can climate change
instruments affect small-scale industries–environment interactions?
Based on the empirical responses, practical and theoretical lessons may be derived.
The empirical data and analysis helps in drawing conclusions, and contributes to the
present understanding (in particular, what lessons can be drawn for the development
of policy instruments under ecological economics? What is the importance of an eco-
logical approach while looking at diffusion of cleaner technology in the SSIs). It also
helps in addressing the issue of design of policy instruments and making recommen-
dations for structuring policies and policy instruments to maximize their performance
in ensuring sustainability at the local levels. This is our last research question.
 43

Research question 5:
What lessons can be drawn from the Indian small-scale industries sector for the de-
sign and implementation of policy instruments under the international climate
change negotiations?
It should be pointed out here that though the research questions do follow a sequence
in the way they are presented, it is difficult to separate them explicitly. The questions
are linked to each other, and considerable degree of overlap exists between them. 65
The research questions cover all the elements of the research framework, and to-
gether help address the central research question of this study (Chapter 1).

3.3 Research methodology

This section describes the methodology used in this study based on the research
framework developed in the previous section. The research framework helps to ex-
amine the linkages between the policy scenario (international, national, state and sec-
tor), and industry-level activity (decisions and processes). It basically provides the
overall boundary of the research, which needs to be supported by empirical evidence.
An empirical approach becomes especially relevant as we are dealing with real-life
situations and trying to understand the complexities of human behaviour (including
perceptions, motivations and reactions). We basically work inductively towards e n-
riching the knowledge base supporting policy development.66

3.3.1 Research techniques

The research methodology uses qualitative techniques including literature survey and
multiple case studies, with use of some quantitative data and techniques as well (e.g.

65
For example, it will not be possible to analyse the implications of the national SSI policies
without really looking into how the sector operates and vice versa (questions 2 and 3), or
look into national climate change policies and environmental policies separately (questions 1
and 2).
66
We are taking an inductive approach by focusing on real-life situations and using empirical
case studies. Inductive reasoning involves proceeding from specific to general by observing
and developing explanations of regularities or drawing conclusions regarding the patterns.
This approach is often criticized u sing the argument that the dependence on observable facts
makes reaching a degree of finality in economic thinking difficult (Fellner 1960). On the
other hand, however, it is generally preferred to describe fully and identify the mutually
shaping influences in the research context (Tacconi 1998). If policies are to be effective then
they have be exa mined and be applicable in the real world context. Thus, we feel this ap -
proach is suited to this study rather than taking a deductive approach generally followed in
neoclassical economics (Johnson 1986; van den Bergh 2000), where formal models are de-
veloped for deriving well-defined propositions. Overemphasis on deduction results based on
fixed assumptions (van den Bergh 1996; van den Bergh and Gowdy 2000) may prove to be at
variance with reality and unable to effectively deal with evolving social and economic cond i-
tions (Fellner 1960) , as is the case with the climate change policy arena. Thereby, we use in-
duction, and focus more on descriptive, exploratory and interpretive pro cedures.
44

use of energy, estimation of potential emissions). 67 It uses multiple sources of infor-

mation combined wit h observations from the field in order to present the outcomes
and answering the research questions (Table 3.1). The research is divided into two
components. The research techniques used in the components are different.
The first component is the review and analysis of the CCIs and the national policies
vis-à-vis the SSI sector (Chapters 4 and 5). It examines the material and cognitive
conditions related to the CCIs and the national policies in India, to draw inferences
regarding their policy implications for the SSI sector. It thus addresses the research
questions 1 and 2 of this research.
This component is largely descriptive and analytical. It involves (i) literature review
using secondary information, including reports and records (such as government pol-
icy and plan documents, legislative acts), research studies and submissions to the UN
FCCC Secretariat, and (ii) interviews (semi-structured) with actors associated with
the climate change negotiations and policy instruments, and the nationa l SSI policy
(government, multilateral organizations, industrial organizations, NGOs, journalists
and researchers). The latter assists in understanding the perspectives of the actors re-
garding the climate change policies and involvement of SSIs. These are analysed to
determine the set of potential incentives, and thereby the policy implications of the
CCIs for the SSI sector.

Table 3.1: Research questions and the data sources

Research Focus Sources
question (RQ)
RQ 1 International climate change policies 1. Literature review
(Chapter 4) National policies (climate change) 2. Interviews
Policy implications
RQ 2 National policies (SSI) 1. Literature review
(Chapter 5) Policy implications 2. Interviews
3. Case study approach
a. Survey
b. Interviews
RQ 3 Contextual factors 1. Case study approach
(Chapters 6– 9) a. Survey
b. Interviews
RQ 4 Synergies between SSIs and CCIs Analysis and interpretation of RQ 1– 3
(Chapters 9– 10) Policy responses
RQ 5 Policy design and theoretical lessons Analysis and interpretation of RQ 1– 4
(Chapter 10) vis-à-vis theoretical concepts

67
Ecological economics is issue-driven, trans-disciplinary and does not restrict the use of one
kind of methodology (Costanza et al. 1991; Klaassen and Opschoor 1991; Norgaard 1989)
(also see chapter 2). Qualitative methods are considered (Tacconi 1998) suited to deal with
multiple realities and are adaptable to various influences and value patterns (e.g. in dealing
with perceptions, motivations, interests) encountered in the field.
 45

T he second component involves case studies in the Indian SSI sector (Chapters 6, 7
and 8). Each case study has two main objectives: (a) to analyze the role of the exist-
ing national policies, and (b) to identify the main factors influencing diffusion of
cleaner technologies at the local level. These determine and provide empirical evi-
dence for the potential use of CCIs in this sector. Thus, this component also helps in
understanding the local context within which the in struments will have to operate
(contextual fa ctors). It, in combination with the first component, addresses research
question 3 (and supplements research question 2).
The data collection techniques for this component are twofold. Firstly, a primary
survey of the SSI units was undertaken for each case study cluster. For the surveys,
structured questionnaires for the entrepreneurs were used. 68 The information thus
collected was also supplemented with discussions (individual or groups) with entre-
preneurs. Sec ondly, semi-structured, in-depth interviews with other stake-
holders/actors (representatives of government departments, industrial associations,
NGOs, and financial institutions, consultants, technology suppliers, workers and re-
searchers) were conducted. 69 Using the information, the set of contextual factors in-
fluencing cleaner technology diffusion in that SSI was obtained. In addition, findings
regarding performance of national policies were also realised (what were the com-
mon features of, and main reasons behind successful or unsuccessful policy interve n-
tions?).
The two components were then combined and correlated to examine whether the po-
tential benefits of the CCIs can address diffusion of cleaner technologies (and needs)
in the SSIs. Therefore, they in effect complement and supplement each other. In
broad terms, the first deals with the supply aspects (top-down), while the second
deals with the demand aspects (bottom-up) related to CCIs (Chapter 2). Together,
they help in answering research question 4 (Chapter 9) and drawing theoretical and
policy-related lessons for addressing research question 5 (dealt with in Chapter 10).

[Link] Case study selection

This section deals with the rationale for the choice of suitable case studies. Case
studies are empirical inquiries that investigate a phenomenon within its real-life con-
text (Yin 1994). They are especially appropriate when the research focuses on con-
temporary issues, aims at understanding complex relationships and uses multiple
sources of evidence (Yin 1994) , and thus are suitable here as well. In particular, they
may be used as the basis for drawing inferences and framing (at least tentative) gen-
eralizations about the role of institutions and policies in global environmental change
processes (Young et al. 1999).

68
A brief questionnaire for workers was also prepared and attempts were made to get their in -
sights as well. However, in most cases, the owners or managers would allow the workers to
be interviewed in their presence only, which restricted the insights got from the workers. The
survey therefore has focused on understanding the perspectives of the entrepreneurs.
69
These stakeholders were also asked to fill a questionnaire (again semi-structured) if they agreed
to do so. However, in general, the main resea rch tool here was the interviews.
46

The multiple case study approach is used for this study for analysing multi-
disciplinary and complex (macro–micro) linkages. A case study in this context refers
to an energy-intensive SSI cluster (a number of units located in close proximity). The
case studies help to examine the implications of the national policies and the contex-
tual factors for the SSIs. The approach assumes that the similarities (common SSI
characteristics) and differences (cluster size, market orientation and production pa t-
terns) between the three case studies will reflect the different circumstances across
SSIs, in which policy instr uments may be used. The main criteria adopted for the se-
lection of case studies were the following:
a) Relevance for energy and environment: The SSI cluster is energy intensive, con-
suming significant quantities of fossil fuels especially coal. Thus, it is associated
with adverse environmental impacts (both global and local) and possesses poten-
tial for diffusion of cleaner tec hnology.
b) Relevance for socio-economic development: The SSI cluster is important from a
socio-economic perspective, particularly in terms of the amount of value added,
i.e. production and employment generation.
c) Relevance for national policies: In the SSI cluster, environmental policies have
been introduced, which will or are playing a role in bringing about a change in
the processes of the industrial units.
Based on these criteria, three energy-intensive SSI clusters were selected as case
studies. These include iron casting or foundry industry in Howrah, West Bengal; the
glass industry in Firozabad, Uttar Pradesh; and the brick industry in Chandigarh,
Punjab (F igure 3.2). These also indirectly represent other energy-intensive SSIs in
India such as pottery, cement, steel, silk reeling, etc. The selection was made after
reviewing available official documents and research reports, and consultations with
experts on SSIs in India. The selection basically involved a two level/stage selection:
one, the choice of industry within the SSI sector, and second, the choice of a cluster
within the selected industry.

Case studies: the choice of industries

SSIs occupy an important position in the Indian industrial sector. Many of these are
energy intensive and have a significant potential for diffusion of cleaner technologies
(Chapter 1). However, the circumstances and conditions existing in the SSIs are dif-
ferent from those in large industries. Most SSIs are associated with small size of op-
erations, semi or unorganized structures, traditional practices and flexibility of opera-
tions, and high labour intensities (sector-specific characteristics – see Chapter 2.3).
Thereby, the problems and needs of SSIs are also different as compared to large in-
dustries. With the help of the case studies, these special needs of the sector are high-
lighted while looking into the relevance of the international policy instr uments
47
48

In spite of the similarities or sector-specific characteristics, there is also considerable

variability within the SSI sector. The sector covers a spectrum of industries compris -
ing of modern SSIs using sophisticated technologies to rural and traditional indus-
tries using very simple means of production (see Chapter 5). The “modern SSIs” in-
clude units that use power and are situated in close proximity to large industrial sec-
tors or urban areas. The “traditional SSIs”, on the other hand, are generally artisan-
based units characterized with very small initial investments (including handicrafts)
and are located generally in rural or peri-urban areas (MoSSI 2002).70 The case stud-
ies are chosen to try and bring out these circumstances.
In identification of the SSIs, the main criteria used have been listed above. The pr i-
mary guiding principle has been that they are energy intensive and therefore are rele-
vant from the environmental point of view (especially GHG and local emissions).
They are also relevant for socio-economic development of the region and the coun-
try, especially in terms of employment and value added. In other words, they are
relevant from the point of view of sustainable development (Table 3.2).

Table 3.2: Selection of case study SSIs

Criteria Iron foundry Glass Brick
Energy use and env i- •Main fuel: coal/coke •Main fuels: natural •Main fuel: coal (24.2
ronmental relevance (0.6 million ton- gas (0.6 million stan- million tonnes/annum)
•3 largest coal con-
rd
nes/annum) dard cubic metre/day)
•Pollutants – SPM, and coal sumer industry in India
CO2 , SO2 •Pollutants – SPM, •Pollutants – SPM, CO 2,
CO2 , SO2 SO 2; •soil erosion (top
soil depletion)
Economic relevance •Product – industrial •Product – glass ban- •Project – major input
and other castings gles (monopoly) and for construction industry
•6 largest producer •2 largest producer of
th nd
other glass items
•2 largest production
nd
of castings in the bricks in the world
world capacity in the world
Social relevance •0.6 million workers •0.5–1 million workers •8– 10 million workers
•Cultural significance
Policy relevance Emission standard Ban (on coal use) Emission Standard
(main instrument)
Source: (Bhattacharjee and Pal 2001; IIFA 2000; MoSSI 2003; PSCST 2001b; UNDP 2000)

As iron and steel and the construction industry are major contributors of GHG emis-
sions in the industrial sector in India, it was important to choose a case study from
each of these industrial sub-sectors. Owing to their energy consumption, the iron

70
These include khadi and village industries, handlooms, sericulture, handicrafts and coir.
 49

foundry and brick SSIs were chosen. 71 These industries represent completely differ-
ent situations (see Table 3.3). The SSI iron foundries (90% of all foundry units in the
country) produce castings for internal and external markets, including inputs for sev-
eral other industries (due to which it is known as the ‘mother of all industry’). The
brick SSIs provide inputs for the construction industry and cater largely only to local
markets. Brick making is a seasonal and predominantly traditional industry, with all
its units falling in the SSI sector.
The glass industry is also energy intensive and represents very different conditions.
Most of the glass SSI units tend to be located at a single location (about 70% of the
SSI glass products come from this single cluster in Firozabad), and maintain a
monopoly situation in the production in glass bangles or bracelets, in addition to
producing other products for internal markets and exports. It also has a socio-cultural
significance (glass bangles have been worn by Indian women since a long time and
also have a religious connotation; almost the entire population of Firozabad is
directly or indirectly dependent on the industry, and child labour is a major concern).
The case studies were chosen such that they include SSIs that are also relevant from
the perspective of national policies as one of the criteria. The environmental aspects
related to cleaner technologies are usually not given adequate consideration for the
SSIs (see Chapter 5). However, there are some specific SSIs where environmental
policies have brought in change, and these included our case study industries. The
main policy intervention in these cases has been the introduction of emission
standards. The glass industry is especially important as it also faced a ban on coal
usage.

Table 3.3: Key differences in case studies

Foundry Glass Brick
•Modern SSI • Modern plus traditional units • Predominantly trad itional
•Located in large clu sters •Concentration in single large clus- •Scattered but located in small
(mainly u rban) ter (urban) clusters (peri-urban and rural).
•Cater to internal and ex- •Cater to internal and export ma r- •Cater to local market
port ma rket kets
•Monopoly cluster for glass bangles
•Several inter-related stages of pro - •Seasonal – production in dry
duction (vertical and horizontal inte- season (though few technologies
gration) enable annual production)

71
The three highest coal-consuming industries in India are power, iron and steel and brick
(PSCST 2001b). Brick, therefore, is anyway important being the third largest coal consuming
industry. Foundry too is a major energy consumer, as according to a study (TERI 1998b)
foundries and forging SSIs together account for 44% of the total energy consumed by the 41
major energy-intensive SSIs considered in the study.
50

Case studies: the choice of clusters

Each SSI comprises of different SSI clusters – there are 350 urban and 2000 rural
clusters in India. After choosing the case study SSIs, the next step was to identify one
cluster in each of the cases for detailed study (Table 3.4). For the case study cluster
selection, the criteria were the same as for the case study industries – its relevance
for sustainable development and impact of the national policies. In addition to these,
logistical, resource and time considerations were kept in mind. It was also decided to
choose the three clusters in different states so that the importance of state policies
may also be highlighted. In all the three states in which the case study clusters are lo-
cated, the emphasis on SSI development is high.
For the foundry and the glass industries, the choice was fairly obvious. The foundry
cluster at Howrah, West Bengal, was chosen because it is the oldest and largest (in
terms of number of units, production and exports) foundry cluster in India. Similarly,
the glass cluster in Fir ozabad, Uttar Pradesh, was chosen because it is the largest
glass cluster, and is the only glass bangle -making cluster (monopoly position). In
fact, Firozabad is also known as the ‘glass city’ or ‘glass capital of India’, with the
entire population of the city directly or indirectly dependent on it (Chapter 7).

Table 3.4: Selection of case study clusters - characteristics

Howrah Firozabad Chandigarh
•State: West Bengal •State: Uttar Pradesh (U.P.) •State: Punjab
•Largest and oldest foundry •Largest cluster in India (called •In Punjab – the largest
cluster in India glass capital of India) brick producing state
•Largest producer and ex- •Only bangle-making cluster • Progressive cluster in
porter of cas tings in India • Whole town dependent on it terms of awareness

The brick clusters are usually smaller and are found all over the country. Chandigarh,
Punjab, is especially relevant (here we are referring to units falling in and around
Chandigarh).72 This is because it falls in the largest brick-producing state in India.
Secondly, it has been especially relevant in terms of the change brought in through
the national policies and the level of awareness that has been generated in terms of
energy efficiency (Chapter 8).

72
The brick clusters are very small in size, but tend to be located in small clusters around an area.
The case study of the brick industry in Chandigarh, in fact represents four mini- clusters
around the Chandigarh city, which have been taken together as one cluster. Also, the brick
production process and conditions are very different across regions in India. Therefore, the
case study was supplemented with observations from a mini-case study that was also under-
taken in Pune, Maharashtra, where the technology and conditions as well as the policy inter-
ventions are totally different (Chapter 7).
 51

[Link] Survey techniques

The survey for collecting empirical evidence had to provide a variation in the under-
standing of the circumstances and the needs of the SSI units. In addition to the vari-
ability across different SSIs and SSI clusters, there also exists intra-cluster diversity.
The units within clusters differ in most cases on the basis of their sizes, production
capacities, technologies, number of employees, market orientation, organizational
structure, etc. Therefore, a conscious effort was made to make the sample representa-
tive – by classifying the various units within a case study SSI cluster based on infor-
mation from local sources (as there is no uniform way of classifying the units) and
including units from each category in the sample. In the case of foundries, the units
were categorized on the basis of size (or production capacities); while for the brick
and glass clusters, they were classified on the basis of their location and kind of
technology used, respectively.
The primary approach for the collection of the data was kept simple. In each case, the
field reviews consisted of multiple field visits and periods of extended stay at the
case study areas. The first visit was always to get a feel of the situation, make con-
tacts and hold preliminary discussions, on the basis of which the questionnaires were
developed. The information collected through the questionnaires was supplemented
with informal discussions with the entrepreneurs regarding their problems, needs,
and views pertaining to cleaner technologies and national policies. In addition to this,
the information collected was also supplemented by my own observations in the field
plus relevant secondary literature (studies, reports, official data) wherever available.
The field data involved three streams of information: (i) data related to the SSI units
and status of the cluster (to define the base case and the potential for cleaner tech-
nologies); (ii) information related to the impact of national policies; and (iii) data
providing insights into the decision-making process at the unit level in order to iden-
tify the contextual factors. This included information pertaining to the unit (like
unit’s age, association membership, production, market orientation, number of em-
ployees, emissions), energy and raw material inputs (type and amounts of fuel used,
etc.), technological status and changes (e.g. technology type and specifications, pol-
lution control devices, technological upgradation – if any, and for what reasons), fac-
tors affecting technological change (perspectives regarding the main considerations
and potential barriers for adoption of cleaner technologies, and the importance of na-
tional policies)73, and support (kind of policy or organizational support available and
perceptions on what is needed).

73
For this, three sets of factors were identified and listed in the questionnaire: (i) considerations
for decision-making regarding adoption of cleaner technolo gies; (ii) factors constraining
adoption of cleaner technologies; and (iii) requirements for adoption of cleaner technologies.
The entrepreneurs were r equested to rank these factors according to their importance for
them (1– 5: not important to most important). This was supplemented with discussions with
the entrepreneurs, which helped substantially in bringing more insights regarding the factors.
52

3.3.2 Validation, reliability and objectivity

The research tools used aimed at maintaining validity, reliability and objectivity of
the information collected as much as possible (Denzin and Lincoln 1998). To main-
tain internal validity (for the survey data as well as the interview techniques) multiple
sources of data were used, and the observations and information from the surveys
and the interviews were constantly reviewed and compared. For views on policy re-
lated issues, the information was systematically crosschecked with policy documents
wherever they were available (e.g. time frame and provisions of policy interven-
tions). However, the official statistics related to SSIs (Box 3. 1), and documents re-
lated specifically to the case study areas are not many or detailed, and reliance was
more on checking by asking the same questions in a different way, and cross-
checking among different stakeholders, policy implementers and others. 74 Staying at
the case study areas and constant interactions within the SSI clusters enhanced ob-
servational consistency and understanding of the issues.
In addition to the internal validity, external validity of the information was also kept
in mind. External validity involves not only generalization but also the robustness of
the empirical findings (Brinberg and McGarth 1985). In the research, an attempt has
been made to understand the circumstances that may exist at the local levels across
the different case study clusters that influence the performance of the policy instr u-
ments. Empirical evidence has been used to see what kind of policy instrument was
successful or a failure in the presence of various conte xtual factors. It is because of
this that the three case studies were chosen such that they represented different sce-
narios and circumstances. The overall results obtained from the three industries oper-
ating in different situations and conditions (in terms of state policies, policy instru-
ments used, market orientation, operational practices, etc.) are likely to be more rep-
resentative of the SSI sector as a whole , as opposed to one case study industry that
may have provided concrete conclusions for that particular industry.

74
For example, information regarding energy consumption in the clusters was tricky to obtain.
The official statistics was not accessible through the District Industries Centre (DIC). The as-
sociations a lso either did not have the figures or were reluctant to share it. This data was col-
lected on the basis of the sample survey, by collecting information on production and energy
used in the units. It was cross-checked by asking for the same information in d ifferent ways –
the entrepreneurs were asked directly what their energy consumption per year was, and then
indirectly information was sought about their yearly production and coal (and other energy
sources) usage as a percentage of the produce. It was however not possible to validate the in -
formation by any official record. The next step was to obtain the number of units in the clus-
ter to get the information regarding energy use in the cluster. The official data is available for
the number of registered units, but these may or may not be operational and there may exist
unregistered units. In order to find out which units were not operational, stakeholders were
asked to look at the list of units and mark the operational units (glass and foundry units) and
by just asking them to give the number. Similarly, the number of the unregistered units was
approximately obtained by asking various stakeholders (especially associations).
 53

Box 3.1: SSI statistical data sources

While there are two main official national level statistical sources available for the SSI
sector, the level of detail and coverage with respect to information related to the sector is
not considered enough, especially for policy formulation and economic analysis. The
data set of the Small Industry Deve lopment Organization (SIDO) covers a large share of
SSIs (based on basic registration statistics, surveys, and occasional census – three till
now), but it does not cover the whole sector (is largely limited to modern registered
SSIs), is highly aggregated and associated with sampling problems (Mohan 2001). The
Central Statistical Organization (CSO) data set (including the Annual Survey of Indus-
tries covering the registered units and the economic census covering both registered and
unregistered economic activities, but both these are often not found to be complimentary
to provide a complete picture), on the other hand, has a better coverage and is less ag-
gregated, but it is not very easily accessible. The availability, accessibility and coverage
of state level data and information on SSI vary in different states depending on the ad-
ministrative structures at lower levels, and is generally based on the registration data (the
SSI units are registered – not compulsorily – with the local District Industries Centre).

Objectivity was maintained as much as possible throughout the course of the study.
Interviews and perceptions of different stakeholders could have brought in some de-
gree of bias and subjectivity. However, the methodology allowed deviations in terms
of freedom for respondents to interact and listen to views and opinions (for example,
in case of group respondents and discussions). Clearly, there was divergence of
views between various actors, which was taken as a given since the beginning, and
forms the crux of the research. Informal interaction was encouraged to bring forth
various perspectives. Being an independent researcher allowed most respondents to
hold open and candid discussions. 75 Assurance of anonymity was given to the inter-
viewees, which is why names of the respondents are not mentioned in this thesis.

3.4 Recapitulation
This chapter has presented the research framework and the methodology used in this
study. The research framework assists in analysing the role the international policy
instruments may play in shaping SSI–environment interactions by focusing on the in-
terplay between the policy implications and the contextual factors. The research
questions are formulated based on this framework and together they address the cen-
tral research question of the study.
The methodology used for answering these questions follows an empirical approach,
basica lly working inductively towards enriching the knowledge -base supporting pol-
icy development. It uses mainly qualitative techniques and includes literature survey

75
It was clear during the initial visits and discussions that some of the entrepreneurs were suspi-
cious regarding any discussions regarding environmental issues. So, during discussions with
them, the subject was approached from the perspective of energy cost savings rather than pol-
lution control or GHG reduction.
54

and multiple case studies. The research is divided into two complementary compo-
nents: the first involving review of climate change and the national SSI policies, and
the second involving case studies of energy-intensive SSI clusters. The case studies
have been selected using three basic criteria: relevance for the environment (and en-
ergy intensity), relevance for socio-economic development, and relevance for na-
tional policies. At the level of understanding the evolution of the international and
national policies, and how they address the SSI sectors, the narrative is based on the
review of official a nd scientific literature, and interviews with representatives of the
government, industry, academia and the NGO community. At the field level, a pr i-
mary survey of the SSI units and interviews were the main tools.
4. Climate change policies

4.1 Introduction
The balance of evidence suggests a discernible human influence on the global cli-
mate (IPCC 1996: page 4). The FCCC (1992) and the Kyoto Protocol (1997) form
the core of the present and any future international regime for addressing climate
change with the CCIs (defined in Section 1.2.1) as important features. The CCIs pr o-
vide incentives for the signatories to the Convention for undertaking climate-relevant
actions for addressing climate change. 76
This chapter examines the climate change policies at the international level, and in
India. It focuses on CCIs that provide incentives for facilitating cleaner technology
diffusion for GHG mitigation in developing countries. The analysis is based on lit-
erature review complemented with primary interviews with representatives of gov-
ernment department and ministries, NGOs and financial institutions in India. Section
4.2 describes the evolution of the international climate change policies. Section 4.3
discusses the CCIs introduced till now which are relevant for the developing coun-
tries. It broadly covers the objectives, incentive structures and policy implic ations of
the CCIs. Section 4.4 deals specifically with the national policy related to climate
change in India. Finally, Section 4.5 draws the main conclusions regarding the impli-
cations of the climate change policies particularly for SSIs in India. These conclu-
sions will be revisited in Chapter 9 and help in answering research questions 1 and 2.

4.2 International climate change policy

Climate change was recognized as a major environmental concern at the First World
Climate Conference in 1979. It emerged on the political agenda in the mid-1980s , in
spite of scientific uncertainties related to the phenomenon and its impact on the
world. Subsequently, the Inter-governmental Panel on Climate Change (IPCC) was
set up in 1988, to assess the seriousness of the problem and recommend appropriate
policy measures. The recommendations of the IPCC led to the setting up of the Inter-
governmental Negotiating Committee (INC) in 1991, under UN auspices, to draft a
global convention on climate change and any other related legal instrument that it
considered necessary (FCCC 2002a, 2003).
The timeline of the evolution of the international climate change policy since the
adoption of the FCCC, with particular reference to CCIs, is outlined in Figure 4.1.

76
Climate relevant activ ities include GHG mitigation, by emissions reduction (reducing their
sources) and sequestration (enhancing their sinks), and adaptation (adjustments to actual or
expected climatic changes) activities. The emphasis here is on mitigation by reducing GHG
emissions from energy use.
56
 57

The FCCC was adopted at United Nations Conference on Environment and Deve l-
opment (UNCED) at Rio de Janeiro (the Rio Earth Summit) in June 1992, and came
into force in May 1994. Since then, regular meetings of the Conference of the Parties
to the FCCC (COP) and its subsidiary bodies have been held to monitor its imple -
mentation and continue talks on how best to tackle climate change. This is a complex
task as the causes of the problem and many of the possible options to address it are
embedded in the basic economic and social activities across all countries. It is evi-
dent, however, that the problem is global and requires collective and concerted ac-
tion. The climate change process may be analysed in two phases that is pre- and post-
Kyoto, with the introduction of the Kyoto Protocol in 1997 dividing the two phases.
It may be pointed out that while in the pre-Kyoto phase, climate change concerns
were treated almost independently; they are now increasingly being integrated within
the broader sustainable development goals. 77

4.2.1 P re-Kyoto phase: Setting the overall framework

The pre-Kyoto phase laid down the overall basic framework for the international re-
gime to address climate change. The objectives and principles were defined in the
FCCC, and significant policy instruments and measures were introduced (FCCC
1992). The Parties adopted commitments to make a voluntary effort to curtail their
GHG emissions. Commitments for all Parties included preparing national communi-
cations, undertaking research and development, technology development and transfer
activities, etc. In addition, based on the principle of common but differentiated re-
sponsibilities 78, the developed countries were to take the lead by modifying their long-
term emission trends and reduce their GHG emissions
“...with the aim of returning individually or jointly to their 1990 levels …” (FCCC:
Article 4)79.

77
The treatment of sustainable development in the international climate change context is also re-
flected in the IPCC assessment reports. The first IPCC assessment report (IPCC 1990) dealt
almost exclusively with the science of climate change, and sustainable development and cli-
mate change were considered distinct issues. The second report (IPCC 1996b) recognized the
overlap between the issues, but made unsatisfactory attempts to link them. In the third report
(IPCC 2001c), there was conscious intent to explore the linkages more systematically. Ulti-
mately, however, a feasible climate change response be integrated with other sustainable de -
velopment goals is desirable. This task is to be taken up under the fourth assessment report.
78
The developed countries have historically been the largest contributors of GHG emissions. The
developing countries are more vulnerable and have low techno-economic capacity to respond
to climate change impacts. Thus, the FCCC divides all Parties in terms of their responsibili-
ties. It requires the developed countries (Annex I Parties) to take a lead by modifying their
long-term emission trends. It calls on the richest among them (OECD or Annex II Parties) to
provide financial and technological resources to help developing countries (non -Annex Par-
ties) tackle climate change and adapt to its effects (FCCC 1992; Pachauri et al. 1997) .
79
The language of this article comprising the abatement commitments for developed countries is
‘legally vague’ (Gupta 1997).
58

The developing countries did not adopt specific quantitative abatement targets, but
committed to take climate change considerations into account in their relevant develop-
mental policies and actions. Their efforts towards tackling their GHG emissions are
largely contingent on the financial and technical resources made available to them by the
developed countries. In this regard, technology transfer was emphasized (FCCC: Articles
4.1h, 4.3, 4.4, 4.5, 4.7). Two specific CCIs were also introduced by: (i) setting up a sub-
sidy-based ‘Financial Mechanism ’ (FCCC: Article 11), and (ii) introducing the concept
of ‘Joint Implementation (JI)’80 for undertaking cooperative GHG relevant projects
that led to setting up the prior ‘Pilot Phase of Activities Implemented Jointly (AIJ)’ in
1995. It is fair to say, therefore, that the emphasis was more on ‘suasion ’ and capac-
ity building in terms of awareness creation, learning (e.g. GHG inventory prepara-
tion, learning AIJ phase), identifying appropriate polic ies and measures, etc., and
also on putting in place the Financial Mechanism – the responsibility of which was
entrusted upon the Global Environment Facility (GEF).
With the adoption of the FCCC, several countries and actors (governments, private
sector and civil society including NGOs, academics and media) started to get in-
volved in the climate change process, and the related concerns were gradually incor-
porated within international and national policy levels. The Convention, however,
did not provide abatement targets beyond the year 2000, and thus, these were inade-
quate for achieving the longer-term GHG stabilization objective. Moreover, it was
becoming evident in the mid-1990s that many developed countries would not meet
their abatement targets in the prescribed time period.81 Thus, recognizing the need for
an agreement aimed at strengthening these commitments, the negotiations were
launched by COP-1 at Berlin in 1995. Subsequently, the Kyoto Protocol to the FCCC
was adopted after long negotiations in December 1997 at Kyoto, Japan.

4.2.2 Post-Kyoto phase: Strengthening the commitments

The post-Kyoto phase has seen efforts to strengthen the commitments under the
FCCC with the adoption of the Kyoto Protocol, and creation of an international mar-
ket for carbon abatement credits as a cost -effective measure (on a global basis) for
meeting the objective of the FCCC. The Kyoto Protocol, in order to enter into force,
required that at least 55 Parties to the FCCC, including A nnex I Parties (developed
countries) accounting for at least 55% of the total CO2 emissions in 1990, ratify, ac-

80
JI is not explicitly mentioned in the text of the FCCC. However, Article 4.2 (a) reads in part:
“Each of these parties shall adopt national policies and take corresponding measures on
mitigation of climate change,... These Parties may implement such policies and measures
jointly with other Parties ..” and Article 4.2 (b) mentions: “...the aim of returning individu-
ally or jointly to their 1990 levels.. ..”
81
The 1999 data (FCCC 2002) revealed that GHG emissions in the OECD countries hadrisen by
6.5% since 1990 (excluding sequestration). Emissions in economies in transition, however,
had declined by 40% due to economic restructuring. As a result, overall emissions from de-
veloped countries had declined by 7.6% since 1990. The emissions of the countries in transi-
tion are now increasing.
 59

cept, approve or accede to it (FCCC 1997). The rate of ratification was slowed by po-
litical disagreements over how to implement the Protocol, especially after the dec i-
sion of the United States, which accounts for the largest proportion of the global
GHG emissions (36.1% of Annex I 1990 CO2 emissions), not to ratify. The Proto-
col’s entry into force hinged for a long time upon Russia (which accounts for 17.4%
of Annex I 1990 CO2 emissions) as Russia decision to ratify became critical to
achieve the required 55% of Annex I emissions mark. Finally, Russia’s ratification in
November 2004 made way for the Protocol’s entry into force on 16 February 2005.
The Kyoto Protocol introduces ‘legally binding’ quantified emissions limitation and
reduction or abatement commitments for the developed countries to reduce their col-
lective emissions of six key GHGs (through domestic or cooperative efforts)
“…by at least 5 per cent below 1990 levels in the commitment period 2008 to 2012”
(Kyoto Protocol: Article 3). 82
While this provides a regulatory incentive for abatement, the compliance mechanism
is being finalized. There are no quantitative emission targets for the developing coun-
tries as yet. 83 However, there has been significant debate ove r introducing voluntary
commitments for them. 84 Other commitments for the Parties include: preparing na-
tional mitigation and adaptation programmes; improving emissions’ data quality; sc i-
entific research and capacity-building, etc.
The Protocol reinforces the importance of technology development and transfer
(Kyoto Protocol: Articles 8.3, 8.5, 8.6, and 10c), and stresses private sector involve-
ment and actions in and by developing countries. It introduces three market-based in-
struments, commonly known as the Kyoto Mechanisms (Kyoto Protocol 1997: Arti-
cles 6, 12, 17), to provide flexibility and cost-effectiveness for developed countries in

82
Compared to emissions projected for the year 2000, the OECD parties needed to reduce their
collective emissions by about 10%, as many of them exceeded their earlier target of reducing
emissions to 1990 leve ls by the year 2000. While countries with economies in transition have
faced falling emissions since 1990, this trend is now reversing. Thus, for developed countries
as a whole, the 5% target represents an actual cut of around 20% compared to emissions lev-
els that are projected for 2010, if no emissions control measures are adopted.
83
However, there may be consequences of the developed countries abatement commitments on
the developing countries, especially those highly dependent on fossil fuel (for instance, im-
pact of energy prices, research and development of cleaner technologies, and financial and
technological transfers to the developing countries). In the future regimes, the developing
countries may even decide or be obliged to take on voluntary or evenbinding commit ments.
84
Voluntary commitments in terms of abatement targets for the developing countries have been
refuted basically on two accounts: (a) sovereignty – developing countries are on development
paths and require sovereignty to use their ‘environmental space’ (as the developed countries
enjoyed when they were at a similar stage), and (b) differentiated responsibility – the onus is
on developed countries to first show ‘demonstrable’ progress in reducing their emissions and
meeting their commitments. Many developing countries like India (discussed later in the
chapter) have shown initiative and progress in terms of reducing GHG emissions while meet-
ing their development needs, in spite of not having specific abatement commitments.
60

meeting their commitments.85 These are: (i) Joint Implementation (JI) for facilitating
cooperative projects between develope d countries and sharing of emission reduction
units (ERUs); (ii) Clean Development Mechanism (CDM) for facilitating projects in
developing countries and sharing of certified emission reductions (CERs); and (iii)
Emissions trading for international trade in assigned amount units (AAU) or emis-
sions permits over the assigned amounts under the abatement targets. All three envis-
age some form of trade in carbon credits. 86
In addition to the efforts related to ratification of the Protocol, there have been sig-
nific ant developments towards strengthening of the climate change policy process
especially under the ‘Marrakesh Accords’ at COP-7 in 2001 (FCCC 2002b), and in-
tegrating climate change with broader sustainable development issues with the adop-
tion of the ‘Delhi Decleration on Climate Change and Sustainable Development’ at
COP-8 in 2002 (FCCC, Decision 1/CP.8). The Marrakesh Accords set the opera-
tional rules for the Kyoto Mechanisms and three additional funds under the Financial
Mechanism. 87 At the recent COP-11, the Kyoto ‘Rule Book’ was adopted for
strengthening the framework for implementing the Kyoto Protocol which includes key
elements for a stronger CDM and the launch of a JI process (UNFCCC 2005). Thus, the
emphasis post -1997 has been shifting towards economic instruments, especially the
market-based instruments as flexible and cost-effective solutions to address climate
change, and to some extent a regulatory approach in terms of legally binding com-
mitments (though politically negotiated and not scientifically agreed upon).
There is increased awareness and concern for climate change and interest regarding
the CCIs. Several countries are undertaking initiatives to reduce GHG emissions (in-
dividually and collectively) and actions for meeting their commitments (such as de-
veloping action plans, national communications). Talks are also under way for de-
veloping a ‘beyond -Kyoto regime’, i.e. beyond the 2008–2012 commitment period.
Although the rate of ratification of the Kyoto Protocol was slow and participation
and compliance insufficient, protecting the climate has emerged as an important
global concern, especially in the light of (i) increased scientific evidence of human
interference with the climate system (IPCC 2001a, d); (ii) climatic changes and oc-

85
Initially, these mechanisms were called the “flexibility mechanisms”, as they provided flexibil-
ity to the developed countries in meeting their commitments. However, since the CDM is
projected as a flexibility as well as development mechanism – the term was considered inap -
propriate, and Kyoto Mechanisms is now the more commonly used term. These mechanisms
are discussed in detail in the next section.
86
A GHG or carbon abatement credit broadly is one unit of carbon dioxide equivalent offset. It
may take different forms such as a CER, an ERU or an AAU depending on the mechanism
that generates them. The process whereby the different forms of credits obtained via the
Kyoto Mechanisms can be interchangeably used is known as fungibility of credits.
87
In 2001, the Marrakesh Accords broadened the mandate of the GEF to manage three new funds
(in addition to the Trust Fund that covers the climate change focal area): (i) special climate
change fund (under FCCC) for countries highly dependent on fossil fuels; (ii) least developed
countries fund (under FCCC) for special work programme for least d eveloped countries; (iii)
adaptation fund (under Kyoto Protocol) for adaptation activities.
 61

currence of certain natural events over the last few years (FCCC 2004) ; and (iii)
growing public involvement with significant number of Parties, NGOs, private sec-
tor, researchers joining in the various aspects of climate change debates. Table 4.1
summarizes the differentiated responsibilities and the key provisions in the pre- and
post-Kyoto phases under the UNFCCC and the Kyoto Protocol.
Table 4.1: Differentiated responsibilities and key provisions for Parties
UNFCCC Kyoto Protocol
Commitments All Parties to prepare national commu- All Parties to prepare national pro-
nications; promote scientific research grammes; improve emissions data qua l-
and training, technology development ity; promote scientific research, techno l-
and transfer, etc. ogy transfer, capacity-building, etc.
Developed coun- Developing Developed Developing coun -
tries countries countries tries
Quantified To reduce emis- None (measures Binding target to None (but debate
emission sions to 1990 le v- contingent on fi- reduce emissions over voluntary
reduction els by year 2000 nancial/technical to at least 5.2% commitments)
targets resources from de - below 1990 levels
veloped Parties) by 2008– 2012
Mechanisms For meeting fi- For finance, tech- For flexibility in For finance, tech-
nancial ob ligation nology (GEF, AIJ, meeting abate- nology, capacity-
(GEF, technology technology trans- ment targets building (CDM,
transfer) fer) (CDM, JI, ET) GEF, technology
transfer)
For learning, ca - For learning, ca - For meeting fi-
pacity-building pacity -building for nancial obliga-
for future trade in future trade in tions (GEF, tech -
cred its (AIJ) credits (AIJ) nology transfer)
Notes: GEF: Global Environmental Facility; AIJ: Pilot Phase for Activities Implemented Jointly; CDM:
Clean Development Mechanism; JI: Joint Implementation; ET: Emissions Trading

4.3 Climate change instruments and policy implications

This section discusses the main CCIs introduced till now, which are directly relevant
from a developing country’s perspective. These are (i) the financial mechanism or
the GEF, (ii) market instruments, in particular AIJ and CDM, and (iii) direct interna-
tional transfers of financial and technological resources, including official develo p-
ment assistance (ODA), private transfer and development assistance. The focus is on
the specific CCIs, i.e. GEF and AIJ/CDM, and the incentives they offer.88 In the pre-
Kyoto phase, the emphasis was on the financial mechanism for providing financial
incent ives largely based on public funds and co-financing climate relevant projects,

88
There is a wide range of literature covering different aspects of the CCIs (e.g. IPCC 2001a).
The idea here is not to summarize all of it, but to highlight select issues related to their policy
implications for developing countries which are relevant for this study. We deal more with
the specific instruments, the Financial Mechanism and Kyoto Mechanisms , in order to draw
lessons for CCIs in general later in the chapter. The term ‘specific CCIs’ here, includes those
policy instruments introduced specifically under the climate change regime.
62

but there is now significant interest for strengthening a system for trade in credits
whereby both private and public funds may be utilized. For the latter, the AIJ pro-
vided an experimental phase, which has given way to an operational CDM and other
Kyoto Mechanisms. In addition, there has been a general emphasis on other instru-
ments such as direct international transfers and capacity-building. Clearly, the issue
involves complex multi-actor interaction, equity concerns, and decisions at interna-
tional, national and local levels (Section 3.2). The design and modalities of the in-
struments are developed based on the negotiating positions of different countries
(and influenced by several actors), which put the broad incentive structure in place.

4.3.1 Climate change instruments

[Link] Global Environment Facility
The GEF is the operating entity entrusted with the responsibility of the Financial
Mechanism introduced in the FCCC.89 It creates incentiv es for the developing coun-
tries by providing grants or concessional financing for undertaking climate relevant
initiatives, and provides opportunity for developed countries to meet their financial
obligations under the FCCC.90 GEF meets the ‘incremental costs’ of climate change
projects in line with its operational programmes and funding platforms (GEF 1996,
2002). 91 The projects need to meet the operational programme criteria, reflect na-
tional or regional priorities, and be country-driven, cost-effective and replicable.
GEF has committed grant funding and helped leverage co-financing for climate
change projects in more than 140 countries (GEF 2003, 2004). The focus has been on
GHG mitigation projects, though expansion in support for vulnerability assessment
and adaptation is proposed especially under the new funds introduced by the Kyoto
Protocol (FCCC 2002a). Of the operational programmes, renewable energy has the

89
The GEF, set up in 1991 to cover four focal areas (two more were added later), was assigned
the role of the financial mechanism initially on an interim basis (Gerlak 2004). For an over-
view of initial power politics and how developing countries were induced to accepting GEF
as the financial mechanism see (Gupta 1995, 1997). In 1998, it was entrusted with this re-
sponsibility on an ongoing basis, with review every four years.
90
The GEF finances those full or incremental costs that are additional and complementary to
sources of support that promote national sustainable development. Thus, it is a project co -
financier providing ‘new and additional’ funds. Incremental cost separates the cost aimed at
achieving national goals (baseline) from those aimed at GHG benefits (alternative).
91
GEF operational programmes for climate change are removing barriers to energy efficiency
and conservation, promoting adoption of renewable energy by removing barriers and reduc-
ing implementation costs, reducing long -term costs of low GHG emitting energy technolo -
gies, and supporting development of sustainable transport. The GEF funding platforms are
full-size projects (>US$ 1 million), medium-sized projects (US$ 50,000 to 1 million), small
grants (<US$ 50,000), enabling activities (<$350,000), and project preparation and develop -
ment facility (PDF) including block A (<$25,000), block B (<$350,000) and block C (<$1
million) grants. In addition, the GEF funds small projects under its Small Grants Programme
(SGP). GEF portfolio details are found at [Link]
 63

largest share of investment and number of projects, followed by energy efficiency

projects portfolio. The focus is on renewable energy-based electrification and on
market development related projects. These have resulted in significant, though
small, energy savings and renewable energy-capacity installations (IPCC 2000).

[Link] Pilot Phase for Activities Implemented Jointly

The pilot phase for AIJ was set up as a demonstration and experimental phase for a
future operational JI system. 92 It enabled countries with high marginal GHG abate-
ment costs (investor) to implement projects jointly and cost-effectively in countries
where the marginal costs are lower (host), but with no credits accruing to any of them.
Thereby, it envisaged incentives for developing countries by providing opportunities
for additional funds and cleaner technology. The AIJ projects were intended to be
voluntary, bring real and measurable environmental benefits and be compatible with
and supportive of national priorities of the countries involved.
AIJ managed to generate interest among parties and by 2002, 157 AIJ projects had
been endorsed by the FCCC Secretariat (SBSTA 2002). 93 Almost one-third of these
are energy related and very small projects (in size, GHG impact and investment). The
portfolio is not quite diverse as many projects are similar and show uneven regional
distribution (SBSTA 2002). 94 Through the projects, the AIJ phase achieved, but only
limited success in drawing lessons for an operational JI syste m (Beuermann et al.
2000; Chatterjee 1997; Dixon 1999; Ellis 1999; Michaelowa 2002). This is because
several of the projects are not fully implemented, have not undertaken proper moni-
toring and verification actions, are quasi-AIJ simulations (taking projects from other
programmes or simply adding AIJ components to them), and/or are not representa-
tive of future projects under a mechanism with credits. Reporting of evidence has
also not been uniform (in spite of common guidelines) or detailed enough for con-
vergence on methodologies, and information particularly related to additionality
(many projects were profitable in themselves, or used ODA explicitly or implicitly)
and sustainability remains inconclusive. The final submission of all reports of the ac-
tivities undertaken in this phase is underway for synthesis of the information.

92
After the JI concept was introduced in the FCCC, several concerns and viewpoints emerged
regarding equity and modalities of developing such a system. Thus, the INC called for a prior
pilot phase to demonstrate the viability of JI as an operational and equitab le strategy to meet
the FCCC objectives, and COP-1 in 1995 established the AIJ phase. The operational JI with
credits was introduced only in the Kyoto Protocol as JI for Annex I Parties and CDM for pro-
jects in developing countries (Pachauri and Soni 1994).
93
The initial response was lukewarm, but the process picked up in 1997 (mainly in preparation
for Kyoto Mechanisms and based on the perception that the AIJ projects may get converted
to CDM/JI projects at a later stage). The focus now has shifted to the Kyoto Mechanisms.
94
Of the 157 projects, 56 smaller projects are located in only three Annex I host countries involv-
ing energy efficiency, mainly municipal/district heating systems improvement and renewable
energy-conversion to bio-fuel boilers. Overall, AIJ involved 54 Parties (42 hosts, 12 inves-
tors), of which Latvia and Estonia hosted about 30% of AIJ projects, and Sweden, US, Neth-
erlands and Norway funded most projects (SBSTA 2001, 2002).
64

[Link] Clean Development Mechanism (CDM)

Theoretically, CDM is perceived as a formalized project-based AIJ or JI mechanism
between developed and developing countries.95 It allows countries with quantified
abatement targets to procure abatement credits or CERs from developing countries
without these targets. CDM aims at creating dual incentives by assisting the develop-
ing countries in achieving sustainable development, and the developed countries in
achieving compliance with their emission reduction targets (Kyoto Protocol: Article
12). The credits are to be certified on the basis of voluntary participation approved by
the parties involved, and real and measurable emissions reductions that are add i-
tional to any that would occur in the absence of the ce rtified project activity (known
as ‘project additionality’).
CDM can take different forms (Baumert, K A et al. 2000; IPCC 2000). These in-
clude: (i) portfolio where several projects may be deve loped at the same time under
one banner (may be a carbon fund, bilateral/multilateral agreement or tender); (ii)
competitive where a competitive market value exists as a CER price for all projects;
(iii) negotiated where each project is stand alone, developed and negotiated sepa-
rately; and (iv) hybrid arrangement for GHG credits. The form influences the price of
credits and thus the financial incentive to the country hosting the project (Babu and
Michaelowa 2003; Chander 2003; Ghosh et al. 1994; Gupta, S 2003) . 96 The pro-
grammes for developing CDM projects have more often follow ed the portfolio ap-
proach. First to be set up were the Prototype Carbon Fund (PCF) and the Dutch gov-
ernment’s Certified Emissions Reduction Unit Procurement Tender (CERUPT).97
Subsequently several other programmes have been developed. There are a large

95
CDM was conceptualized almost overnight at COP-3 (Srivastava and Soni 1998). It is known
as the ‘Kyoto Surprise’ (Streck 2004) . The term close to CDM was first introduced in the
Brazilian submission for adopting a Protocol to the FCCC Secretariat, which suggested set-
ting a ‘Clean Development Fund’ or a non-compliance fund with a development objective. It
provided a basis for setting up a fund to enhance development and reduce GHGs in develop-
ing countries. The CDM, however, is not similar to the Brazilian submission.
96
The price of credits can be: (i) mark-up price (abatement cost possibly with a mark-up) in a
portfolio approach; (ii) market price in a competitive CDM; or (iii) negotiated price based on
relative market power vis-à-vis investors in a negotiated CDM (Figure 4.2 gives broad co m-
parisons). The funding may be in the form of equity, purchase agreements, loan, grants, etc.
97
PCF was launched by the World Bank in the year 2000 as the first market -based mechanism to
address climate change. PCF operates like a mutual fund for promoting transfer and finance
of cleaner technologies to developing countries and countries in transition (for CDM and JI).
It is scheduled to terminate in the year 2012. PCF gets financial contributions from investors
(governments, private companies) who in turn are eligible for GHG cred its.
CERUPT, on the other hand, is a tender based on purely financial inputs where the buyer
does not get involved in the projects (though separate funds may be provided for project d e-
velopment). It was launched by the Dutch government through an agency called SENTER in
November 2001 and closed in January 2002. Eighteen projects were accepted for further de-
velopment as CDM projects aiming to reduce over16 megatons of CO 2 emissions.
Other programmes include national programmes of Finland, Denmark, Austria and Sweden,
and the IFC Netherlands Carbon Facility.
 65

number of currently ongoing or planned GHG mitigation activities being developed

as CDM projects. There has been a rapid growth in these projects as well as number
of participating countries, especially since the first project was registered in 2004.
The largest number of these are renewable energy (electricity generation) projects
(OECD 2004).98 Number of fugitive emission projects, in particular the HFC23 re-
duction projects, are also increasing due to their large GHG reduction potential.

Small projects and small-scale CDM

Since the inception of CDM, a major concern was that the CDM projects would re-
main limited to a few host countries, sectors and technologies. Such that, in partic u-
lar the small projects with high transactions costs w ould get left out (Baumert, K et
al. 2000; Dasgupta 2000). Studies have shown that the transactions costs per CO2 of
small projects are higher than of larger projects. There are possible options for inclu-
sion of small projects in the CDM (Samaniego and Figueres 2002; Sutter 2001). The
options include: (i) unilateral CDM: where the ‘additional’ small project is under-
taken independently by the host country and the credits are offered for sale; (ii)
‘bundling’ of projects: bringing together a number of small projects such that they
represent significant GHG reductions (and reduced transaction costs than individual
projects); and (iii) ‘sectoral focus or baseline’: when emphasis is on developing pro-
jects at the sector or even industry levels (that may therefore include several small
projects). 99 In spite of these, however, it was felt that transactions costs would render
small projects unattractive vis-à-vis the large projects as ability of small project to
deal with and absorb the transactions costs is relatively lower (World Bank 2003a).
With the importance of small projects realized, and to kick-start the CDM process,
‘small-scale CDM’ was introduced. The Marrakesh Accords (2001) established the
legal basis for the modalities governing small-scale CDM, which have subsequently
been elaborated. 100 The small-scale CDM aims at reducing transactions costs of
small projects by measures through simplified methodologies and procedures (for
approval, certification, etc.), and thereby provides increased opportunities for them
(FCCC, Decision 21/CP.8). The initial PCF experience also showed that small pr o-
jects or countries probably lose out, and therefore a separate Community Develop-
ment Carbon Fund (CDCF) was established for financing small-scale CDM projects

98
The 160 CDM projects being developed comprise 17 energy efficiency projects (till mid -2004)
accounting for only 3% of expected annual credits (OECD 2004). The number of registered
projects has increased, and the official status is at [Link] .
99
While under ‘bundling’ the investor interests would still play an important role, the other two
options are dependent largely on the hosts (government or private party).
100
Activities eligible under small-scale CDM are: (i) renewable energy with maximum output
capacity equivalent of up to 15 megawatts; (ii) energy efficiency improvement, which reduce
annual energy consumption by up to equivalent of 15 gigawatt/hours; (iii) others that reduce
emissions by source and directly emit less than 15 kilo tonnes of CO2 equivalent annually.
 66

A. Financial Mechanism (FM)

B. Multilateral Carbon Fund

$/tC Developing country’s

$/tC Developing country’s abatement cost curve
Figure 4.2: Climate change instruments– forms and financial incentives
abatement cost curve
Multilateral Fund
GEF limit Limit

Carbon abatement
Carbon abatement

Under the multilateral CDM or a global carbon fund approach (e.g. as in the
Under the FM (GEF), the ‘incremental costs’ of individual projects are Prototype Carbon Fund), a ‘mark-up price’ that is the incremental costs of individual
funded (given by the shaded portions). The incremental costs sep arates the projects plus a “negotiated or fixed extra” is funded (given by the shaded portions).
baseline cost of program and the GEF project costs.

D. Bilateral or Negotiated deals based

C. Competitive market

$/tC Developing country’s

Developing country’s abatement cost curve
$/tC
abatement cost curve

Global price
Global price of carbon
of carbon

Carbon abatement
Carbon abatement

Under the bilateral or negotiated CDM, the project funding would be negotiated by
Under a competitive market, the ‘ market price’ or the global price of carbon would the actors involved (’negotiated price’). It will depend on the difference between
be set via the market mechanism, such that the surplus would be the difference the MCs (incl. non-market costs) of the investing and host Party. That is, the rent
between the MCs (including non-market costs) and the global price of carbon, which sharing would depend on the negotiations. This may be equal or l ower than global
is given by the shaded portion. price of carbon in a competitive market .

Figure 4.2: Climate change instruments – forms and financial incentives

 67

highlighting the need for special attention for small projects. 101 Several small-scale
CDM projects are being developed and the share of small-scale projects has increased
significantly (FCCC 2005) .

[Link] Other instruments

Besides the CDM, the two other Kyoto Mechanisms are Emissions Trading and JI. It
is unlikely that developing countries will be able to directly participate in Emissions
Trading unless they take on abatement commitments, and JI is only for the developed
countries’ participation. However, the two mechanisms impact the mitigation efforts
in the deve loping countries indirectly by influencing the size (and price of CERs) of
the CDM market. They may even directly be relevant for the developing countries in
the long run depending on how the regime develops. For example, these may be di-
rectly relevant if developing countries take on voluntary or binding quantified
abatement commitments, through fungibility of credits, or participating in a secon-
dary GHG credits market.
Besides the specific CCIs, climate-relevant activities are and can be undertaken un-
der other pathways such as direct international transfers of finance and technology to
the developing countries (IPCC 2000; OECD 2002). Technology development and
diffusion (including transfer) has been envisaged as an important mechanism for ad-
dressing climate change and is emphasized in the FCCC and the Kyoto Protocol102,
along with the need for suasive efforts and capacity-building103. The pathways in-
clude Official Development Assistance (ODA), private sector investment and mult i-
lateral or bilateral development assistance. While ODA remains an important source,
especially for the soft part of technologies (enabling environment and capacity-
building), the contribution of private investment has been rising over the last few
years. In addition, regulatory instruments such as international technology and emis-
sions standards are also being debated.

101
CDCF finances small-scale CDM projects to “enable private capital-seeking carbon credits to
reach deep down into the poorest areas of the developing world, not just to reduce carbon
emissions, but to serve the aims of sustainable development. ...” Another example is the Fin-
nish CDM Pilot Programme launched in 2003 that targets small-scale projects via tenders.
102
The FCCC requires the developed Parties to take all practicable steps to promote, facilitate,
and finance, as appropriate, the transfer of, or access to, cleaner technologies to other Parties,
particularly to developing countries (FCCC: Article 4.5). However, it lacked on specifics or a
strategy and was not really addressed till 1998. Consequently, several steps are taken includ-
ing setting up a ‘consultative process’ and ‘expert group’ to recommend a framework and
enhance meaningful actions, and supporting efforts like assessment of needs, broadening in -
formation base and access (e.g. technology clearing house, networks), creating enabling env i-
ronments and capacity -building. The Kyoto Protocol also emphasizes technology transfer and
co-operation between industrialized and developing countries. It formally recognizes the role
of the private sector and the need for an “enabling environment” to promote investment.
103
FCCC commits Parties to cooperate in and strengthen national capacity-building (FCCC: Ar-
ticle 10e). This issue is considered separately since 1999, when COP-5 launched a consulta-
tive process to discuss it in an integrated manner.
68

4.3.2 Main policy implications

The above discussion points out that CCIs increase awareness and offer significant
incentives in the form of opportunities for additional financing, efficient technologies
and capacity-building for undertaking climate-related activities. The present efforts
have led to positive trends; however, compared to the magnitude of climate-related
technology and financial needs these are only of a modest scale (IPCC 2000).
Clearly, there is no preset answer for enhancing the efforts, which are affected by
motivations that induce as well as the barriers that impede the process, and depend
on human and organizational capacity at every stage of involveme nt with the CCIs.

[Link] Policy implications and GEF

The GEF offers direct financial incentive for developing countries by providing addi-
tional financing (grants or subsidies) to undertake climate-relevant activities. The
strength of GEF lies in its flexibility in terms of different funding options for projects
based on their size. This also includes the Small Grants Programme (SGP) for fund-
ing small projects, which has been fairly successful in bringing in communities and
local-level participation in actions that address climate change though few of them
have actually been replicated or up-scaled. The GEF also creates possibilities for new
and innovative projects, including SSI activities (for example, in Bangladesh, Vie t-
nam, Kenya and India) and programmes (such as the SME programme) 104. The GEF
assists in testing and demonstrating different financial and institutional models in
several countries (Martinot and McDoom 2000), and helps in catalysing sustainable
markets, building capacity and mobilizing the private sector to finance clean tech-
nologies (IPCC 2000).
However, there are several concerns associated with GEF as well. Foremost being
the transactions costs of developing and implementing GEF projects. The procedures
for availing funds and the series of approvals are complicated. The time taken be-
tween preparation of projects and their final implementation is long, and relatively
higher for full or large projects (FCCC 2002c; GEF 2003). Only a few projects
funded in the pr ogrammes till 1999 were implemented fully.105 The financial re-
sources available to and disbursed by the GEF are often considered inadequate, and
do not always reflect ‘financial additionality’. Though steps have been taken to im-

104
GEF with International Finance Corporation (IFC) initiated the ten-year global ‘small and
medium enterprise (SME) programme’ in 1995 for financing SME projects with environ-
mental benefits and financial viability (IFC 2005). Focus was on long -term low interest loans
for ‘IFC– GEF SME programme intermediaries’ (private companies, NGOs, financial inter-
mediaries) that may fund such projects. This was the first GEF-funded non -grant SME fi-
nancing programme. It is now succeeded by the IFC –GEF Environmental Business Finance
Programme. GEF is increasingly recognizing the importance of small projects (e.g. under
Montreal Protocol ODS-free options for SMEs is still a challenging task).
105
Out of the 72 energy efficiency and renewable energy projects approved between 1991 and
1999, only eight were fully completed by mid -1999 (Martinot and McDoom 2000). GEF
(2002) provides an assessment of the GEF-climate change portfolio.
 69

prove the level and pattern of funding and simplifying procedures, and there is provi-
sion for Project Preparation and Development Facility (PDF) funds for project deve l-
opment, this remains a major issue. In addition, the GEF faces challenges of strategic
development, focus and effectiveness of its portfolio (GEF 2004). Many projects do
not result from coherent, integrated approaches to development and envir onment at
the country level, but are conceived on an ad-hoc basis (FCCC 2002a). Thus, while
the GEF’s operational strategy recognizes the need to develop ‘country-driven’ pro-
jects, they are often ‘consultant -driven’ (or donor-driven) and give more weightage
to cost-effectiveness than national priorities (Hassing et al. 2000; Srivastava and Soni
1998). The largest thrust has been on renewable energy projects (GEF 2004).

[Link] Policy implications and CDM

CDM is an innovative instrument as it provides economic incentives through an
emerging carbon market. Herein lies the strength of the mechanism and makes it
most relevant in the current scenario. The AIJ phase laid down its foundation by pro-
viding the opportunity for all parties to start quickly and gain experience. The ab-
sence of credits, while providing a non-risky scenario for building capacity, also
weake ned the incentive to participate in the AIJ phase. With the developing countries
insufficiently prepared, the investors (basically a few developed countries) appeared
to dominate the process (Gupta 1997). Most of them, however, did not translate the
opportunities into clear incentives for the private sector by setting domestic instr u-
ments. 106 This remained a weakness of AIJ suggesting a need for stronger incentives
for participation, which is provided by CDM in the form of credits. The small-scale
CDM in particular further strengthens the incentive by reducing the transactions
costs for small projects. There is substantial interest in CDM, even though there are
issues associated with it as well.
Uncertainties. When CDM was introduced, it was associated with high expectations
in spite of the concerns and apprehensions. 107 It was expected to bring in low -cost f i-
nance including private funds, technology transfer and even develop socially benef i-
cial projects that are unviable in a business-as-usual scenario. A large CDM market

106
National programmes (USA, Australia, Canada, Japan, Germany) cover some transaction
costs (project development, negotiation). Sweden, Switzerland and the Netherlands intro -
duced subsidies. On the other hand, in several states of USA, ‘externality adders’ were a
powerful incentive for electric utilities to invest in carbon offsets including AIJ. Externality
adders led to the biggest private AIJ projects (Michaelowa 2002). The first utility to invest in
AIJ, did so because it feared an externality adder even before the term AIJ was coined.
107
Other developing countries’ concerns relate to equity (is it a way for developed countries to
shift their responsibilities to developing countries?), long -term benefits (are they giving away
their cheaper options or low-hanging fruits?), and modalities – particularly, supplementary
(CDM activities should be in addition to domestic action), project eligibility (developing
methodologies especially for baselines, sustainability and additionality; inclusion of sinks),
risk- and benefit -sharing arrangement, credit price and transactions costs. The Marrakech
Accords has address some of the issues, but it is often felt that several concessions have been
made (e.g. inclusion of sinks) for survival of the Kyoto Protocol after withdrawal of USA.
70

was envisaged with high credit value, and projects with high GHG abatement costs
were identified. However, CDM has developed to project a slightly different picture.
Firstly, the CDM buyers’ market is growing rapidly (it is still smaller than antic i-
pated; reasons include US withdrawal from the regime, existence of ‘hot air’, and
uncertainty regarding the costs– benefits and future of the regime beyond first com-
mitment pe riod). Its evolution, however, has been quite speculative. The experience
till now (Lecocq 2004; Lecocq and Capoor 2003) and projections (Jotzo and
Michaelowa 2002) indicate a carbon price much lower than was expected (US$ 0.5–
5.5/tonne of CO2 till 2004) .108 P rices have risen since 2004 (as per World Bank’s es-
timates the average is more than US$7 in 2005), and are expected to rise further as
the first commitment period draws nearer. The sellers remain quite heterogeneous.
Secondly, CDM at present is relevant as a financing option and not as an instrument
for technology transfer. With economic criteria at the fore, the other criteria have be-
come less important in practice. The emphasis is on carbon credits and minimizing
risks than on sustainable development benefits. 109 For instance, a tender which is a
preferred practice for CDM programmes, implies obtaining cheap and low -risk cred-
its as the prime motive for investors. This, coupled with evidence from existing por t-
folios, indicates that the aim of facilitating sustainable development in developing
countries remains largely theoretical. The main motivations are different and gene r-
ally are as indicated in F igure 4. 3.
Thirdly, most CDM programmes are set up as multilateral or bilateral funds or ten-
ders by governments drawing on public money, with some incentive for private sec-
tor participation (through tenders, subsidies or purchase of carbon credits). Most Par-
ties have hardly translated or complemented the emerging options by domestic emis-
sions trading or other policy instruments. While some private sector trading systems
have come up, their involvement has been low. An option for increasing private sec-
tor involvement as investors is to decentralize national abatement targets, but this has
not really happened.
Transactions costs. Several steps are involved in developing a CDM project inclu d-
ing preparation (search, negotiation, baseline determination, approvals, registration,
etc.) and implementation (monitoring, verification, certification, etc.). Each stage is
associated with transactions costs that may be at international, national or lo-
cal/project level. Transactions costs are a major cause of concern as they push the
abatement costs upwards rendering several projects economically unviable.110 These

108
Some reasons may be: delay in ratification of the Protocol; increased supply in the presence of
hot air and inclusion of sinks projects; and limited private sector involvement.
109
The risks involved include (Mitchell and Parson 2001): project risks (under-performance,
market risk and technical risks, etc.), participant risks (e.g. non-cooperation), and exogenous
risks (e.g. political instability; world energy price fluctuation; natural calamities, etc).
110
These costs include: project development costs (project development, preparation, negotiation,
consultation), registration and share of proceeds for the adaptation fund (2%) as mentioned in
Article 12, and monitoring and verification costs, etc.
 71

include not only monetary but also non-monetary and indirect costs (such as bureau-
cratic delays, opportunity costs). Studies and evidence show that the transactions
costs for CDM is high (Ahonen and Hamekoski 2005; DeGouvello and Coto 2003;
Michaelowa et al. 2003; UNDP 2003). In the AIJ phase also the transactions costs
were indicated to be large and influenced by economies of scale (Michaelowa et al.
2003). Efforts have been made to simplify procedures and provide support for project
development. Especially for small-scale CDM, the transactions costs are reduced
substantially and estimates indicate a decline of more than 50% to 67%. Despite
these, however, small-scale CDM faces high transactions costs, and the regular CDM
even higher.111

Investor Host

Government
Government
Selling carbon credits at
Buying carbon credits at Consultants/ high price
low costs Intermediaries Additional socio- economic,
environmental benefits
Economic benefits
Private sector ( consultancy fee/cut) Private sector

Economic benefits Economic benefits

- Low cost carbon credits - High price carbon credits
& state incentive( if any) - Higher investment
- Improved financial return - Better rate of return
- Market opportunities - Market opportunities

Figure 4.3 : Primary interests (perceived) of actors in developing a CDM project

Notes: Investor country government is theoretically interested in global sustainable benefits, but the
main interest may be just to obtain cheap credits to meet their abatement targets.
Private sector investor’s motivation, in the absence of specific targets for them translated from the na-
tional abatement targets, is largely economic (to maximize profits and avail the incentives offered by
the governments under their CDM programme).
Host country government is basically interested in national sustainable development benefits, i.e. addi-
tional socio-economic and environmental benefits, but more so to get a good price for credits. In the
absence of clear incentive for them, they may be just safeguarding their political interests.
The private sector host’s main concern again is economic (investment, technol ogy) benefits.
In addition, the consultants and intermediaries , are the ‘jam in the sandwich’ as they bring the project
together. Their main motive is the short -term gains in form of their consultancy fees and/or ‘cut’

111
Though these costs for small-scale CDM projects are estimated to be reduced by 50– 67% of
regular projects, they are also estimated to be as high as at 23– 78,000 USD or 110,000 USD
(DeGouvello and Coto 2003; Ecosecurities 2002; World Bank 2003a). For a good summary
of transactions costs estimated and experienced, in particular for the Finnish pilot CDM pro -
gramme, (see Ahonen and Hamekoski 2005: page 26).
72

Market biases. An examination of the existing CDM portfolios indicates inherent

market biases, with a large number of renewable energy projects.112 Key portfolios
including PCF and CERUPT projects, have been at times criticized on the ground
that many projects are viable in themselves, have inflated baselines and/or do not ad-
here to project ‘additionality’ criteria (e.g. see Pearson and Loong 2003). Additional-
ity, both project and financial, as a concept still remains complicated (Jepma 2004)
and is prone to interpretation. The open process for approval of methodologies is set
up to bring in transparency and credibility (some methodologies submitted to the
FCCC Secretariat were even rejected). Lack of clear methodologies such as in case
of energy efficiency however adds to the uncertainties associated with the pr ojects.

4.4 Climate change policy in India

While the above sections discussed the climate change policies at the international
level, this section specifically deals with the climate change policies in India. India is
a party to the FCCC and the Kyoto Protocol. It signed and ratified the Conve ntion in
June 1992 and November 1993 respectively, and acceded to the Kyoto Protocol in
August 2002 (Figure 4.4). However, there is no formal national policy for addressing
c limate change. A combination of national policies for different sectors are relevant
for addressing climate change, including, in particular, policies for the energy sector
promoting energy efficiency and renewable energy and policy for protection of envi-
ronment and forests.

Accedes to the Inititated work on:

Kyoto Protocol Designated National
Authority (DNA) for
Government Government approves CDM,
Signed the approves 5 AIJ 6 CERPUT projects and National
FCCC projects Communication
Hosts COP-8

1992 1997 2002 2003

Fig ure 4.4 : Timeline pertaining to the climate change process in India

112
By 2003 end, about 24 projects were being developed as CDM projects in a few host coun-
tries. By March 2004, the number increased to 35 planned/ongoing CDM projects, mostly in
the renewable energy area (JIQ 2004). The analysis of the credit market also indicated a ma -
jority of renewable energy projects (Lecocq 2004; Lecocq and Capoor 2003). The current
situation in 2006 is also similar with less than 2% energy demand projects (FCCC 2005).
 73

4.4.1 National policies that address climate change

India is among the largest contributors of GHG emissions in the world, accounting
for around 3% of the global emissions in 1990. On a per capita basis, however, the
emissions are only one-sixth of the global average (ADB 1998) . 113 The rate of
growth of the GHG emissions in India is higher than the world average (Gupta, S
2003). The largest GHG contributor is the energy sector, within which the industries
are the maximum energy consumers and GHG emitters. The energy sector also pos-
sesses significant potential for GHG mitigation. 114
India is also vulnerable to climate change (MoEF 2004a). The national economy is
reliant on climate-sensitive sectors like agriculture and forestry (Kumar 2003; Kumar
and Parikh 2001; Ravindranath and Sukumar 1998). India has a large low -lying
coastline threatened by a potential rise in sea level (TERI 1996) . Therefore, climate
change is a relevant issue for the country. However, in light of more pressing socio-
economic and developmental needs, climate change is not a priority area.

[Link] Organizational structure

The Ministry of Environment and Forests (MoEF) is the nodal age ncy for addressing
climate change-related and other environmental policy issues in India . The MoEF
has set up a ‘Working Group on the UNFCCC’, with inter-ministerial and NGO rep-
resentation, to deliberate upon measures and positions regarding issues emerging out
of the climate change negotiations. Other Central Government ministries play a vital
role in the process of developing national positions and related initiatives, as well as
providing technical advice to MoEF. For instance, the Planning Commission is im-
portant for capacity-building, the Ministry of External Affairs (MEA) is represented
at the international negotiations, and others especially the energy-related ministries
such as Ministry of Power and Ministry of Non-Conventional Energy Sources
(MNES) participate in the national discussions. Steps are being undertaken for mee t-
ing the FCCC commitments including the national communications (NATCOM)
(MoEF 2004a). Efforts are also under way to improve the scientific understanding
and increase awareness, and several organizations are getting involved in the process.

113
Even the top 10% of the urban popu lation emits below the global per capita average (Parikh
and Parikh 2002) .This issue came up way back in 1991 when a study (Agarwal and Narain
1991) brought to the fore the debate on per capita emissions and entitle ments.
114
The energy sector in India accounted for 61% of total GHG emissions in 1994. The rest came
from agriculture (28%), industrial processes (8%), and others sectors. In terms of CO2 emis-
sions, energy contributed 85% of the total emissions, followed by industrial processes (13%)
and land use, conversion and forestry (2%). The emissions from the energy sector, which is
dominated by coal-based supply and increasing demand, have being growing significantly
(by 5.8% between 1990 and 1995) and are projected to increase fivefold by 2020 (ADB
1998). Sector-specific studies have indicated high potential for CDM projects in the power
sector and in enhancing energy efficiency in industries (to the tune of about US$1.05 billion
each) over the next decade (CRISIL 1999).
74

[Link] Participation in climate change negotiations

India has been quite active, though cautious, in the climate change negotiations. The
national stance on climate change however has largely stemmed from response or re-
actions to events outside the country and the international climate change process.
Before 1990, climate change was not an important scientific or policy problem for
the country. It reached the domestic policy agenda basically with the INC in 1990.
India emerged as one of leading developing countries to put forth their positions at
the Rio Summit , and has continued to stress the views of the G77 (Gupta et al.
2001). 115 However, some observers (Gupta 2002) have criticized the government for
taking a defensive stance on specific issues, failing to put forth a coherent climate
strategy and missing an opportunity to jumpstart the negotiations. The basic essential
elements of India’s approach to international efforts at addressing climate change in-
clude (a) principle of common but differentiated responsibilities and respective capa-
bilities of different countries; (b) reliance on multilateral approaches; (c) equal per-
capita entitlements of global environmental resources to all countries; and (d) priority
of the right to development (MoEF 2004b).
India has emphasiz ed the need for financial and technological resources for the de-
veloping countries at the climate change negotiations. In this regard, the basic sup-
port and approval system for the CCIs is in place. For the GEF, a Global Environ-
ment Cell has been set up for examining projects and providing technical and scie n-
tific inputs into the process of project formulation including those for GEF assis-
tance. In addition, a national strategy has been formulated and an Empowered Com-
mittee has been set up for identification of GEF projects, formulation, implementa-
tion and monitoring of GEF activities in the country. With regard to CDM, the Des-
ignated National Authority (DNA) has been set up (MoEF 2005) 116, and a national
strategy study for implementation of CDM prepared (TERI 2005). India’s initial ex-
perience during the Pilot AIJ phase when MoEF had set a Task Group on AIJ for
project approval was that there were initial reservations but gradually interest picked
up. Though five AIJ projects were approved, only three were officially developed
and one officially registered with the FCCC Secretariat. For CDM also, there were
concerns voiced by India at the climate change negotiations. Nevertheless several ac-
tors are getting involved in the process and a number of projects are in the pipe-
line. 117

115
India has been active especially in putting forth the perspectives of the developing countries,
including issues related to equity, adequacy of commitment, financial mechanism, Kyoto
Mechanisms, voluntary commitments, inclusion of sinks and technology transfer.
116
DNA was set up by the MoEF (F. No. 4/5/2003-CCC), under the powers conferred on it
by sub-section (1) and (3) of section 3 of the Environment Protection Act (EPA), 1986.
117
India has stressed the supplementarity – developed countries may use the Kyoto Mechanisms
to meet only a part of their commitments and be supplementary to domestic action –
additionality and host country initiative in defining sustainable development. It has advocated
against inclusion of sinks and fung ibility of credits.
 75

[Link] National policies relevant for climate change

The climate change issue entered the domestic political arena around the same time
when the country was initiating a conscious polic y of economic reform with focus on
liberalization and globalization. The overall goal of the economic reform policy,
triggered largely by the macro-economic crisis of 1991,was to achieve economic ef-
ficiency and growth across various sectors of the economy (Srinivasan and Bhagwati
1995). These have had an impact on the GHG emissions of the country, and India’s
CO2 intensity per unit GDP has shown a decline (MoEF 2002b). In addition, efforts
and initiatives are being taken within the overall development strategy and economic
policy that have clear relevance for climate change (B ox 4.1). The efforts towards
macro socio-economic priorities as articulated in the Tenth Five Year Plan (GOI
2002) including poverty eradication, employment and literacy, health and population
reduction, gender equality and environmental sustainability all have a bearing on the
national GHG emissions trajectory.
The energy policy, in particular, plays a crucial role in defining national efforts re-
lated to climate change. Significant initiatives have been undertaken in the energy
sector, which are relevant from the climate change perspective. While the use of coal
resources and installing new thermal capacity to meet the rising energy demand are
increasing GHG emissions, significant policy provisions like promoting energy effi-
ciency and renewable energy contribute towards addressing climate change. Over the
past decade, the energy policy has seen a marked shift with greater focus on energy
reforms, though there is still much reliance on regulatory instruments and subsidies
and a lot needs to be done (Box 4.2). In addition, the environment and forests poli-
cies are aim ed at increased environmental awareness, and providing incentives for
conservation of natural resources and reducing local pollution.118

4.4.2 Main policy implications

The national policy provides incentives for reducing the growth of GHG emissions
while addressing the national goals and targets. There is increased awareness and en-
vironmental consciousness, and GHG reducing initiatives are being undertaken espe-
cially in the energy sector. Though the level and depth of climate-related discussions
have increased over the years, the climate change issue is still minimal at an overall
domestic political level (Gupta 2001). The changes are in accordance with the coun-
try’s development strategy and are not driven by global environmental concerns.
This is because although climate change per se is not a priority, energy policy is an
urgent issue in the economic development of the country (Gupta et al. 2001). The en-
ergy policy does not directly incorporate addressing environmental degradation or
climate change as a primary goal. The environmental and energy policies are still
distinct and are developed separately. However, climate change has a mention in the

118
The national policy for environmental protection and their implication specially for the SSIs
are discussed in Chapter 5.
76

current national Five Year Plan (for 2002-2007) and the National Environment Pol-
icy (GOI 2002; MoEF 2004b).
Box 4.1 : Policies and measures complementing GHG mitigation efforts
Electricity generation
• Renovation and Modernization (R&M) programme for power plants resulting in im-
proved fuel efficiency.
• Increased share of natural gas in the coal-dominant thermal mix (from 2% to 14.5% in
the last three decades) and renewable energy (accounts for over 3.4% of grid capacity).
Energy sector reforms
• Initiatives aimed at efficiency such as a move towards rational energy pricing and priva-
tization (expected to reduce losses)
Renewable energy
• Implementation of the renewable energy programme (largest in the world)
• Policy objective: Adding 10% of additional power capacity from renewables by 2012.
Transport
• Initiatives for switch to cleaner fuels (unleaded petrol, CNG), especially for public trans-
port
Industries
• Setting up of the BEE (Bureau of Energy Efficiency) under the Energy Conservation
Act, 2001, to facilitate and enforce efficient use of energy
• Industry-specific environmental standards under the national environmental policy
Forestry
• Implementation of the national forestry action programme (for protection and expansion
of forest resources, improvement in forest productivity and expansion of forest area)
• Promotion of people’s participation in forest conser vation efforts through joint forest
management (about 14.25 million hectares being managed under the programme)
• Policy objective: to increase the forest and tree cover to 25% of the geographical area
during the tenth Five Year Plan (2002– 07).

For climate change in particular, the interest in India is mainly due to the CCIs. With
an economy growing at a high economic growth rate, and a large GHG emissions
contribution and mitigation potential, India is one of the leading host countries for
CCI projects and investments with several projects are already in place. These in-
clude projects related to SSIs being implemented/considered under GEF and CDM
such as those for steel re-rolling (for GEF) and foundry and brick industries (for
CDM including small scale CDM); however, these are still only a few projects and
focus more on capacity-building. The private sector is being gradually involved de-
spite uncertainties regarding the associated costs, benefits and risks. Key national in-
dustrial associations are advocatin g CCIs as an opportunity for the present and fu-
ture. 119 The interest is not only to be hosts but also investors (e.g. South–South coop-

119
Liberalization policies are increasing the private sector’s interest to capitalize on available op -
portunities to modernize their production processes, especially in CDM (Gupta 2001). For
example, some key industry associations have set up ‘Green Cells’, and one of them also
regularly publishes a journal on emerging opportunities.
 77

eration). Given this, several consultants and intermediaries, including NGOs and fi-
nancial organizations, have come out to support and advice on developing such pro-
jects. A number of workshops and conferences are organized each year on this issue.
Box 4.2 National policies for the energy sector in India

Energy is important for industrialization and economic growth in India, and has formed a
key component of the development strategy since Independence. However, there is no com-
prehensive energy policy in India. It comprises policies and plans of five different minis tries,
MoP, MNES, Ministry of Petroleum and Natural Gas (MoPNG), Ministry of Coal and Mines
(MoC), and the Department of Atomic Energy (DAE). There is discussion now on the need
to have an integrated energy policy.
The initial focus of the national policy related to the energy sector was on centralized plan-
ning for attaining energy security. Emphasis was on public sector investment in power gen-
eration and development of oil and gas resources. The period 1970–90 coincided with a
growing shift in development policy and the emergence of a pro-poor ideology in the coun-
try (and the two oil shocks of 1973 and 1979), and experienced increased energy invest-
ments under state control and introduction of populist measures such as price control and
subsidies. These measures led to rising fiscal deficit, inefficient quality of energy services,
and an inward orientation of the energy economy. At the same time, the need to identify al-
ternative energy sources was highlighted. In this light, and in line with the economic reforms
in the country, there was a marked shift in the energy po licy in 1991.
As the economic reforms were initiated to restructure the entire economy, reforms in the en-
ergy sector were also initiated. The government is giving particular attention to efficiency
and private sector participation. Focus on access to energy services and renewable energy
sources for electricity generation is also increasing (though coal is expected to continue to
dominate the energy supply share). The Rajiv Gandhi Vidhutikaran Yogna is a good exam-
ple of initiatives in this regard for increasing access to electricity especially in the rural ar-
eas. In addition, stress on demand side measures, which had been bas ically missing before,
has been realized and a Bureau of Energy Efficiency has been set up under the Energy Con-
servation Act, 2001 to facilitate and enforce efficient use of energy.
Sources: (Dubash and Chella Rajan 2003; Sinha 2007; TERI 2003)

Despite this, however, there is no concrete country strategy or a transparent policy

regarding CCIs. The CCIs have not been translated to any kind of national policy in-
struments, nor has a proactive stance been adopted at most times. There are no clear
indicators to evaluate the proposed projects, nor has a priority list of the kind of pro-
jects to be approved under CDM or GEF been developed. 120 The approval process

120
The MoEF has adopted “guidelines” for approval of CDM projects. These emphasize add i-
tionality and sustainable development including social: poverty alleviation by additional em-
ployment generation, removal of social disparities, contribution to provision of basic ameni-
ties leading to improvement in quality of life; economic: additional investment consistent
with needs of the people; environmental; and technological: transfer of cleaner technologies
with a priority to renewables sector or energy efficiency projects. However, there are no clear
indications to measure and evaluate projects against these criteria.
78

has been associated with bureaucratic delays and transactions costs, and the selection
process has been ad hoc (there are broad criteria but no clear indicators for project
selections). 121 In addition, the government involvement in the climate change debates
is restricted to the energy, environment and industries ministries, but with limited or
no representation of the SSI ministry. The interest has broadly remained ‘top-centric’
(limited to a few ministries and industrial houses) and awareness has not percolated
across stakeholders at the state or lower levels. Since 2005, though state-level CDM
cells have been set up in a few states and strengthening of GEF Cell is also envis-
aged. 122 In the current scenario, therefore, it seems that market power will play a
crucial role for development of related pr ojects.123

[Link] Implications of national policy and GEF

Under the GEF climate change portfolio, India has several large and medium projects
(closed, approved and operational), in addition to the small grants programme and
enabling activities (see [Link]). 124 A majority of the regular projects are re-
newable energy interventions, and only a small proportion (about 11%) of the GEF
allocations have been for energy efficiency (including energy efficiency improve-
ment project for small-scale steel re-rolling mill cluster). Although the portfolio is
large, it does not have significant impact owing to delays and slow implementation
(for example, the experience with the two biomass power projects). Only a few GEF
projects have been completed, while some (e.g. project on fuel cell buses) have also
been dropped for different reasons. A number of projects have been successfully im-
plemented under the SGP, which have shown significant local sustainability results
and community participation, but they have hardly led to any replicability or scaling
up. Overall, there has been a lack of coherent policy and strategy in terms of GEF
project development (Ahuja 2003). An attempt was made to develop a GEF country
programme a few years ago; however, the evolution of the GEF portfolio has been
erratic. There has been an inconsistent focus within the country, with the GEF pro-
jects not consistently addressing major climate -change needs related to either GHG
emissions sources or expressed national goals (GEF 2004) . Due to a lack of clarity
and proactive country strategy, the choice of projects has been driven mostly by in-
vestors or consultants.

121
For example, no official AIJ projects had been endorsed in India till March 1997, though the
AIJ phase had taken off in other developing countries. It was just before COP-3 when the
government approved five projects almost in one meeting. The same trend is also seen for
CDM wherein several projects are discussed in a single meeting.
122
Based on private communication and discussion with officials at MoEF (2005).
123
The small players (like the SSIs) are usually not even invited for most CCI-related meetings.
Like a representative of a big industrial association said “we ourselves are not sure of the
risks and costs involved, then how will the small industries fit in. They are important no
doubt, but it will be some time till they become involved”.
124
These include short -term projects for capacity-building for application of energy audit and CP
tools in improving energy in specific SSI clusters.
 79

[Link] Implications of national policy and CDM

India possesses a large GHG mitigation and CDM potential. Projections indicate a
share of over 10% of the global CDM market for the country during the first com-
mitment period (IGES 2005). Several CDM projects, mostly unilateral, have been a l-
ready registered or are in the pipeline (FCCC 2005). In fact, it has the highest num-
ber of projects accepted under CERUPT and other programmes (Krey 2004) , many
of which are driven by consultants and donors (TERI 2005). As regards the different
sectors, the portfolio is skewed primarily towards renewable energy projects.125 One
of the reasons for this emphasis is MNES’s involvement and efforts to push renew-
able energy under its national programme particularly in light of the tight objectives
of increasing the capacity of renewables substantially over the next few years. Re-
newables are also encouraged by consultants since the baselines are easier to define
and initial preparation is faster than probably the energy efficiency or sink projects.
Due to their GHG reduction potential, they are also being pushed by the investor
lobbies. Energy efficiency projects, especially in the SSI sector, are associated with
lack of a predefined approved methodology and difficulties of organizing many
stakeholders.
Along with investor-demand focus and uncertainties (both financial and political or
policy), the transactions costs of projects are especially important issues influencing
the policy implications (IGES 2005; Krey 2004, 2005; TERI 2005). In addition, the
CDM portfolio in India is also often contested on grounds of project additiona lity. It
has been pointed out (TERI 2005) that often the transactions costs increase (for e x-
ample, if it involves a number of partners or units in case of SSI clusters) when pro-
ject developers may not have documentary evidence (if they do not have proper
monitoring), do not want to disclose their financial status or provide the required in-
formation that leads to transactions costs (for example, if it involves a number of
partners or units in case of SSI clusters). It includes projects which are already opera-
tional (before approval was sought as CDM projects) and are viable anyway. The
projects hosts are private companies that are already undertaking sim ilar projects and
use demonstrated and commercially available technologies (as in CERUPT wind
projects). In addition, they make use of the government’s subsidies and incentives.
The question that arises is whether it really makes sense for a country like India –
which already has a massive renewable energy programme and sufficient knowledge
base as far as renewable energy technologies is concerned – to conce ntrate on these
kinds of projects (such as the grid connected wind energy projects) under a mecha-
nism focusing on additional investment opportunities and sustainable development?

125
As per 2004, more than 65 CDM projects are being developed (including small-scale CDM).
Of these, 40% are renewable energy and 16% are waste-to-energy projects. Energy efficiency
in industries constitutes only 16% of projects ([Link] Official
figures till 2003 also indicate a clear bias wit hin GEF, AIJ and CDM on renewable energy
projects (based on information from [Link] and [Link]
80

4.5 Conclusions
There are two significant aspects that may be highlighted after examining the inte r-
national climate change policy and the climate -relevant national policies in India.
• The broad global landscape is changing towards rising awareness and concern for
climate change. With increasing community pressure and emphasis on cleaner
technologies, environmental concerns are finding a place in the policy goals of
many countries, as well as private companies. 126 India too is undertaking steps
within its developmental strategy to address environmental concerns. These are
likely to have indirect and trickle-down effects to other sectors of society as well.
• The CCIs are important features in the global climate change policy. Whether it is
a subsidy-based financial mechanism, multilateral or bilateral transfers (CDM,
direct transfers), international emissions trading or any other instrument; CCIs
provide additional opportunities for finance, technology and/or capacity-building
for addressing climate change (although the focus till now has largely been on f i-
nancing). India, with a significant GHG mitigation potential, is a key host for
these initiatives. The country is also pursuing liberalization and globalization
policies, and presents an economically stable investment opportunity.
This implies significant policy implications of the climate change policies, which
may be extended to the SSI sectors as well. The strength of the CCIs in particular is
their dual objectives of sustainable development at global and national/local levels.
In addition, they have specific objectives (replicability; project additionality) and
characteristics (organizational structure, modalities) which determine the incentives
they offer. In the current scenario, there are increased opportunities with special at-
tention being given to small projects. The incentives, however, are strengthened or
weakened by three major issues as theoretically identified in Chapter 2 (Table 4.2):
• The uncertainties regarding the future of the climate regime and CCI-related mo-
dalities (such as credit price and market size) make the evolution of the CCIs
highly speculative. The national policies related to climate change in India have
been largely reactive, though steps are being taken to improve clarity and trans-
parency. Moreover, the scientific capacity and information base for developing
climate-relevant projects as well as their methodologies and cost–benefit analysis
is still limited, though it has increased significantly over the years.

126
Inadequate information is considered a barrier to diffusion of cleaner technologies, and sua-
sive instruments (e.g. building information networks, cooperation in education, training, ca-
pacity -building) do help in addressing this barrier (IPCC 2001b).
 81

Table 4.2: Key issues related to the climate change policies

Policy/policy Incentives Issues
instr uments Strengths Weaknesses
International • Economic opportunity: ‘Addi- • Dual objectives: ‘s ustainable develop- • Uncertainty
climate change tional’’ finance, sale of carbon ment’ at global and national levels o Regarding regime’s future, CCI modalities,
instruments credits • Specific platforms for inclusion of carbon market (size, price)
(CCIs) • Opportunity for technology ac - small projects and reducing costs (SGP, • Not translated into national level instruments
cess and transfer small-scale CDM, etc.) • Transactions costs: High, though efforts to reduce
• Increasing awareness and capac- • Energy proje cts main focus costs in place (e.g. PDFs, small-scale CDM)
ity-building • Involvement of various stakeholders • Market biases (e.g. renewables)
o Mainly consultant/investor-driven (no real
developing country programme; focus on
cost-effectiveness).
o Focus on finance, not technology transfer
National climate • Development initiatives address • India has acceded to Kyoto Protocol, is • Uncertainties
change policy GHGs as well (e.g. for energy active in international negotiations o No formal or proactive strategy for CCIs
efficiency, renewable energy, • Large CCIs portfolios and basic institu- o CCIs not translated into national level in -
forestry). tional structure already in place struments
• Enabling organizational struc - • Increasing awareness; steps being taken o Scientific capacity limited
ture (basic support and approval to strengthen organizational structure • Transactions costs
system) in place for CCIs use o Bureaucratic approval process and proce -
dures
o Lack of awareness or coordination within dif-
ferent stakeholders
• Market Biases
o Prime focus renewable energy projects
o Mainly consultant/investor-driven
Note: GEF – Global Environment Facility, PDF – Project development funds, CDM – Clean Development Mechanism
• Transactions costs influence the abatement cost curves of climate-relevant activ i-
ties, and are relevant at the project, national, and international levels. Internation-
ally initiatives have been undertaken to lower these costs (simplifying proc e-
dures, streamline methodologies) and through different platforms (PDF, SGP,
small-scale CDM and specific programmes like CDCF). However, the transac-
tions costs are still high, even for small projects, across developing countries and
in India (Krey 2004, 2005). The issue is how these costs are distributed among
stakeholders, and how they alter their investment and hosting behaviour.
• At the national level, transactions costs are a function of country procedures and
institutional structures. In general, countries with stronger capacity for CCIs,
streamlined project approval processes have a competitive edge in availing po-
tential opportunities. India’s strength lies in having the basic structure and pro-
jectpipeline already in place. However, there is no attempt to translate the ince n-
tives into domestic instruments as yet. The approval process is time consuming
and ad hoc at times. This is improving gradually w ith steps for a clear and proac-
tive strategy for CCIs, and a more involved private sector. SSIs in general are
hardly involved in the climate -related or even the environmental forums, and
need much more representation.
The CCIs-related market biases are dependent on the motivations of the stakeholders.
For instance, the government is likely to focus on additional benefits and political issues;
private party on economic benefits; and multilateral agencies and observers on ensuring
credibility within the parameters of their own interests. The major CCI portfolios show a
bias to certain sectors, particularly renewable energy, as in India. As there is no host-
country CCI programme, these are mostly investor - or consultant-driven projects. The
focus is on cost-effectiveness, while additionality and sustainability issues are not ad-
dressed effectively. The question is, whether the focus on such projects with pre-
fabricated baselines, indigenous suppliers and grid-based applications for a country like
India, helps in meeting the objectives of the CCIs? Should so much attention be given to
grid capacity addition when several inefficient process energy options exist which are
continuing to operate the way they are? With considerable interest generated, more op-
tions across different sectors are being considered. However, with a need for conver-
gence of interests of investors and hosts, the bias has been is on low risk pr ojects.
Therefore, the climate change policy incentives are significant but are associated
with uncertainties, transactions costs and market biases. These issues are especially
relevant for small-size and small-capital SSIs. SSIs are low on the priority list in in-
ternational and national climate change policies. The situation is slowly evolving and
there are indications of diversification of CCI portfolios with SSI projects being con-
sidered under GEF and CDM in India (steel re-rolling, foundry, tea, brick industries).
However, these are still only a few projects and are mainly for capacity-building. It
thus appears that the top-down approaches though relevant will remain constrained
unless the associated issues are resolved or addressed.
5. National policies for the small-scale industries

5.1 Introduction
SSIs in India hold a significant position in the socio-economic development of the
country and are often referred to as the “engines of growth ” (Chapter 1). The SSIs
are defined under the Industries (Regulation and Development) Act 1951, in terms of
the investment limits in plant and machinery (original value) up to a prescribed
value. They include all industrial units, modern and traditional, in which the invest-
ment in plant and machinery does not exceed Rs. 10 million (Chapter 1), and may
fall in the organized factory sector (those registered under the Factory Act 1948) or
the unorganized sector (those unregistered under the Factory Act). 127 The national
policies for the SSIs have formed an important component in the planning and deve l-
opmental process of the country.
This chapter examines the relevant national policies including promotional and envi-
ronmental (with focus on air pollution), that address the SSI sector in India, and their
implications for diffusion of cleaner technologies in the SSIs. The organizational
structure, the main elements and the implications of the promotional policy is pre-
sented in Section 5.2 and for the environmental policy in Section 5.3. Based on these,
Section 5.4 draws the main conclusions that will help address Research Que stion 2,
and will complement and be supplemented by the case studies in later cha pters while
addressing the central research question.

5.2 National promotional policies

The foundation of the SSI policy was laid in the Second Five Year Plan in 1956, with
equity as its guiding principle. Initially, the focus was on protection of the sector.

" SSIs provide immediate large-scale employment, offer a method of

ensuring a more equitable distribution of national income and facili-
tate an effective mobilization of resources of capital and skill which
might otherwise remain unutilized". (GOI 1956)

127
The definition of SSIs has undergone changes over the years in terms of the prescribed in-
vestment limit. There is no separate definition for the medium industry. The unorganized sec-
tor generally employs less than 20 workers (if power is not used) or 10 workers (if power is
used).
84

Since the 1990s, however, with the initiation of the liberalization process in India,
the emphasis is shifting from protection towards promotion of SSIs.128 The impor-
tance of SSIs in India’s development policy, and the specificity of their needs, has
been accentuated by the fact that since then separate departments and ministries have
been especially created for the promotion of SSIs. Before discussing the national
policies and their implications, Section 2.1 outlines the organizational structure for
SSI policymaking and implementation (illustrated in F igure 5.1).

5.2.1 Organizational structure

The responsibility of SSI development was initially under the purview of the Minis-
try of Industry (MoI). In 1990, the Department of Small Scale Industries and Agro
and Rural Industries was set up within the MoI to provide focused attention to the
promotion of the sector (with a policy shift towards promotion). Subsequently, in
1999, the Ministry of Small Scale Industries and Agro and Rural Industries was cre-
ated to hold independent charge as the nodal ministry for policy formulation and de-
velopment of SSIs in India. The Ministry was bifurcated further in 2001 as the Min-
istry of Sma ll Scale Industries (MoSSI), and the Ministry of Agro and Rural Indus-
tries (MoARI), to deal specifically with modern SSIs and traditional, rural and agro-
based SSIs, respectively.

National State/District

Policy Ministry of Small Scale Industries (MOSSI) Directorate of Industries (DOI)

Ministry for Agro and Rural Industries (MOARI)

Small Industries Development Organisation (SIDO) State Industrial Development Corporation / State Industrial
Khadi and Village Industries Commision (KVIC) Investment Corporation (SIDC/SIIDC)
National Small Industries Corporation Limited (NSIC) District Industries Centre (DIC)
Khadi and Village Industries Boards (KVI Boards)

Environmental Ministry of Environment and Forest (MOEF) Department of Environment (DoE)

policy Central Pollution Control Board (CPCB) State Pollution Control Board (PCB)

Financing Small Industries Development Bank of India (SIDBI) State Financial Corporation (SFC)
National Bank for Agriculture and Rural Development Khadhi and Village Industries Boards (KVI Boards)
Corporation (NABARD) Commercial banks
Commercial banks Rural and cooperative banks

Associations National level associations such as Confederation of State and local level associations
Indian Industries (CII), Federation of Association of
Small Industries of India (FASII), Indian Council of Small Industry specific associations
Industries (ICSI)

Industry specific associations

Technical Small Indutrsy Srevice Institutes (SISIs)

institute/support Process and Product Development Centers (PPDC)

Fig ure 5.1: Organizational structure for SSI policy-making and implementation

128
Protective measures aim at protecting the SSIs by giving them preferential treatment vis-à-vis
the large units. Promotional measures aim at promoting the SSIs by imparting competitive
strength (e.g. by improving their market access and providing infrastructural fac ilities).
 85

The main implementing agencies of these ministries are the Small Industries Devel-
opment Organization (SIDO), the Khadi and Village Industries Commission (KVIC),
and the National Small Industries Corporation Limited (NSIC) – a public sector un-
dertaking. SIDO is involved in evolving programmes for the modern segment of the
SSIs, while the KVIC deals specifically with the promotion of village and khadi
(handloom) industries. The SIDO coordinates pr ogrammes of the state governments,
and liaises with the state and central ministries, Planning Commission and the finan-
cial institutions. It has several organizations under its jurisdiction like the Small In-
dustries Service Institutes (SISIs) and the Process-cum-Product Development Cen-
tres (PPDC).
The Central Government drafts the strategy for SSI development, as well as the guid-
ing policies for the states for implementation of select programmes. Within this
framework, a State Government designs its own set of policies and initiatives. At the
state level, the Directorate of Industries (DoI) 129, the Directorate of SSIs (where pre-
sent), and the Khadi and Village Boards (KVI Boards) implement the SSI policies. In
addition, the State Small Industries Development Corporations (SSIDCs) assist in the
procurement of raw material, marketing, etc. Under the jurisdiction of the DoI are the
local field offices called the District Industries Centres (DICs), in most districts of
India, which are the focal points for SSI development at the grassroot le vels.
For environmental policies, there are specific and separate ministries and depart-
ments, which are detailed in Section 5.3.1.
Financial organizations: The apex agency for providing financial support to the
SSIs is the Small Industries Development Bank of India (SIDBI). SIBDI was set up
in 1990 as a subsidiary of the Industrial Development Bank of India (IDBI), and was
delinked from IDBI in 2000. SIDBI not only operates through its various pr o-
grammes, it has also been the main provider of refinance to s tate-level institutions
including State Financial Corporations (SFCs), State Industrial Development Corpo-
rations or State Industrial Investment Corporations (SIDC/SIIDC) and commercial
banks. Specifically for the village industries, the KVIC provides financial support,
including soft loans at low rate of interest 130, through the state KVI Boards, along
with assistance from the National Bank for Agro and Rural Development
(NABARD). Many commercial banks (e.g. the State Bank of India) have also intro-
duced separate programmes for the SSIs. Along with these, rural banks and coopera-
tive banks also offer financial options. For instance, the Primary Agriculture Co-
operative Society finances agriculture-related industry and the Primary Co-operative
Banks help in meeting the working-capital needs of cottage and tiny industries.
Industrial Associations: There are several industry associations that provide support
and offer a common platform to raise specific industry-related issues. Their role in

129
DoI provides a range of facilities, benefits and concessions for the SSIs registered with them,
which vary across different states.
130
KVI Boards are considered providers of the softest loans among official providers of finance –
all loans carry interest @ 4% per annum at present (can be increased by the government).
86

setting up common facilities and other ventures in the area of technology, marketing
and other support services is increasing. These associations include major industrial
associations (like the Confederation of Indian Industry (CII), Federation of Indian
Chambers of Commerce and Industry (FICCI)), and those specifically for the SSIs,
such as the World Association for Small and Medium Enterprises (WASME), Fed-
eration of Associations of Small Industries of India (FASII), and Indian Council of
Small Industries (ICSI). Besides these, there are industry-specific associations and
other associations such as the Export Promotion Council that also play an important
role in the development of the sector.

Table 5.1: Significant policy statements and packages related to SSIs

Policy statement/package Salient features
Industrial Policy Statement Focus: Protection
1977 Reservation of products for exclusive manufacture extended
Special attention to the ‘tiny sector’
Focal point for development shifted to district level (DIC)
Industrial Policy Statement Focus: Ancillaries
1980 Programme for rural, backward areas accelerated
Industrial Policy Statement Focus: Greater vitality and growth
1991 – accompanied by Emphasis on deregulation and debureaucratization
special Policy Statement SSIs to include industry -related service and business enterprises
for Small-Scale Industries Shift from subsidized credit (expect for specified groups)
Separate package for tiny sector
Technology Development Cell & Export Development Centre
Promotion set up
Comprehensive Policy Focus: Development (in face of increased competition)
Package 2000 Fiscal and credit support (exemption for excise duty limit raised,
composite loan limit raised, credit guarantee scheme)
Infrastructural support (especially in rural areas, cluster develo p-
ment scheme)
Technological support (capital subsidy scheme, commercial banks
to develop schemes, capital grant to develop testing laboratories)
Other (marketing support, entrepreneurship development, promo-
tion of ru ral industry and tiny u nits, rehabilitation of sick units)

5.2.2 P romotional policy

The SSI promotional policies in India may be discussed in two phases – before and
after 1990.
Pre -1990 : In post-independent India, the first Industrial Policy Resolution, 1948, as-
signed a prime role for the SSIs in achieving ‘local self-sufficiency’ in certain types
of industrial goods. The second Industrial Policy Resolution, 1956, laid the founda-
tion for the SSI policy regime with a focus on protection of the sector. The policies
that followed the basic framework provided by the Second Plan (Industrial Policy
1967, 1977 and 1980) focused primarily on protection of SSIs, by reservation of
 87

products for exclusive manufacturing by the SSI sector and other measures like fiscal
conce ssions and preferential procurement by the government (Table 4.1).
Reservation of products for exclusive manufacture in the SSIs was introduced in
1967, with reservation of 47 items. This number was increased progressively and
stood at 836 items in 1989. The concern related wit h reservation is that it does not
distinguish between production units on the basis of their efficiency. While it is criti-
cized for economic and efficiency reasons (Abid Hussain Committee 1997) , it has
also been justified on grounds of social and employment benefits. It is stated to have
led to growth, export promotion and sub-contracting (MoSSI 2002).
Since 1990 : The Industrial Policy of July 1991, accompanied by a special statement
on SSIs, marked a conscious shift from the regulated to a more liberal policy, in line
with the initiation of the process of liberalization in the country. The SSI sector is be-
ing gradually opened up, though it (at least a segment of it) is still protected. It cur-
rently produces about 7500 items, out of which about 750 items are reserved for pro-
duction in the sector (some of these items are not produc ed or their production is in-
significant). The reservation for marketing of SSI products as a measure of market
support (price and purchase preference), which was emphasized since the second in-
dustrial policy, was reiterated in 1991. At present 358 items are reserved for exclu-
sive purchase from the sector.
The current policy focus aims at phased de-reservation and provision of a conducive
environment to help SSIs to sustain growth. For this, several promotional measures
like fiscal concessions (SSI exemptions, excise exemption scheme) and benefits
(subsidies for power, investments, ISO certification, etc.), credit facilities (priority
lending, credit lending schemes), and infrastructural support (tool rooms, consul-
tancy and training facilities, quality testing stations etc.) are offered. The emphasis is
on deregulation, simplification of regulations and procedures, improving the flow of
credit (under priority lending from banks and financial institutions), exports deve l-
opment (excise exemption) and promotion of entrepreneurship (MoSSI 2004).

5.2.3 Some policy implications

SSIs have enjoyed a protectionist policy for a long time. With a focus on equity, the
long-term policy objective was to improve competitiveness and efficiency of the sec-
tor. The protectionist policy focus has led to growth of the sector. This trend has con-
tinued even after the 1990s. SSIs have maintained a higher rate of growth compared
to the industrial sector as a whole. The number of SSI units has increased from an es-
timated 0.41 million comprising of 0.16 registered and 0.25 unregistered units in
1973–74, to the current 3.6 million – 2.8 million registered and 7.1 unregistered
(Figure 5.2).131 This has lead to increased employment opportunities (about 8 million

131
However, not all the registered units are operational – the working units constitute only 71%
of the registered units while the rest are closed (SIDO 2003). Nevertheless, the gro wth in the
number of units has been significant.
88

jobs were created between 1980 and 1997), as well as a significant rise in exports
over the years (and the number of exporting units has also increased from 0.78% in
1987–88 to 2.71 in 1999–2000).
On the other hand, the national policy by providing continuous promotional meas-
ures has created an incentive for deliberately staying “small” (so as to continue to get
the benefits related to the sector). One entre preneur (or family) may own a number of
small units, and larger industries may also set up ancillary units to be able to avail of
the benefits. The policy has also, in general, brought in a sense of complacency and
provided little incentive for the units to upgrade their technologies (since it is size,
and not quality, sensitive). The basic policy objective to provide impetus for growth
in the small units to a certain limit after which they may generate their own mome n-
tum without much need for assistance, therefore, has not really been met and the sec-
tor has been unable to build competitive strength as a whole (Tendulkar and Bhavani
1997). Many of the units still work below their capacity, and sickness of units have
been persistent problems associated with the sector (the ma in reasons for sickness
being marketing and financing constraints and competition (SIDO 2003)). The small
size has implied that most of the SSIs cannot fully benefit from economies of scale –
technological and pecuniary (Sandesara 1995) . While the policy in general targets
SSI units encouraging them to operate in an isolated manner, the importance of focus
on clusters is increasingly becoming important. 132

3.5

3.0
Number of units (million)

2.5

2.0

1.5 Unregistred

1.0
Registered
0.5

0.0
-74

-76

-78

-98

-00

-02
-80

-82

-84

-86

-88

-90

-92

-94

-96
73

75

77

97

99

01
79

81

83

85

87

89

91

93

95
19

19

19

19

19

20
19

19

19

19

19

19

19

19

19

Year

Figure 5.2. Growth in total number of SSI units

Source: (MoSSI 2002)

With the phased policy shift away from promotion in light of liberalization and glob-
alization scenarios, there is a marked need for technological improvement in order to

132
The Abid Hussian Committee Report (1997) was the first official document strongly recommend-
ing clusters as the focus of SSI development (MoSSI 2003).
 89

survive and compete in the market. Opening up of the sector has led to opportunities
with increased markets, as well as challenges for the sector in terms of rising compe-
tition from both internal (including from large industries) and external markets (par-
ticularly China and South Korea). Competition and cheap imports from other coun-
tries has also led to questions regarding survival of many SSIs (such as toys, calcula-
tors, alarm clocks). This, on the one hand, provides an incentive for the entrepreneurs
to be more competitive and use efficient (and cleaner) technologies (for example,
seePradhan and Barik 1999) ; on the other hand, however, it is also leading to closing
down of several SSI units.
The current promotional policy does provide incentives for the SSIs for technological
upgradation. These include opportunities for financial and technical support under
various schemes of the government and its departments, for instance, under the prior-
ity lending support (PLS), the credit-linked capital subsidy scheme for technological
upgradation of SSIs (CLCSS), integrated technology upgradation and management
programme (UPTECH), and quality upgradation through ISO -9000 certification. 133
These are significant opportunities for the SSIs; however, they are normally supply-
driven and discretionary, and limited in terms of the number of small units that can
avail policy assistance, especially the smaller ones among the SSIs (less aware or
powerful SSIs). 134 Studies have shown that this is not only due to budgetary con-
straints of the government, but also due to inadequate information flow, complicated
procedures and formalities (and delays), and limited expertise and co-ordination be-

133
Specific schemes for SSIs (also see, [Link]
(a) Under the PLS scheme, banks are required to ensure that a certain defined percentage of
the overall lending is provided to the sectors classified as priority sectors by the government.
(b) The CLCSS scheme aims to facilitate technological upgradation by SSI units in specified
products/sub-sectors by providing 12% capital subsidy for adoption of proven technologies
approved under the scheme (like, natural gas- and oil-based furnaces for glass and foundry
units respectively)
(c) The UPTECH or the Cluster Development scheme is exclusively for addressing modern i-
zation and technological needs for SSI clusters.
(d) The Quality Upgradation through ISO certification scheme provides reimbursement of
75% of the charges for acquiring ISO certific ation to each unit (up to a maximum of Rs.
75000). Till now, 2709 units have benefited from this scheme ((MoSSI 2002)
134
It may be pointed out here that there is wide diversity within the SSI sector – and the strength
of these incentives also varies between them. The SSIs by definition based on prescribed in-
vestment limits covers a large range of units. Some of these may include very large units
which, in normal terms, may be better fitted as medium- or large-scale but owing to the defi-
nition may be included in the sector and therefore keep on availing the SSI privileges. On the
other hand, there are several very small units. Though there are special schemes for tiny and
village industries, there are many small units, including the small registered and unregis tered
modern SSIs that may be unaware or unable to avail of these benefits.
90

tween departments. 135 Fiscal measures too create incentives by decreasing the price
of products and creating an additional market segment by providing an advantage
over large-scale industries. However, they too do not create the direct incentive to
improve quality or efficiency of the production processes.
An examination of the policy initiatives for financing under the SSI policy also re-
veals that though there is considerable opportunity for funding, these measures are
largely for investments in new firms or capacity addition, and those for cleaner tech-
nologies are limited. For example, SIDBI provides financing for the former under
several portfolio heads (e.g. refinance and equity assistance, and project related fi-
nancing related to equipment finance, venture capital, working capital, etc.), while
that for financing of technology upgradation is limited (e.g. under its technology and
modernization development fund (TDMF)). There is also a gap between the amount
sanctioned and disbursed under the various schemes (SIDBI 2000). 136

5.3 National environmental policies

In case of the national environmental policy, India basically has a command and con-
trol regime in place. Regulatory instruments are the main features, along with the use
of suasive instruments, for various industries including the SSIs. These are supple-
mented in some cases by economic instruments (mainly subsidies). The main thrust
to the environmental policy was provided by the Bhopal gas tragedy in 1984, follow-
ing which environmental concerns came to the fore and laws were made stringent 137.
In this regard, the Environmental (Protection) Act was introduced in 1986 as an um-
brella legislation for protection of the environment.
In general, the pr omotional and environmental policies work independently. How-
ever, there have been some instances of complementarity between the two (an impor-
tant example is the UPTECH scheme, renamed as the Cluster Development Scheme
for bringing in cleaner technologies in selected industries to help them meet the re-
quired standards). The environmental policy has largely encouraged setting up of
end-of-pipe or cleaning technologies, and has led to relocation of some industries
(e.g. leather tanneries in Kolkata) and closur e of others (e.g. in Delhi and Agra).
However, policy initiatives for cleaner technologies and energy conservation have
been restricted to demonstration plants and awareness creation in most cases.

135
It is noted that often the finances available to the SSIs are not timely or adequate, which has
also rendered several units sick. In addition, generally financial institutions (e.g. SIDBI,
NABARD, SFCs, commercial banks) hesitate to deal with SSI entrepreneurs requiring a very
small amount of loans (Nayak Committee 1993), even though now financing through win -
dows for small grants is being made available (e.g. KVIC, cooperative banks, local banks).
136
For example, for project-related financing of SIDBI, between 1990– 2001 the amount dis-
bursed is almost half of the amount sanctioned, which was Rs 62 billion and 32 billion re -
spectively. Also, the technology and modernization development fund (TDMF) of SIDBI is
only 3% of the total project-related funds sanctioned by SIDBI between 1990–2001.
137
Although environmental laws and acts were in place even before this incident, they in general
followed a piecemeal approach and were really ineffective.
 91

5.3.1 Organizational structure

The Ministry of Environment and Forests (MoEF) is the nodal ministry for develop-
ing the environmental policies in India (F igure 5.1). It was set up in 1985 and is re-
sponsible for the planning, promotion and coordination of environmental pr o-
grammes. Its objectives are supported by a set of legislative measures.
The main executive authority is the Central Pollution Control Board (CPCB), which
was constituted under the Water (Prevention and Control of Pollution) Act, 1974. It
was later entrusted with functions under the Air (Prevention and C ontrol of Pollu-
tion) Act, 1981. 138 The Environmental Act 1986 further increased its powers. The
CPCB provides technical advice as well as develops the emissions standards at the
national level (Table 5.2). Responsibility for the monitoring and enforcement at the
state level, however, lies with the respective state Pollution Control Board (PCBs).
The PCBs cannot relax or lower the standards set by the CPCB, but can in certain
cases make them more stringent depending on the circumstances (for example, for
the foundries in Howrah – Chapter 6).

5.3.2 Environmental policy and policy instruments

[Link] Regulatory instruments
The regulatory instruments are extensively used for reducing pollution in industries.
These include compulsory environmental impact assessment and audit, consents (to
establish and to operate), technology and effluent standards, and ban on specific
technology and fuels.

Table 5.2: Major functions of the Pollution Control Boards

Central Pollution Control Board (CPCB) State Pollution Control Boards (PCBs)
• Advise central government • Advise state government
• Plan nation -wide programme • Plan state programme
• Lay down standards • Lay down standards (in addition to and
• Coordinate activities of PCBs above those of CPCB)
• Provide technical assistance to PCBs • Carry out inspections
• Collect, compile, disseminate technical and • Issue consents to industries
statistical data and prepare code of conduct • Collect and disseminate information

Standards: The focus has been on setting industry-wide standards, backed by penal
action. The standards set for industries include effluent and emission standards for 37
and 31 categories of industries respectively, besides standards for ambient air quality,
ambient noise, and fuels quality specifications (CPCB 2003). For air pollution, the
emphasis has been on local pollutants such as SPM and in some cases SO2. There are
no standards for CO2. In cases of energy-intensive industries, however, standards en-

138
As per legal provisions no person can operate an industrial unit without a consent of the PCB,
and any unit not adhering to the prescribed standard is liable for litigation and pena lties.
92

couraging cleaner technologies or cleaner fuels, indirectly lead to reduction of CO 2

as well.
The stringency of these regulations varies according to the severity of pollution asso-
ciated with them, for which the MoEF has classified the industries into red, orange
and green industries categories (i.e. most polluting to least or non-polluting indus-
tries, including both the large -scale industries and the SSIs). The standards are re-
vised when needed, and their implementation requires periodic inspections by the
PCBs. The PCBs have the authority to use penalties such as fines, cutting off water
and electricity connection and shut down the units (even prosecution in extreme
cases), which are expected to provide the incentive for the entrepreneurs to adhere to
the standards. The state governments are in a position to change the standard and
make it more stringent depending on the location and nature of the industry.
Consents: The PCB issues consents for establishing a new unit and continuing opera-
tions of a running unit within its state. A consent to establish or no-objection certifi-
cate (NOC) is required in the case of new industries (essentially for site clearance),
and a consent to operate is required after completion of the project but before com-
mencement of the process (subject to installation of the required pollution control
devices). The consent to operate is reviewed periodically (depending on the category
of industry), and renewed provided the relevant standards are being met (Table 5.3).

Table 5.3: Minimal frequency of inspections and validity of consents for SSIs
Category of SSI Frequency of visit and effluent sampling Validity period
(and comparison with large scale industry) for the consent
Red Once in 12 months 2 years
(Once in 3 months for large-scale industry)
Orange Once in 3 years 3 years
(Once in 6 months for large-scale industry)
Green (non-polluting SSIs Once in 3 years on random chec k basis 5–10 years
covered under procedure
(Once in 1 year for large-scale industry)
of simplified consent)
Notes : (1) Sampling frequency for air emission shall be in accordance with the details given in the
CPCB 1985. PCB may specify sampling frequency separately for the industries. (2) Industry are di-
rected to submit monitoring reports on a monthly basis and as per the monitoring frequency and p a-
rameters stipulated in the consent order. (3) Depending on the manpower and availability of resources/
infrastructure, etc. PCBs may improve upon the frequency as may be necessary.
Source: Based on the MoEF Notification dated 20 December 1999 (MoEF 1999).

For the SSIs, however, many units (falling in the “green” category) are normally ex-
cluded in the regulation purview of the PCBs. The method of granting consent has
also been simplified for the sector. For all SSI units, e xcept for those SSIs that are
 93

included in the list of 17 hazardous industries139, only an acknowledgment of the ap-

plication by the state PCB is sufficient and serves the purpose of consent.
In addition, no industrial license is generally required for an SSI unit located in cities
with a population of less than 1 million. In cities with a population of more than a
million, polluting industries may be located in designated industrial areas (however,
this too is difficult to enforce). One of the reasons for local pollution has been rapid
expansion of urban areas and inefficient town planning which have led to environ-
mental problems in many cities (e.g. some areas developed as industrial pockets in
Delhi fall within the residential area, in Howrah improper town planning led to resi-
dential and industrial areas developing together). In this regard, relevant gover nment
authorities many a times resort to relocation or clos ure measures for some SSIs.
However, relocation simply means relocation of pollution, unless infrastructure is
developed at the alternative site 140, and closure leads to social impacts.

[Link] Economic instruments

While environmental policy has been largely regulatory, it has been occasionally
supplemented by the use of economic instruments. Some examples include, cess on
water consumption for industries, subsidies for cleaner technologies and the eco-
mark scheme 141. For SSIs, fiscal benefits (like subsidies, tax exemptions, deprecia-
tion allowance, and reduced customs duties) are also provided under the environ-
mental as well as the promotional policies (previous section). Again as in the case of
promotional policies, while these instruments have benefited some SSIs – an exa m-
ple is the subsidy provided under the TDMF for foundries (Chapter 6) – they are lim-
ited in terms of their reach and availability of support.
Subsidies include those for cleaner technologies (like pollution control devices,
waste recycling, phasing out of ozone depleting substances and renewable energy
technologies). Since the early 1990s, a thrust is also being given to waste manage-
ment (subsidy and awareness creation for waste minimization and common effluent
plants (CEF)). This has led to setting up CEFs in many clusters – where SSIs can
treat their wastes by setting up a common CEF, thereby reducing individual costs
(e.g. see (Kennedy 1999) – and has highlighted the benefits of collective efficiency as
opposed to the isolated manner in which most of the units have been operating.
However, on the other hand, the impetus provided by the economic (combined with
suasive) instrument was a one-time solution. This has led to problems in the long run

139
These industries are: fertilizer (nitrogen/phosphate), sugar, cement, fermentation and distillery,
aluminium, petro -chemicals, thermal power, oil refinery, sulphuric acid, tanneries, copper
smelter, zinc smelter, iron and steel, pulp and paper, dye and dye intermediaries, pesticides
manufacturing and formulation, basic drugs and pharmaceuticals.
140
For example, the leather tanneries in Kolkata were ordered, as per a Supreme Court regulation,
to relocate to an alternative site – the leather complex, which was to have facilities for waste
management, etc. This complex is under construction.
141
Government of India launched t he eco -labelling scheme known as ‘Ecomark’ in 1991 for easy
ident ification of environment-friendly products. However, it has not been very successful.
94

in terms of maintenance and the associated costs (CSE 2002) , and the inability to
maintain the collective effort on a sustained basis.
The benefits of using economic instruments like industrial pollution taxes, have been
recognized (e.g. in the MoEF’s Policy Statement on Pollution Abatement, 1992), and
ways are being discussed to develop and use economic instruments. 142 In the current
circumstances, an immediate reliance on economic instruments is not feasible, how-
ever, their potential to compliment the regulatory instruments is still considered sig-
nificant (Kuik et al. 1997). The efficient working of the economic instruments will
depend on the way markets operate, and some of the barriers include bureaucracy,
public entities, and partial protection in the case of SSIs.

[Link] Suasive instruments – and focus on public interest litigation

Environmental protection is incorporated in the Const itution of India, and is included
as a constitutional right and a fundamental duty of the citizens. Civil society has
played a significant role with the increase in environmental concerns, and activ ities
of the environmental activists and NGOs143. Yet, awareness and general concern for
the environment is still low.144 This is in spite of the several suasive measures (e.g.
awareness creation, training, opportunities for technical support) undertaken under
central and state policies. In fact, many of the SSI policy provisions related to cleaner
technologies and energy efficiency are restricted to demonstration plants and aware-
ness creation (waste minimization projects, energy conservation programmes, etc.).
In this regard, the judiciary and public interest litigation (PIL) have been important
for raising environmental and social concerns. They have encouraged the develop-
ment and enforcement of stricter rules and regulations, and created incentives for en-
trepreneurs. Under a PIL, any individual or group can file a form of writ petition,
even when not directly affected by the perceived injustice. PIL in effect has served as
a proxy for formal implementation of pollution regulation since the beginning in
mid-1980s. In 1996, the Supreme Court gave twelve judgments in different pollution
related cases, including protection of the Taj Mahal and cleaning of the river Ganges.
The court’s verdict in a PIL is not usually self-executing and has to be enforced by
relevant agencies (e.g. the PCBs).145 Environmental pollution in several SSIs has

142
It is estimated that by reliance on regulatory regimes the cost of the economy has been three
times of the costs of relying on least-cost strategies (TERI 2000a).
143
Some famous examples of civil society involvement in India are the Chipko movement (for
saving trees) and Narmada Bachao Andolan (for saving river Narmada).
144
Pargal et al. 1997, Sawhney 2003, have observed that community pressure does not induce
lower pollution levels, but does seem to have significant effect on the level of inspections.
145
Generally in all environmental cases, the Supreme Court has prescribed time limits within
which the order is to be implemented, asked for periodic reports from the concerned authori-
ties and has even instructed the State High Courts to monitor enforcement. It is by passing
strictures, asking for personal appearances and explanation of officials, ordering closure of
faulty units, extending time limit for compliance, etc. that the Court is able to enforce its de -
cisions (MoEF 2002a).
 95

been addressed under the PIL (brick making, leather tanneries, foundries, glass units,
etc.), and has met with varied success. Even with these, the issue arises of enforc e-
ment of the court’s orders. All the three case studies in this thesis have been influ-
enced by judicial intervention.

5.3.3 Main policy implications

Environmental policy provides incentives for the SSIs to adopt cleaner technologies
by threat of penal action, opportunities for financial and technological support and
capacity-building (Table 5.4). However, there is still continued use of outdated and
inefficient technologies that have an adverse impact on the environment, and the
level of pollution caused by the sector in India per unit of output remains high
(CPCB 2001).
The focus of the environmental policy has been on regulatory instruments for diffu-
sion of cleaner technologies (for example, see Chakrabarti and Mitra 2005). The in-
centives they provide are greatly dependent on the manner of their enforcement. The
SSIs are provided concessions (in terms of stringency of regulations, frequency of in-
spections and validity period of the consents) and the enforcement of the policy pro-
visions also has more -or-less been weak. The large number of SSIs, the scattered na-
ture and existence of many unregistered units (without any pre-existing ties with the
government) are some of the reasons for this. Some other reasons include:
a. Frequency of inspections: the inspections in many cases are sporadic, and may
even tolerate non-complying units (due to work overload, lack of staff, limited
resources, and inadequate equipment and facilities). “We have less staff and there
are too many units. It is difficult for us to monitor them all”. Even in the case of
inspections, there is some evidence that pollution remains unaffected, possibly
because firms activate the equipment only when inspections are scheduled
(Pargal et al. 1997).
b. Emphasis: The focus has been on initial compliance (by installation of P CDs)
rather than continuous compliance (to ensure that the PCD is actually operating).
In addition, the penalties for non-compliance are normally low 146 and are insens i-
tive to the degree of default (same penalty is normally charged irrespective of the
size of violation or the pattern of offence) (Sawhney 2003).
c. Crucial activities like training of staff, generation of awareness among public and
research and development remain low on the priority for most PCBs (also due to
limited budgets).
d. Composition of the PCBs: The PCBs require both technic ians and non-
technicians, and representation by the industry and local bodies. However, in
most PCBs, there is inadequate technical staff, and there is a tendency not to fill

146
Effective penalty is dependent on the probability of getting caught (which is low due to weak
enforcement) and probability of it getting imposed (which is low due to political and social
links, etc.)
96

vacancies for members represented by local authorities (Planning Commission

2000).147
e. Political interest and social reasons: In some cases, political interests affect ob-
taining consents and penal actions. There has been evidence of units operating
despite not having consent (Kathuria and Haripriya 2000) . Worker resistance, so-
cial unrest (due of employment loss), and sometimes also political motivations
(SSIs form a large vote bank) make enforcement of penalties difficult. The regu-
latory incentives, however, are also associated with issues such as weak enforce-
ment, concessions for the SSIs, discretionary and limited support and delays,
which tend to weaken the incentives for the sector. In addition to the incentives
mentioned, impetus has been provided in some cases by the judiciary and civil
society, and plays an important role in strengthening the incentives created by the
policy provisions.
Though regulatory instruments have brought in environmental consciousness and
changes in some industries, a large proportion of units in the SSI sector have been
left out, and the sector still constitutes a significant contributor to environmental con-
cerns. The changes have largely been in bringing in end-of-pipe solutions and effi-
ciency concerns still are not the primary concern for the units.
The economic and suasive instruments under the environmental policy (in combina-
tion with the promotional policy) add to the regulatory incentives by creating oppor-
tunities for financia l and technical support and creation of additional markets. In ad-
dition, the judiciary (and the civil society) provides critical impetus in this direction.
However, the policy measures for introducing cleaning technologies are more often
supply -driven and limited (e.g. where renewable energy sources like baggase c o-
generation, biomass gasification, and cleaner fuels like natural gas are encouraged).
Some of the reasons for this have been mentioned before (in Section 2.3): budgetary
constraints, inadequate information, complicated procedures and delays, not main-
taining proper accounts,148 etc. Shortage of funds has been a significant constraint for
SSIs in installing cleaner technologies.
The tendencies of the SSIs to stay small, and focus of the protective meas ures on
their size rather than the quality, has also not helped in bringing in cleaner technolo-
gies within the sector. The shift since 1990s to a more liberal policy focus is creating

147
The staff composition in PCBs (on average) – is 34% technical staff, 45% non-technical and
25% vacant positions. On an average, for 100 polluting units (red and orange industries –
both large and small) there are less than 4 technical staff members (GoI 2000).
148
Only 15.5% of the SSI units actually maintain proper accounts (SIDO 2003).
 97

Table 5.4: Incentives under the national SSI policy

Policy/policy instrument Incentive Effect
Strength Weakness
Promotional policy
Protective measures
Regulatory: Reservation Additional market creation Incentive to stay “small” Growth of SSIs – number of units, production, exports
Economic : Fiscal benefit Impetus for growth Little incentive to upgrade Tendency of units to stay “small”
technology, improve quality Technological complacency amongst many units
Promotional measures
Economic : Credit provision Opportunity for finance Limited support for techno- Some units/clusters have benefited. But support and
Suasive: Capacity-building and technical support logical upgradation know -how (vis-à-vis cleaner technologies) has remained
inadequate across the sector.
Environmental policy
Regulatory: Standard, consent Threat of penal action Concessions for SSIs Change in some clusters and units
Weak enforcement Environmental impact (esp. local pollution) still high
Design: Focus on end-of- Little emphasis on efficiency
pipe options
Economic: Subsidy (fiscal, Opportunity for financial Availability of discretionary Some units/clusters have benefited. But support for
credit) support and limited support cleaner technologies has remained limited across the
sector
Suasive: Capacity-building Opportunity for training, Limited support availability Increased awareness and consciousness in some
technical support Delays units/clusters. But support and know -how remain limited
Impetus from judicial in- Lack of coordination across sector
tervention, civil society Judiciary, civil society important in implementation of
policy prov isions
an incentive for the SSIs to become more competitive and bring in efficiency considera-
tions within their production processes. Having operated in a protected policy environ-
ment, many units find it increasingly difficult to operate in a competitive market struc-
ture, which raises the issue of survival of these units. On the other hand, this then does
provide additional incentive to bring in efficient technologies
The policy instruments have also been associated with a lack of coordination be-
tween the departments responsible for them (Tendulkar and Bhavani 1997). For in-
stance, the policy measures for providing technical support and consultancy for tech-
nology upgradation may be implemented through various agencies with considerable
overlap of functions (such as SISI, NSIC, DIC). Implementation by each of these or-
ganizations involves complicated formalities and procedures (which differ across or-
ganizations). In addition, there is little co-ordination between prom otional agencies
and those dealing specifically with the environmental issues and policy making.
Most policy provisions remain supply-driven and involvement of the SSIs in policy
making (e.g. standards, etc.) is not common

5.4 Conclusions
SSIs are important contributors to the socio-economic development of India. The SSI
policy in general has been motivated by social and equity concerns. The environ-
mental policy in particular has provided concessions for SSIs, weakening the ince n-
tives provided by the regulatory instruments for environmental protection. Whe rever
change has been brought about it has been through motivations (in the case of protec-
tion of specific heritage sites and ecologically sensitive areas and rivers) other than
energy efficiency considerations. Even in the case of promotional policy, the policy
shift for the SSIs from protection to promotion has come about following the macro
policy of liberalization (and globalization). These indicate that the sector cannot be
looked at in isolation, but as an important component within the national economy
that may be impacted by international developments as well.
In terms of support and environmental objectives of SSI policy, there is a lack of an
integrated approach and distinct demarcation between the two. Till the late 1980s,
there was little done in the case of SSIs. This was the time when the sector was pr o-
tected – and thereby policy influence could have been significant. However, envi-
ronmental concerns largely were ignored not only for the SSI sector but also the
economy as a whole. The Bhopal gas tragedy opened the minds of the regulators for
environmental reform, but progress has been slow. An important observation is that
community pressure and PILs, as well as the judiciary have been important pla yers in
the enforcement of environmental policy specifications for the sector. In the current
development and policy scenario, the SSI face s several challenges of which two cha l-
lenges emerge as e specially relevant:
a. With the ongoing processes of liberalization and globalization, the SSIs face the
threat of increased competition, both from within (other clusters and large-scale
industries) and outside the country (e.g. China). They no longer enjoy the protec-
 99

tive environment that government policy provided (although they still do get
promotional benefits).
b. With the concern for the environment becoming stronger within the country, the
regulations addressing at least local pollution, and their enforcement, are pro-
jected to become stringent. In addition, the increasing concerns for the global en-
vironment and importance of relevant international policies are likely to have di-
rect or indirect implications for the SSIs.
The SSIs, therefore, will have to improve their processes and adopt cleaner technolo-
gies to become more cost-effective, competitive, and to meet the current and future
emission norms. What is needed is a transition of the SSI sector towards more sus-
tainable deve lopmental paths. Given the large number of these industries, and other
national concerns, government support available for technology upgrading in SSIs
will be limited. Therefore, innovative strategies for diffusion of cleaner technologies
are required if the SSIs are to survive and grow in a sustainable manner.
6. Iron foundry cluster in Howrah

6.1 Introduction
This chapter presents the case study of the SSI iron foundry cluster in Howrah in
West Bengal. 149 It is the largest foundry cluster in India in terms of number of units
and production and export of iron castings. 150 It relies mainly on traditiona l processes
and technologies, and contributes significantly to environmental pollution. The envi-
ronmental policy for the cluster has largely focused on creating and sustaining a
regulatory regime for the units by setting environmental standards for local air pol-
lutants. A major impetus to the enforcement of the standards was provided by judi-
cial intervention that led to installation of pollution control devices (PCDs) across
almost all the units in the clu ster.
This chapter examines the implications of national policies, and attempts to identify
the main factors affecting the diffusion of cleaner technologies in the cluster based
on field observations, primary survey and stakeholder interviews. The chapter is or-
ganized as follows: Section 6.2 discusses the SSI–environment interactions; Section
6.3 describes the relevant national policies and their implications, and Section 6.4
examines the main contextual factors that influence the diffusion of cleaner tec h-
nologies across the cluster. The main conclusions are discussed in Section 6.6.

6.2 SSI–environment interaction

The Howrah foundry cluster is the oldest in India.151 It enjoys an advantageous posi-
tion with a large marketing network (port, rail junction), proximity to Kolkata (major

149
The district of Howrah or Haora is the oldest (500 years) industrial township in West Bengal.
It is also called the Twin City of Kolkata, due to its proximity with the state capital.
150
Castings are metal objects obtained by allowing molten metal to solidify in a mould or cast
that have a wide variety of uses (see Photo 6.1). The industry includes ferrous and non-
ferrous foundries. The former is sub-divided into grey iron and others (ductile, malleable,
etc). More than 75% of the castings produced in India are grey iron and are the focus of the
chapter. The Howrah cluster has an installed capacity of 0.8 million (of the 4 million in In-
dia), and produces 0.6 million tons and exports 0.2 million tons of iron castings annually.
151
The cluster originated in 1860, when the first foundry was set up on a commercial basis in In -
dia, and developed fast to meet the demands of West Bengal and the rest of the country. It
grew rapidly, especially in 1940–1950, mainly due to industrial concentration (jute, sugar,
textile and engineering) in the region. In the 1950s, its share in production was 60%. After
this, however, the market for Howrah castings began to decline, and its share fell to the cur-
rent 20%. Other clusters had come up, and industrial stagnation and active trade unionism
started taking root in West Bengal. Other reasons that also contributed are power shortages,
poor infrastructure and obsolete technology (Mitra 2001; TERI 1999).
102

trading centre) and access to raw material (coke and pig iron). Several other clusters
have also developed, including those located in Punjab (Batala and Ludhiana), Tamil
Nadu (Coimbatore), Gujarat (Ahmedabad) and Maharashtra (Pune and Kolhapur).
The Howrah cluster, however, retains its position as the largest iron foundry cluster
accounting for 20% of the total castings produced in the country. It mainly produces
low-grade gray iron castings of medium tension strength including manhole covers,
pipes, fittings, industrial castings and a gricultural machinery (Photo 6.1). The main
products are sanitary and industrial castings. The cluster caters to private industry in-
cluding automation and engineering, local markets, and government departments
such as railways, post and telegraph, and municipal corporations. It also caters to the
export markets in developed and developing countries. It provides employment to
about 100,000 workers, directly and indirectly.

6.2.1 Industrial activity

The industrial activity of producing iron castings is highly energy intensive. It in-
volves five major steps: pattern making; mould preparation; furnace charge prepara-
tion, melting and pouring (into the moulds manually or by machines); cooling,
quenching and sand handling; and fe ttling, finishing and cleaning. 152

[Link] SSI foundry units

At present, there are 380 registered units in the cluster; however, all are not opera-
tional (DIC 2001). In addition, there exist several unregistered units. According to
estimates, there are a total of about 400 operational units in the cluster, including
232 operational registered units,153 the rest being unregistered. Most units are old
(averaging 25 years in the sample) and family-owned and inherited businesses. The
units differ in their size ranging from large to very small foundries. There is no uni-
form classification for the units, and they can be classified in many ways based on
production, installed capacity, number of workers or market orientation. In this the-
sis, they have been classified according to size in terms of their monthly production
(Table 6.1), and clubbed into three main categories namely big, medium and
small. 154
The big units account for more than half of the total castings produced in the cluster.
These generally are the large and “progressive” (in terms of market share and mar-
keting capacities) export-oriented units. The small units, on the other hand, are sig-
nificant in number but account for only 15% of the production. They operate for only
a few days of the week (2–4 days), have limited capacities, and basically cater to the
local market. Among the medium units, 50% cater only to the domestic market,
while the rest also cater to export markets directly or on sub-contract basis.

152
The melting process is the most energy-intensive stage, and is focused upon in the chapter.
153
Interview no. 2. IFA 2001.
154
This classification is close to the three tiers in (Nadvi and Schmitz 1994).
 103

Table 6.1: Classification of the foundry units as per their size (production)
Category Production Number of units in Number of units
(ton/month) the cluster* Surveyed
Category 1: Big > 1500 5 2
(>500 ton/month) 500– 1500 10 5
Category 2: Medium 300– 500 20 4
(100–500 ton/month) 100– 300 200 16
Category 3: Small <100 165 36**
(<100 ton/month)
* Source: Interview no. 2. IFA 2001. ** Includes 18 very small units with production less than 50 ton/month

6.2.2 Energy consumption and environmental impact

The production process, particularly the melting stage, is highly energy intensive.
Most units use coal or coke as the main fuel, while some also use other fossil fuels
including oil, LPG and electricity. 155 On an average, foundries within the cluster
have low productivity and high rejection rates (Ray 2000). Thereby, the cluster con-
tributes significantly to local pollutants such as sulphur dioxide (SO2), carbon mon-
oxide (CO) and suspended particulate matter (SPM), and to global carbon dioxide
(CO 2) emissions. A typical foundry contributes between 400–2500 mg/Nm3 to SPM
and between 750–1500 mg/Nm3 to SO2 emissions (Rao et al. 2001). The SPM levels
differ based on the kind of PCD that may be installed (e.g. wet scrubber, cyclone,
multi-cyclone, bag filters). However, most PCDs do not check the CO2 emissions
much. On an average, the potential annual CO2 emissions are around 1300 kg/unit
(calc ulated using survey data for coke consumption, standard calorific values of coke
in India and the default emission factors prescribed by the IPCC).
The working conditions in the cluster are not good (Mitra 2001). In addition to the
local emissions, waste generation, coal stocking and material handling156 all make
the working conditions a cause for concern. The units on an average employ around
75 workers, mostly male contract workers (a reason for entrepreneurs preferring con-
tract workers is the strict labour laws and strong labour unions in the state). 157 The
workers spend most of their time during the working hours in the enclosed area
within the units working in very high temperatures, without proper protection, many
working bare-feet (see Photo 6.2). In many units, the enclosed areas are dark, cov-

155
The coke used is norma lly of low quality (with high ash content). Most of the units use bee-
hive (B.H.) coke from Dhanbad coal fields with ash content of 28–32%.
156
Material handling facilities are bad in most units. There is hardly any automatic handling and
even pouring of hot molten metal is mostly done manually.
157
Women work in very few units, but not at furnace operations. While some owners prefer to
hire them for minor jobs as they are “subdued” and are paid less, not many women want to
work in the industry due to the “dirty” working environment.
104

ered with soot and congested (in many units the sheds have become low due to con-
tinuous pouring of sand which is not removed regularly).

Photo 6.1: Stacked grey iron foundry products

Photo 6.2: A worker pouring hot molten metal in the mould

 105

[Link] Technology used

The main technology for melting of meta l used in the units is the coke/coal cupola
furnace. It is economicaland easy to operate, and is the dominant technology across
India and the world as well. Penetration of other technologies like oil-based rotary
and electricity-based induction furnaces is very limited. 158
There are two types of cupola used in Howrah. These are single blast cupola (SBC),
which is the most basic and traditional technology, and the divided blast cupola
(DBC), which is a modified form of SBC to enable better combustion of fuel. The
performance and energy efficiency of the cupolas depends a lot on their design,
maintenance and on the type and quality of fuel used. While the coke to metal ratio
for SBC is between 1:2 to 1:4 (sometimes even 1:5), for the DBC it is between 1:4
and 1:8/1:9 (energy-efficient DBC can even go as high as 1:12). Most cupolas used
are old versions of the conventional design. 159 Although there have been some modi-
fications, such as installing sand moulding and charging machines, the basic technol-
ogy has remained the same and efficiency is low. Only a few units have modern and
efficient furnaces in place.

[Link] Potential for technological change

There is significant potential for cleaner technologies across the cluster. Firstly,
proper housekeeping measures, such as m aintenance and cleaning of cupola and
measurement of inputs, can reduce energy wastage by 10–15% 160. Secondly, cupolas
with improved and efficient designs can also save fuel by 20–65% compared to con-
ventional technology (Chand and Krishnan 2000; Grubb et al. 1999) (SBI 2000). For
instance, a demonstration for energy-efficient cupola, set up under the Swiss Agency
for Development and Cooperation (SDC) initiative, can achieve energy savings of
33–65% compared to a conventional cupola (TERI 2001). Thirdly, other furnace
technologies, including rotary and induction and those being developed such as the
cokeless cupola, also offer significant potential (Table 6.2). While these have signifi-
cant benefits (increasing competitiveness, product diversity), they are also associated
with technology specific (costs, appropriateness for less capacity) and infrastructural
constraints (poor power supply and non-availability of natural gas).

6.3 National policies

The national and state policies provide a conducive environment for growth of foun-
dries. For instance, they offer fiscal incentives and credit schemes like the credit

158
Technology-wise break-up based on the sample surveyed is: Divided Blast Furnace (54%),
Single Blast Furnace (42%), Rotary Furnace (3%) and Induction Furnace (1%).
159
Based on various interviews and field observations.
160
Interview no. 17. EEPC 2001.
106

linked capital subsidy scheme for technology upgradation161. In light of the export
potential of foundry industry, the central government had granted it a “thrust indu s-
try” status in 1991. The state government has also introduced an incentive package
for SSIs largely comprising of fiscal benefits in 2001.

6.3.1 Organizational structure

The organizational structure for policy making and implementation for the cluster is
presented in F igure 6.1. The state government designs state promotional and envi-
ronmental policies through the Directorate of Industries (DoI) and Directorate of
Small Scale Industries (DoSSI), and the Department of Environment (DoE) respe c-
tively. These are implemented through various state agencies including the West
Bengal Industrial Development Corporation Limited (WBIDC), West Bengal Small
Industries Development Corporation (WBSIDC) and West Bengal Financial Corpo-
ration (WBFC), and the West Bengal Pollution Control Board (WBPCB) for envi-
ronmental policy. The District Industries Centre (DIC), Howrah, is the field office
under the jurisdiction of the DoI for SSI development at the district level.
National State

Policy Ministry of Small Scale Industries (MoSSI) Directorate of Small Scale Industries (DoSSI)
Directorate of Industries (DOI)
District Industries Centre (DIC)

Small Industries Development Organisation (SIDO) West Bengal Industrial Development Corporation
(WBIDC)
West Bengal Small Industries Development Corporation
(WBSIDC)

Environmental Ministry of Environment and Forest (MoEF) Department of Environment (DoE)

policy Central Pollution Control Board (CPCB) West Bengal Pollution Control Board (WBPCB)

Financing Small Industries Development Bank of India (SIDBI) West Bengal Financial Corporation (WBFC)
Commercial banks (like SBI) West Bengal Small Industries Development Corporation
(WBSIDC)
Commercial banks (like SBI)

Associations Indian Foundary Association (IFA) Bengal Chamber of Commerce and Industry (BCCI)
Associations for SSIs Howrah Foundary Association (HFA)

Technical Institute of Indian Foundrymen (IIF) Institute of Indian Foundrymen (IIF)- Howrah chapter
institutes National Metallurgical Laboratory (NML)
Others

Figure 6.1: Organizational structure for policy making and implementation

161
This scheme facilitates technology upgradation by providing 12% back-ended capital subsidy
for induction of proven technologies in select SSIs, including foundries.
 107

Table 6.2: Furnace technologies: Some comparisons

Item Conventional cupola Efficient divide d- Rotary furnace Induction furnace Coke-less cupola
blast cupola
Single Double Example Example – Oil based LDO based LPG based Gas based
blast blast –1 2
Fuel used Coke Coke Coke Oil/gas Electricity LDO LPG Natural gas

Fuel consumed 200–250 kg 100–250 kg 80–100 180 kg 125–150 litres 600–750 kWh 60 litres 50 kg 90–105 Nm 3
(per tonne) kg
SPM (mg/Nm 3)* 400–2500 53 212 Low Low <35 <10 <10
3
SO2 (mg/Nm )* 750–1500 37 43 Low Low <110 <10 <40
Potential CO 2 440–880 176–440 140–176 316 398–477 740–925 254–260
emissions
(kg/tonne)
Indicative cost of a Rs 40000–65000 Rs 1–1.1 million Rs 1–1.2 million Rs 6–7 million (350 ton per month)
typical furnace (5 ton capacity) (100 ton per month (1 ton capacity)
capac ity)
Benefits • Economical • Higher energy effi- • Possible product • Better quality • Clean and energy efficient
• Easy to operate ciency diversification • Better working condi-
• Better product quality • Appropriate for tions
smaller capacity
Technology- • Low temperature limit • High costs (initial + • Initial costs high • Operating, initial costs • Higher costs
specific barriers • Can only make gray consultancy) • Technical difficul- high • Infrastructural constraints (fuel availabil-
iron castings ties • Infrastructural con- ity)
• Poor working conditions straint (power) • Technology still in demonstration phase
• Lifecycle analysis
may imply higher net
CO2 emissions
*Vary depending on the PCD installed; ** based on IPCC methodology and CO 2 emission factors for coke/coal 1.76kg/kg and 1. 3kg/kWh for electricity consumption (thermal power) in
India (ALGAS 1997); ***prices differ depending on capacity, size, etc.
Sources: Compiled from various sources including CII, TERI, Roy, NML.
108

There has been a communist government in West Bengal since 1977. Although the
overall industrial development in the state has stagnated over the past years, SSI de-
velopment has been given special focus considering their potential for generating
employment162. At present, foundries are not included in the list of the major thrust
areas of the state government. DIC, however, has been and is planning to organize
awareness and capacity-building programmes and initiatives aimed at quality manage-
ment for SSI including the foundries (DIC 2001). The present state government is giving
trust on reviving the industrial sector.

[Link] Other organizations

The other organizations active within the cluster include industry associations that
provide support and offer a common platform to raise specific industry-related is-
sues. The main associations are the Indian Foundry Association (IFA) at the national
level and the Howrah Foundry Association (HFA) at the district level. Most regis-
tered units are members of at least one of the associations. The IFA is more organ-
ized and has a larger representation than the HFA.
Besides these associations, the Engineering Export Promotion Council (EEPC),
through its East India regional office is also engaged in promotional support activ i-
ties for export of castings. The National Metallurgical Laboratory (NML) is one of
the technical institutes undertaking research for the industries including the foun-
dries. The Institute of Indian Foundrymen (IIF) at Kolkata also maintains a databank
of information related to foundries.

6.3.2 Environmental policy

The environmental policy is especially relevant for the cluster. This is because,
firstly, Howrah is amongst CPCB’s list of “most critically polluted ” cities in the
country. 163 Secondly, foundries fall in the “red category” or heavy polluting indus-
tries in the state. 164 The focus of the policy has been on regulatory instruments –
mainly, emission standards for curbing local pollution and installing end-of-pipe

162
West Bengal has 1,67,130 registered SSIs, employing 6,14,640 people. They directly a ccount
for almost 22% of the state revenue. The main issues related to the SSIs are the labour laws,
rehabilitation of sick units, infrastructure building, need for modernization and working cap i-
tal funds (SIDBI 2000).
163
Howrah figures as the critical problematic area in terms of the SO2 , NO2 , and SPM levels
(CPCB 2000). It has developed with industries, residential areas and markets coexis ting.
164
The industries are classified as red, orange or green, as per their pollution potential. Based on
this and the sitting p olicy for entry -level restriction, the WBPCB issues consents for all units.
New ‘red’ units cannot be set up in Kolkata Metropolitan Area (KMA), which includes
Howrah industrial belt, and can be set up beyond KMA only with adequate PCDs and site
clearance by local bodies.
 109

technologies or PCDs.165 The timeline indicating the major policy decisions relevant
for the cluster is given in Figure 6.2.

Emission standard for

SPM level modified:
150 mg/Nm3 for
all cupola capacities

Emission standard for SO2:

300 mg/Nm3
Supreme Court intervention:
Green Bench set up in Kolkata HighCourt
(Several foundries - installed PCDs)

First emission standard for SPM level:

450 mg/Nm 3 (cupola capacity<3 tph)
150 mg/ Nm3 (cupola capacity≥3 tph )

Environment (Protection) Act

Air (Prevention &

Pollution Control) Act

1981 1986 1990 1995-96 2001

Figure 6.2: Timeline and events related to environmental policy for the cluster

Emission standards: The CPCB emission standard for the foundries was introduced
in 1990 (based on the EPA Notification, GSR 742 (E), 30th August 1990). The stan-
dard was set for SPM levels for units using the cupola, induction and electric arc fur-
naces. The SPM limit for the units with cupola furnaces in particular was differenti-
ated based on the furnace capacity (450 mg/Nm3 for foundries with cupola capacity
less than 3 tons per hour, and 150 mg/Nm3 for foundries with cupola capacity above
3 tons per hour). The standard was modified in 1996 to include a limit on the SO2
level as well (the limit on SO 2 emissions was set at 300 mg/Nm3 for all cupola fur-
naces) (MoEF Notification dated 2nd April 1996).
In 2001, the WBPCB made the emission standard more stringent for the cluster by
prescribing the CPCB’s lower SPM standard for all foundries in the Kolkata Metro-
politan Area (KMA) – including the Howrah industrial belt, irrespective of their ca-
pacities (WBPCB Memo Number 907-4Z-1/2001 dated 11th May 2001). Thereby, for
all cupola-based foundries, the SPM level was set at 150 mg/Nm3.

165
The standards are set by CPCB and enforced by [Link] cannot relax or lower them
but can make them more stringent depending on the circumstances (chapter 5).
110

Others: The judiciary, in particular the Supreme Court, played an important role in
enforcement of emission standards by issuing orders for time-bound installation of
PCDs in foundries to meet the prescribed norms. 166 A Green Bench at the Kolkata
High Court was also set up in 1996, on the direction of the Supreme Court, to spe-
cifically look into environmental cases.
In order to help the units meet the emission standards, under the modernization pr o-
gramme the state government introduced a subsidy for setting up PCDs in 1995 (re-
imbursement of 50% of PCD costs maximum up to a limit of Rs 0.5 million). Ini-
tially introduced for five years, the subsidy was later extended. In addition to this, the
UPTECH programme for technology upgradation was launched for the cluster in
1998, with the State Bank of India (SBI) as the main agency involved.

6.4 Policy implications

6.4.1 Main incentives and their effects

The regulatory instruments, primarily the emission standards ba cked by penal action,
have provided the main incentives under the environmental policy (Table 6. 3).

[Link] Regulatory instruments

Before 1990. Prior to 1990, environmental protection was not much of an issue for
the cluster nor was any major policy provision in place. With little policy incentive,
there was hardly any change in technology during this period. For instance, though
the DBC was introduced in 1973, there were few takers for the technology. Motiva-
tion for change really came about in 1990 with introduction of the emission sta ndard.
1990–1995. This was the period of very limited compliance. A committee set up at
the suggestion of the NML in 1990 formulated the first emission standard. It fol-
lowed the notification and standards of the Environmental Protection Agency (EPA)
in the USA. In this committee constituted for reviewing the proposed standard, there
was some representation from large-scale industries but none from the SSI sector. 167

166
The Supreme Court became involved in environmental issues related to foundries, follo wing a
public interest litigation by Mr M C Mehta, an environmental lawyer. A major impact of the
Court’s intervention was felt in Agra in Uttar Pradesh, where more than 200 foundries that
used coal/coke were ordered to close down (also see Chapter 7).
167
TERI 1999, Interview no. 25, DIC 2001; and interview no. 19, WBPCB 2001.
 111

Table 6.3: Incentives under the environmental policy

Instrument Type Incentive Effect
Strength Weaknesses
Main instrument
Regulatory Emission standard • Threat of penal action • Focus on end-o f-pipe measures Successfu l:
• Judicial intervention: leading • Lack of dynamic incentive • Installation of PCDs in almost all units
to increased enforcement
measures Failure
• Little focus on efficiency
• Many PCDs not efficient or operational at all
times
Other instruments
Economic Subsidy • Opportunity for support (fi- • Lengthy procedures and formali- Successful:
(for PCD nancial, techn ical) ties • Assisted some units in compliance with emis-
installation) sion standards
• Change in about 35 units as a collaborative ef-
fort (SIDBI, NML & HFA). The initiative not
sustained/replicated for further change
Failure:
• No incentive for further change
Economic + UPTECH scheme • Opportunity for financial & • Lengthy procedures and formali- Successful:
suasive technical support ties • Benefit to few units
Failure:
• Only few units have been mobilized
Suasive Capacity build ing • Opportunities for technical • Not necessarily needs-based • Training sessions not well attended
support, training training • Limited benefit of the measures
112

Introduction of the emission standard did provide an incentive for the cluster for
adopting cleaner technologies; however, this incentive was weak. The main reasons
included ineffective enforcement or no ‘real’ threat of penal action, and lack of in-
formation on how to meet the standards (there was insufficient knowledge even
within the PCBs and the technical institutes), and the standard itself. The situation
changed only with Supreme Court intervention in the 1995–96.
After 1995 . The period 1995–1996 was particularly marked by enforcement of the
emission standard triggered by the intervention of the Supreme Court, and conse-
quent and rapid technical change in order to comply with the specifications. After the
Court’s orders, the inspections of the WBPCB increased significantly, and compli-
ance became necessary for the units. In light of the increased regulatory incentive
owing to enhanced enforcement, there was a rush by entrepreneurs to install PCDs,
and make the necessary adjus tments in their cupolas to meet the emission norms.
In 1996, the WBPCB also started laying stress on DBC technology in order to meet
the emission standard. A number of units converted to DBC, with the main motive
being compliance and not energy efficiency or cost benefits. Some units also closed
down unable to meet the pollution control norms and specific ations.
Effect: Environmental policy has brought in two main changes within the cluster: (i)
installation of PCDs in almost all the units; and (ii) conversion in some units from
SBC to DBC (Figure 6.4). Diffusion of other furnace technologies like rotary and in-
duction has remained negligible.
Two points are relevant here. Firstly, these changes should, in effect, have brought
about improvement in the air quality and the environmental condition in the district.
However, although the technological goal was attained with all units installing PCDs,
the environmental objectives were not necessarily achieved. Installing the PCDs did
not always imply that they were being run efficiently. Many PCDs are ineffective,
inefficient or are not operated throughout the production cycle. For instance, some
PCDs are run only for a few days, hours, or when there is a possibility of the
WBPCB inspectors visiting the site 168. Secondly, a majority of the changes were un-
dertaken to suit the needs of individual units basically to satisfy the regulators, wit h-
out proper technical considerations. Thereby, the full benefits of the technology
could not be realized. There were some accidents that were also reported in the initial
stages due to insufficient knowledge about the PCDs and the cupola conve rsions.
Energy efficiency across the cluster still remains low with a large potential for im-
provement in most of the units. The policy focus has been on cleaning rather than on
cleaner technologies, and energy efficiency did not get the focus it deserved. The
coke to metal ratios of SBC and DBC for the sample in the survey (Table 6.3) is
high, leaving room for improvement in almost all units (though energy efficiency is
slightly higher for medium industries). Though the big and medium units in general
are the more progressive units in terms of capacities, marketing and administrative

168
Interview no. 19. WBPCB 2001.
 113

set-ups, the technologies have not changed and efficiency remains almost the same.
The slight variation between units may also be because the furnaces are ope rating for
more days, and because of use of better qualit y (but expensive) fuel.
Dispersion

Double
blast cupola

Single blast
cupola

Other furnace
technologies

1970s 1995-96
Time
Figure 6.3: Dispersion of the furnace technologies in the cluster

Beyond 2004 . The emission standard for the cluster has been made more stringent in
2001. 169 Again, there is little information on how to meet the standards cost-
effectively. While it encourages further change within the cluster, it also raises un-
certainty among the entrepreneurs about the future. Without clarity about the existing
standards and how they will change in the future makes it difficult for the entrepr e-
neurs to plan any long-term technological improvements especially for cleaner tech-
nologies. For example, in order to comply with the SPM norm, some entrepreneurs
set up a dry cleaning system which is not capable of handling SO 2 , and therefore
very soon had to change it when the standard was modified in 1996 (TERI 1999).
Interestingly, it is the small entrepreneurs with cupola capacity less than 3 tph, who
will have to bear the brunt of this modification. The options available to them are to
close down (as has been the case for small units in this cluster, as well as other clus-
ters in India and other countries), evade, install cleaning technologies (as has hap-
pened till now) or adopt clean technologies. It appears that a number of units will

169
The survey was carried out before July 2001, and it was not possible to analyse the impact of
the revised standard. However, as per the interviews and assessment undertaken during the
study period after July 2001, the general impression is that compliance to the revised standard
has been limited.
114

have to close down. 170 This, however, could lead to social impact, and in turn have
political ramifications in the socialist structured state. Some of the small units may
also merge or associate with the large ones, or shift over to more viable businesses.

Table 6.4: Average coke to metal ratio in the cupola

Category Coke to metal ratio
According to furnace type
Single blast cupola 0.36
Double blast cupola 0.23
According to classification of units
Small 0.30
Medium 0.24
Big 0.26
Source: Based on survey data

Alternatively, the units could be relocated. But this would have financial implica-
tions, and raise issues of land allocation and associated opportunity costs. In addition,
it was debatable as to how many units will be willing to go; most were likely to try
and stay where they were till the last minute possible. There was talk in the late
1990s of setting up a “Foundry Nagar (city)” outside the KMC, and relocate Howrah
units there. This idea, however did not really take off. The owners could also dive r-
sify to other products or occupations, but given the fact that they are traditional fa m-
ily operations this may be difficult for them as well.
However, with prospects of increasing industrialization in West Bengal, there is a
possib ility of the demand situation improving owing to vertical integration. In addi-
tion, w ith the progress of the Haldia downstream project (for oil and natural gas
availability) in progress and thrust being given of renewable energy in the state,
chances of availability of cleaner fuels and thereby diffusion of cleaner technologies
may also improve.

[Link] Other instruments

The provision of a subsidy for installation of PCDs achieved some success, partic u-
larly under the joint initiative of SIDBI and HFA in collaboration with WBFC and
NML for support for technology modernization and upgradation in 1995–98. 171 The
initiative provided financial and technical support to about 35 units for adopting

170
It is even suggested by some entrepreneurs that this may just be a way of pushing these unit s
out of the district! However, it was beyond the scope of this thesis to analyse this aspect. In any
case, if the inefficient units do close, then the entrepreneurs and workers will have to shift over
to other productive activities, and their market share will be taken over by the rest of the clus-
ter. The general perception across various stakeholders was that a lot of small units will close
down over the next few years.
171
SIDBI and WBSFC provided financial support, NML the technical support, and HFA mot i-
vated and represented the entrepreneurs.
 115

cleaner technologies that led to PCD installation in all units and switch over the DBC
furnaces for some units and resulted in a fuel saving of Rs 20,000 per month per unit
according to SIDBI estimates172. This was due to the mix of the policy instruments
and not just by putting the subsidy in place. The threat of penal action combine d with
an opportunity for financial and technical support and the involvement and motivation
provided by a known local association (HFA) was the complete package that could
bring about this change. However, this initiative could not provide enough incentive
for further change and was also not replicated. Though, the opportunity under the
subsidy still existed, with absence of the collaborative effort and a further regulatory
incentive, the subsidy could no longer provide a strong incentive.
The UPTECH programme launched in 1998 for upgradation of technologies, on the
other hand, has made only limited progress related to the activities in the foundry
cluster. The programme objectives include capacity building as well as market study
and drawing plans for lifting the technology level of the units agreeing to adopt mod-
ernization. The survey conducted showed that seven units had either consented or
were planning to upgrade, and a few others had expressed their interest. This in-
cluded a unit planning to install a “cokeless cupola” (based on oil or gas) under this
scheme (SBI 2001) with energy consumption almost 40% less and CO2 emissions
just one-third of a conventional coke -fired cupola (NML 2001). But this initiative
had been able to mobilize only a few units because of its timing. It was introduced
only in 1998, by which time most units had already installed PCDs and were in prin-
ciple in compliance with the emission standard. Thus, due to lack of a strong regula -
tory incentive, the initiative could not generate much interest. The big and medium
units are more interested in this initiative compared to the small units.

6.5 Contextual factors for diffusion of cleaner technologies

This section discusses the main contextual factors that affect diffusion of cleaner
technologies across the cluster. The scenario is complex with multiple factors in play
(Table 6.5). An interesting aspect is the diversity across the cluster, and differences
between the perceptions of the entrepreneurs and other stakeholders (Table 6.6).
Overall, the entrepreneurs view economic factors such as market constraints, low
profit margins and availability of finance, as the main barriers for adopting cleaner
technologies, followed by limited technical knowledge. What they seem to need
most, therefore, is finance as well as the supportive attitude of the policy makers to
improve their technical status. The other stakeholders perceive the main barrier to be
the complacent attitude of the entrepreneurs. Many feel that unless a drastic need is
felt, the entrepreneurs will not bring in any change (“till this works it is fine, when
the problem will come they will see”).

172
Interview no. 15. SIDBI 2001.
 Table 6.5. Contextual factors
Factor Driver Barrier Effect
Environmental • High pollution levels in Howrah • Low consciousness • Increased awareness
Organizational • • Limited awareness and traditional practices • Limited marketing and management skills
Old, family-owned units with flexibility in in many units
working (some big units as well)
• Limited managerial and marketing skills
• Workers : Contract workers (as carri- • Reliance on workers – and contract workers • Limited capacity building of workers
ers of knowledge)
Economic • • Economic capability low • Economic capability low for many, esp.
• Limited financial support small units
• Increased market competition • Market uncertainty and conditions (demand • Financial support limited
• Niche market for selected products situation, competition) • Competition is a major factor
Technological • Limited technical capability ( access, know- • Technological capability limited for small
how) units
• Technical support may be available • Technical support is limited (little help from • Technical support limited
(technical institutes, consultants, as- associations – lack of appropriate technolo-
sociations) gies; consultants are expensive)
• Infrastructural constraints: coke quality and
price, unreliable power supply
Social • Attitudes: Motivation, attitudes, mindsets • Attitudinal constraints
• Networking: Limited interaction (weak asso- • Limited networking
ciations, competition)
• Involvement of younger generation • Social status of units: Disinterest of younger
(brings in awareness, IT, etc.) generation
6.5.1 Environmental factors
Given the high local pollution in Howrah and poor working conditions in the foundry
units, diffusion of cleaner technologies across the cluster is desirable. However, bas i-
cally it is the cost–benefit business considerations that mostly dominate the technol-
ogy-related decisions of entrepreneurs (Figures 6.5 and 6.6). Environmental consid-
erations largely hold relevance due to government policies.

Table 6.6. Barriers for cleaner technology diffusion – stakeholders’ perspectives

Stakeholder Main constraint/barrier
Entrepreneurs
Ø Big units • Competition from abroad, market (demand) constraints
Ø Medium units • Low profit margins, market (demand) constraints
Ø Small units • Low profit margins, lack of finance, market (demand) constraints
Policy makers • Lack of motivation and initiative of entrepreneurs to avail incen -
tives
• Fixed mindsets, attitude of entrepreneurs (inertia, complacency)
• Limited awareness and capabilities of entrepreneurs
Policy implementing or- • Limited awareness and capabilities of entrepreneurs
ganizations • Lack of an integrated policy approach (“they are currently looking
at the system and process in isolation and not in its totality”)
Associations • Lack of motivation of entrepreneurs
• Limited financial and marketing capabilities of entrepreneurs
Financial institutions • Lack of motivation and initiative of entrepreneurs to avail oppo r-
tunities
Technology consultants • Little technical knowledge among the entrepreneurs
• Fixed mindsets of entrepreneurs and workers (resistance to
change)
Technology suppliers • Lack of awareness among entrepreneurs regarding technologies
• Difficulties in approaching the smaller entrepreneurs

There is little awareness among the entrepreneurs about climate change, the pote ntial
CO2 emissions from their units and the CCIs. On learning about the potential oppor-
tunities under CCIs, however, most entrepreneurs expressed interest in availing them
provided they get a premium on the emissions reductions. The small units were more
or less resigned to the fact that only when the market becomes better will they be
able to look at other options, and felt that the instruments could be helpful if they
will improve the economics of their production and sale (Table 6.7).

6.5.2 Economic factors

Economic capability. The economic capability of entrepreneurs, particularly the
small and medium ones, is limited. It is difficult for them to bear the upfront cost of
cleaner technologies, even if the payback periods are not very long. For instance,
while the payback period for the demonstration energy-efficient DBC developed un-
der the SDC initiative is only 2–5 years considering the energy savings (TERI 2001),
118

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Figure 6.5: Factors influencing decisions regarding technology adoption in the units
Grades – 1:not important, 2:slightly important, 3:important, 4:very important, 5:most important

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Figure 6.6: Factors affecting adoption of technologies at the unit level

Grades – 1: not important, 2: slightly important, 3: important, 4: very important, and 5: most important

many entrepreneurs cannot afford the upfront technology costs. They also do not
have enough motivation to change as the currently used technology is simple, eco-
 119

nomical and passed on for generations, and thereby is a “lock-in” tec hnology for the
cluster. The only change was because of the policy pressures, but that too in terms of
local pollution control and not energy efficiency
Access to financial support. Though financial support for technological improve-
ment is available, it is limited and does not reach the majority of the unit owners. Ei-
ther they do not know about it or find the procedures too complicated to follow.
Some financial institutions have special programmes; but again, the requirement to
get services from these institutions is complicated and inflexible. The que stion is: do
these financial institutions meet the needs of the entrepreneurs? Most rely on private
sources or local banks to meet their financial needs. Some entrepreneurs, the big
units, also avoid these facilities so as to evade income tax or other formalities.

Table 6.7: Entrepreneurs Response – role of policy initiatives in adopting cleaner

technologies
Scenario Positive responses by unit category (%)
All units Small Medium Big
Access to capital 63 67 60 57
Access to technology 48 53 40 43
Initiative by associations 37 39 30 43
Increase in price 86 92 85 57
Government regulation 52 47 65 43
Tax on energy related emission 52 44 70 43
Subsidy for technology installation 79 83 75 71
Payment for emissions reduction 63 56 75 71

Market. Market uncertainties and demand shifts constrain the economic capabili-
ties of the entrepreneurs. Demand is shifting towards synthetic and high-grade items
(pipes, railway sleepers), but very few units in the cluster produce these castings.
Competition from other clusters in India, which generally are more modern (Roy
2001), and other countries like China, Korea and Taiwan, is increa sing as well.
At the same time, the cluster still enjoys a niche market for sanitary and low-grade
industrial items in local and export markets. 173 Opportunities are arising with units in
some countries closing down (e.g. mainly due to inability to comply with environ-
mental controls in USA) (TIFAC 2001). To keep up with the changing markets and
increasing competition, the units have to be more quality conscious, diversify their
products and imbibe efficient and cleaner technologies. 174 Thus, the market situation
also acts as a driver for units to adopt cleaner technologies to be competitive.
There is divergence in the perceptions of entrepreneurs regarding finances and com-
petition from abroad. While availability of finance is a much greater concern for the

173
Interview no. 17. EEPC 2001
174
Interview no. 2. IFA 2001.
120

small units, the big units are more concerned with competition from abroad. How-
ever, some small units even consider foreign competition a potential threat in the fu-
ture years as they feel that the export-oriented units facing external competition will
try to take over a share of the domestic market 175 . Thus, while support is needed by
all units, finance is required relatively more by the small units.

6.5.3 Technological factors

According to the survey results, most entrepreneurs appear to be satisfied with their
present technologies. About 65% wanted to make some improvements, but few knew
what they wanted to do. Why are the entrepreneurs not able and what constrains
them from adopting cleaner technologies? At the outset, most entrepreneurs say it is
their size of operations, and the lack of affordable and accessible technology. The al-
ternative options have technology-specific constraints (Table 6.6). The coke/coal
used is also of low quality. There are some units that do use superior quality coke;
however, that is much more expensive and not affordable for all.
Access to technical support. There is, though limited, technical support available
for the cluster (from NML, IIFA). In addition, demonstration projects have been set
up (for example, efficient cupolas), but these have not succeeded in bringing a
change in the cluster (Dasgupta 1999). While the big units are able to employ quali-
fied consultants, the small ones are financially constrained to do so. Moreover, most
consultants provide a one-time job without follow -up. Entrepreneurs find their in-
structions complicated for the workers to follow, while the consultants point out that
the units do not adhere to the specifications and guidelines.
It is here that technical institutions and associations may play a role. However, the
associations’ functions are largely administrative (like clearances, availability of raw
material) and do not focus on technical support. They do organize seminars in order
to deal with the pollution norms but these are generally not well attended. The ass o-
ciations claim that the entrepreneurs’ lack motivation to attend the seminars, while
the latter question their usefulness. The joint initiative to set up PCDs (see [Link])
achieved results owing to HFA involvement that motivated the entrepreneurs and the
entrepreneurs in turn co-operated because of the threat of government regulators; but
this effort was not repeated. 176

6.5.4 Organizational factors

Many units are old and family-owned bus inesses, which have been handed over to
the entrepreneurs by earlier generation(s). These entrepreneurs have little technical

175
A big export oriented unit owner reported a decline in the percentage exports of total produc -
tion for his unit from 85% in 1996 to only 60% in 2000, with production remaining static.
176
The institutions involved cited difficulties in bringing everyone together, due to lack of moti-
vation of the entrepreneurs.
 121

and scientific knowledge as well as managerial and marketing skills, and depend on
their workers for operating their units, who in turn may be dependent largely on tra-
ditional knowledge. As they generally operate with low profit margins (normally Rs
2–3 per kg of castings), the entrepreneurs face financial limitations that limit invest-
ment in cleaner technologies. Many units, especia lly the smaller ones, work on an
on-demand and contract basis. A large number of them also sell molten metal to con-
tractors, who in turn make and sell finished castings177.
Workers. Strong labour unions in the state and its communist structure will oppose
the closure of the units on account of environmental or any other reasons (as was
clear from the interviews with the workers). However, workers have fixed ideas and
continue to operate in the way they have been used to over the years. Fixed mindsets
of wor kers pose a problem for diffusion of cleaner technologies; and, closure of the
units can cause unrest among workers and labour unions.

6.5.5 Social factors

Attitude. The main barrier towards diffusion of cleaner technologies as perceived by
different stakeholders in most cases has been the lack of motivation of the entrepre-
neurs themselves (Box 6.1). In general, entrepreneurs are perceived as complacent,
averse to taking risks, and having short-term perspectives. However, it is not just the
attitude of the entrepreneur alone that matters, but of the workers and other stake-
holders as well.
Interaction. There is limited interaction and networking between the entrepreneurs
and stakeholders. Many entrepreneurs said that they were hesitant to go out and meet
other entrepreneurs as they lived in a small community and were all competitors.
This was illustrated by the fact that most small unit owners knew about the demon-
stration plant set up but few had actually seen it. Though the associations provide a
forum for interaction, there are only a few active members (a majority of them are
big unit owners and they do not always reflect the needs of the cluster as a whole).
The IFA and HFA also operate independent of each other, including the period in
which they were opposing the introduction of the emission standards or finding solu-
tions for compliance among the units.
As regards the different government departments, there appears to be little coordina-
tion between their policies and approaches. At the district level, the DIC wants to de-
velop SSIs (including foundries) recognising their economic importance. At the state
level, the emphasis is on building a competitive sector, and the foundries not only
have to become more competitive they have to reduce pollution as well: “Inefficient
and uncompetitive industries will have to go”. The WBPCB’s concern, on the other

177
A system known as “Gala maal wala” or molten metal trading, is very popular in the cluster:
A unit owner may set up a cupola and provide molten metal to another entrepreneur who will
then employ workers to produce the cas ting.
122

hand, is ensuring compliance with emission norms and hence would rather see them
close down. 178

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Type of assistance Small Medium Big All

M

Figure 6.7: Assistance needed to facilitate cleaner technology adoption at unit level
Grades – 1: not important, 2: slightly important, 3: important, 4: very important, and 5: most important

Social status. The social status of the cluster has been gradually declining over the
years. In several cases, the educated younger generation (even those with a technical
background) is not interested in continuing in this business and is moving away to
other professions. The older generation therefore does not feel the need to expand or
introduce new technologies: “let it continue as it is”. On the other hand, the involve-
ment of the younger generation in some other units has led to change in the work cul-
ture and there is willingness among them to learn and experiment in order to make
their units “better”. T he workers too, in some cases, cited their preference to move
out of the industry and gave examples of their fellow workers who are moving to
other industries such as jewellery.

6.6 Conclusions
The case study shows that environmental regulations have been a driver for technical
change in the cluster. However, it provides a largely ‘static’ incentive for change. It
may also be concluded that the regulatory instruments do not work unless there is a
proper enforcement mechanism in place, in this case being triggered by the legal

178
None of the state-level industrial departments really wanted to comment on the social devel-
opment aspects of the cluster and what would happen if they were to close down. When
asked what would happen to the people who lose their jobs if the industries closed down,
they said that employment and social considerations were not in the scope of their work!
 123

framework. While end-of-pipe solutions can help arrest local environmental prob-
lems to a certain extent, it is the energy-efficient cleaner technologies that could help
meet the objectives of development of the units as well.
The main reasons for the entrepreneurs not complying or finding it difficult to com-
ply with the regulations are lack of motivation and capabilities (economic and tec h-
nical). In addition, the available financial and technical support has also been limited.
Networking or intervention by the local industry association helps build confidence
in a new initiative. While all the units require external support, it is the small units
that require capacity building, access to financial and technological support much
more. As the environmental policies become more stringent, it is getting more diff i-
cult for the entrepreneurs, in particular the small units, to comply with them. The op-
tions available to them are to close down (as has been the case for small units, and
other units ac ross and outside India), evade or set up cleaning technologies (as has
happened till now), or adopt clean technologies.
In general, there is a gap between the environmental and promotional policies of the
government. The climate change instruments can perhaps help bridge this gap and
improve compliance of the national policies or remove the barriers towards diffusion
of cleaner technologies.
7. Glass cluster in Firozabad

7.1 Introduction
This chapter presents the case study of the SSI glass cluster in Firozabad in Uttar
Pradesh (U.P.). The cluster is particularly relevant from the environmental policy
perspective as it lies within the “Taj Trapezium Zone (TTZ)” – an area demarcated
for protection of the famous Taj Mahal179 from environmental degradation (Chapter
3). A ban on the use of coal in the TTZ has forced fuel switching (coal to natural gas)
in several units within the cluster.
Firozabad, also known as the “glass city” or the “glass capital of India ”, is recog-
nized nationally and internationally for its glass products, especially glass bangles (or
bracelets)180. It accounts for more than 70% of glass products produced in the SSIs in
India. Almost everywhere in the city one can see glass products or bangles, and at
any time during the day there are several carts loaded with glittering bangles of var i-
ous colours on the roads. It is a unique township, with its entire population (of over
0.5 million people) directly or indirectly dependent on the industry. One feels that if
glass was not there, the city would have ceased to exist. In recent times, however, it
has been in the limelight on account of issues related to its production practices like
environmental impacts and child labour.
This chapter begins with describing the SSI–environment interaction in Section 2.
Section 3 examines the development and implications of the environmental policy,
while Section 4 identifies the contextual factors affecting diffusion of cleaner tec h-
nologies for the cluster. These are mainly based on primary survey, interviews and
field observations. Lastly, Section 5 draws the main conclusions.

179
The Taj Mahal in Agra, U.P., is one of the wonders of the world. This marble tomb was build
by the Mughal emperor, Shah Jahan, in the seventeenth century, in the memory of his wife,
Mumtaz Mahal. The Varadharajan Committee Report (1978) reported that a possible cause
of the “yellowing/blackening” of marble in the Taj Mahal is the SO X and SPM emissions
from the SSIs (mainly foundries, brick and glass units) and the power plants, including the
Mathura Refinery, located near the Taj Mahal.
180
Glass bangles have a special significance in Indian culture and society. Indian women, espe-
cially married Hindu women, have worn glass bangles since ancient times. In fact, Firozabad
is also called the ‘suhag nagri’ or city associated with marriage, as it meets the entire de -
mand for bangles of the ‘suhagins’ (married women).
126

7.2 SSI–environment interaction

The first organized glass factory in India was set up in Firozabad more than a 100
years ago (CPCB 1993) 181. Since the beginning, the cluster has specialized in the
manufacture of bangles. Gradua lly, it has diversified and started producing other
glass items as well 182. At present, it produces a variety of products like tableware,
hollow wares, bulbs, headlight covers, beads and decorative items; and is the only
producer of glass bangles. It caters to local, national and export markets 183.

7.2.1 Industrial activity

The industrial activity in the cluster involves a number of interrelated steps including
raw-material mixing, melting, reheating, decorating and finishing (see Annexure 1
for details). For production of glass bangles, in particular, the whole process is un-
dertaken in several vertically interrelated units. 184 While the melting and reheating
are undertaken in the SSI units (factories) or glass units; activities like decorating,
and straightening and joining of bangles, are normally done in household units (cot-
tage industry).

[Link] Glass units and technology used

There are 412 registered glass units in Firozabad (Table 7.1); however, not all of
them are operational185. As a policy implication, there has been no expansion in the
number of registered glass units since the mid-1980s 186. Most of the units are old
(new units are the old units taken over), and family owned businesses 187 involving a
capital cost between Rs 0.5 to 4 million. The average number of workers in a unit is
between 40 and 250188, most working on contracts. The units may be classified in

181
In 1918, there were 14 units in the cluster, which rose to 236 units after significant expansion
in 1939– 45 (CPCB 1993).
182
Production of artistic glassware in different colours was started in 1989 (NIC 2001).
183
Almost 50% of the production (mostly glass items) is now exported(NIC 2001).
184
The steps may differ depending on the product type and may be undertaken in different units.
For bangles in particular it is said that a single bangle passes though 76 different hands b e -
fore fi nally reaching the consumer (Interview no. 9. DIC 2002).
185
Operational units are just around 200 (various interviews). There are unregistered units as
well. Association me mbers mentioned that several coal based units have closed down.
186
Interview no. 9. DIC 2002.
187
More than 90% of the units surveyed were family owned businesses.
188
Data based on survey. However, official figures d iffer from actual numbers (e.g. a tank un it
owner said that officially there were 250 workers in his unit but actually there may be 1000).
The entrepreneurs prefer to employ contract workers so that they can avoid giving emplo y-
ment benefits (such as gratuity). This arrangement also gives the workers more flexibility.
 127

various ways, on the basis of the product (bangles or ot hers), technology (pot or tank
furnace), process (automation, semi-automation or manual) or fuel used (gas or coal).

Table 7.1: Registered glass units in Firozabad

Type of unit Number of units* Number of
Total Operating on Not operating units surveyed
natural gas on natural gas
Tank furnace (with mouth blowing) 28 20 8 17
Tank furnace (automated press) 7 5 2 2
Pot furnace – Open pot 186 53 133 24
Pot furnace – Closed pot 109 13 96 3
Others (like beads, pottery, chemi- 91 91 5
cals, pakai bhatti)
*Source: DIC 2002a

Depending on the product, these units may be either “bangle-making units” (those
producing bangles) or “glass making units” (those pr oducing glass items other than
bangles). 189 Since the past few years, some units make both glass items and bangles,
and thus may be called the “glass- and bangle-making units”. These units involve
one or more furnace operations, and have one main furnace or “bhatti” for melting of
glass. 190 There are two types of melting furnaces used within the cluster:
1. Pot furnace – this may be (a) an Open-pot furnace – which is a traditional fur-
nace and is used for producing different coloured bangles in the bangle-making
units 191; or (b) a Closed-pot furnace – used for making decorative items of dif-
ferent colours in the glass ma king units. 192
2. Tank furnace – is a large -capacity furnace mainly used for making glass items
(like tableware, headlight covers, hollowware) in the glass making units. 193
Some units also use them to produce bangles as well. They may rely on mouth
blowing or automation for shaping of the glass items.

189
They may produce finished or semi-finished products. See photos 7.1-7.6.
190
Other smaller furnaces are also used in the glass units. These include those for reheating or
the ‘ sekai bhatti’ for baking of glass items, and the bangle-making fu rnace or the ‘belan
bhatti’ – for making glass spirals to be later converted to bangles (the spiral or ‘belan ’ used
could be either manual or automatic).
191
Each furnace contains 10– 12 pots and uses direct firing for melting glass.
192
Is also known as Japanese or monkey mouth furnace. It is similar to the open-pot furnace, but
is smaller in capacity and designed such that there is no contact b etween glass and flue gases.
193
The melting capacity of an average tank furnace is around 25–40 tonne per day, while that of
an average pot furnace is 3– 5 tonnes per day (various interviews). Tank furnaces are gener-
ally regenerative and can handle only single-colour jobs at a time.
128

Photo 7.1: Action in a typical glass unit (tank furnace)

Photo 7.2: Action in a bangle unit (pot furnace)

 129

Photo 7.3: A pot furnace for making bangles

Photo 7.4: Another view of the pot furnace

130

Photo 7.5: Glass spiral in a ‘belan bhatti”

Photo 7.6 : Raw bangle spirals being stacked

 131

In addition, there also exist several (around 1000) very small, normally unregistered
units called the “muffle units”. These are involved in the finishing (baking and
strengthening) of the semi-finished bangles that may be produced in ba ngle making
units. In the muffle units, muffle furnaces or “pakai bhatti” is used for baking and
finishing of the semi-finished or decorated glass bangles. The muffle and bangle
making units, therefore, are dependent on each other.

7.2.2 Energy consumption and environmental impacts

The melting of glass in a tank or pot furnace is the most energy-intensive stage of the
production process, for which coal, oil or natural gas (and fuel wood) may be
used. 194 It is associated with emissions of air pollutants like sulphur dioxide (SO2),
suspended particulate matter (SPM) and carbon dioxide (CO2). The muffle furnaces
also consume significant quantities of fuel (mainly coal), adding to the emissions. 195
The working conditions also raise concerns such as those related to unsafe handling
of materials and disposal of slag and waste, exposure to high temperatures and
smoke, health effects of the mouth blowing operations. In the household units, kero-
sene or LPG is used for straightening and joining the raw bangles, usually in small
closed units, which too are associated with adverse health impacts. 196
Prior to 1997, most glass units used coal for their processes, while a few units also
used oil (mainly fuel oil). According to an estimate (TERI 1994), the total coal and
oil (RFO) consumption in the cluster was about 730 tonnes and 25 kilolitres per day
respectively; and the pot, muffle and tank furnaces (open and closed) accounted for
48%, 27% and 25% of the total coal consumption, respectively. This implied that the
CO2 emissions due to fossil fuel use were around 41 kilo tonnes per month197. Since
1997, however, many units (91 units till 2002) have converted to natural gas use (de-
tails in next section). This has led to significant benefits in terms of health and envi-
ronmental impacts (e.g. in a muffle unit it is difficult to even stand during feeding –
as Photo 7.7a shows, but the situation has vastly improved by introduction of natural
gas – as seen in Photo 7.7b). The present gas consumption is over 0.6 million sta n-
dard cubic metres per day (MMSCMD). This includes natural gas use not only in the
furnaces but for other operations as well (like captive power generation). Coal is still
used in many glass units198 and in the muffle units.

194
The melting stage typically consumes 70–80% of the total energy (Chand and Krishnan 2000;
Dasgupta 1999).
195
Muffle units account for 75– 80% of the local pollution (Interview nos 2, 6, 7. Firozabad
2002)
196
For instance, kerosene burners emit carbon monoxide and volatile hydrocarbons.
197
Estimate based on default emission factors for coal (1.76 ton/ton) and fuel oil (3.13 ton/ton).
198
In some units that use gas, coal is still being used ‘unofficially’ to meet the extra fuel demand
for some activities (other than melting).
132

Photo 7.7a: A conventional coal- based muffle unit

Photo 7.7b: A natural gas-based muffle unit

 133

Another issue related to the cluster is child labour. Though the situation has im-
proved significantly over the years, the problem continues to exist particularly in the
household units (Agarwal 2004). The children working in the units suffer on account
of education, health and overall development (ICF 2001; Mishra 2000; UNICEF
1997). Justifications given include that the children learn and add to family earnings,
and the impact of not employing children in the glass units will become evident after
some years as they will find it difficult to learn these skills at a later stage in life. 199

7.2.3 Potential for technological change

The technology used in the cluster has changed little over the years. Some degree of
mechanization has come in, especially since 1992200 (there were six mechanize d
units in 2002-2003). The major change, however, was the switch to natural gas.
The furnaces (coal, oil or natural gas based) used presently are generally outdated
and operate below capacity. Ideally, the energy requir ement to melt 1 tonne of glass
ranges between 1–2 Gcal (giga calories) depending upon the quality of glass to be
melted (TERI 1999). However, most units operate much below their efficiency levels
(Table 7.2). According to estimates (and experience with the existing pilot projects),
the energy saving potential through short-term housekee ping measures may be more
than 20% (UNDP 2001) , while that of upgradation and better design of various fur-
naces may be between 20–60% (CDGI 2000; Chand and Krishnan 2000).

Table 7.2: Performance of conventional furnaces

Furnace type Specific energy con- Fuel to Thermal ef- Potential CO 2
sumption* metal ratio* ficiency* emissions**
(Gcal/tonne of melt) (kg/kg) (kg/kg of melt)
Tank (coal fired) 3– 4 0.6 12– 13 1.1
Tank (oil fired) 2 0.2 21– 22 0.6
Open pot (coal) 5– 6 1.0 9–10 1.8
Closed pot (coal) 9– 10 1.7 5 3.0
Muffle furnace 3
Note: *Source: TERI 2002 **Potential CO2 emissions are estimated based on default emissions factors, 1.76
and 3.13 ton/ton for coal and fuel oil respectively.

Natural gas furnaces on an average have led to a 30% improvement in fuel efficiency
compared to the coal fired furnaces (DIC 2002). However, there is still a potential to
improve efficiency by another 30% (Chand and Krishnan 2000). Improvements are
possible in other furnaces as well that have till now remained fairly untouched. Thus,
there is significant potential for cleaner technologies within the cluster.

199
Various interviews (including Interview nos 5 and 6. Firozabad. 2002).
200
Mechanization started in 1941, when the first automated glass container unit was set up; later
machines were introduced to replace mouth-blowing jobs; but it has been slow (CPCB
1993). Changes include mechanization of belan bhatti and use of temperature metres.
134

7.3 National policies

This section describes how the government policy for the glass cluster has developed
over the years. Before discussing the environmental policy in particular (Section
4.2), an outline of the organizational structure for policy development and implemen-
tation for the cluster is presented in Section 4.1.

7.3.1 Organizational structure

The central government 201 provides the national policy strategy for the SSIs, within
which the U.P. state government designs its own policy and initiatives (Figure 7.1
gives the relevant organizational structure). The national policy presents favourable
conditions, for example by providing financial and fiscal incentives. Labour regula-
tions (particularly related to child labour) also are important for the industry. In pa r-
ticular, the Uttar Pradesh Pollution Control Board (UPPCB) implements the envi-
ronmental policy in the State.
National State/District

Policy Ministry of Small Scale Industries (MoSSI) Directorate of Industries (DOI)

Ministry of Agro and Rural Industries (MoARI)

Small Industries Development Organisation (SIDO) Uttar Pradesh State Industrial Development Corporation
(UPSIDC)
District Industries Centre (DIC)

Environmental Ministry of Environment and Forest (MoEF) Department of Environment (DoE)

policy Central Pollution Control Board (CPCB) Uttar Pradesh Pollution Control Board (UPPCB)

Financing Small Industries Development Bank of India (SIDBI) Uttar Pradesh Financial Corporation (UPFC)
Commercial banks Commercial banks

Associations Associations for SSIs such as Confederation of UP Glass Manufaturers Limited

Indian Industries, Federation of Indian Micro and Glass Industrial Syndicate
Small & Medium Enterprises andFederation of Industrial Estate Samiti
Association of Small Industries of India Other local associations - like muffle associations

Technical Centre for Development of Glass Industry (CDGI)

institute

Fig. 7.1: Organizational structure for policy development and implementation

201
As pointed out in chapter 4, the Ministry of Small Scale Industries (MoSSI) is the nodal
agency for policy making for SSIs in India. The main implementing agencies are the Small
Industries Development Organization (SIDO) and the Khadi and Village Industries Commis-
sion (KVIC). The KVIC is a statutory body of the MoSSI and deals specifically with the
promotion of village industries (and khadi industries). For environmental policy, the Minis-
try of Environment and Forests (MoEF) is the nodal agency for policy setting and the execu-
tive body is the Central Pollution Control Board (CPCB).
 135

The responsibility for overall industrial development in the State lies with the Direc-
torate of Industries 202, and the Uttar Pradesh State Industrial Development Corpora-
tion Ltd. (UPSIDC) is the main implementing agency. The state government empha-
sizes SSI cluster development and export promotion. The District Industries Centre
(DIC) in Firozabad is the main body responsible for implementing the schemes of
the central and state governments at the local level. The Small Industries Develop-
ment Bank of India (SIDBI) and UP Financial Corporation (UPFC) are the main or-
ganizations for financial support.
Technical institute. The Centre for Development of the Glass Industry (CDGI) in
Firozabad provides technical support to the glass industry, including the cluster. It is
a joint venture of the central and state governments, United Nations Development
Programme and United Nations Industrial Development Organization. 203
Industrial Associations. There are several industrial associations operational in the
cluster. The main ones are UP Glass Manufacturers Syndicate, Glass Industrial Syn-
dicate, and Industrial Estate Samiti. 204 These mainly deal with issues such as labour
or bureaucratic problems, prices and conflict resolution. “When a group of people sit
together they make up a syndicate or association”. Another observation was that the
associations are still based on religion or type of units. For instance, there are sepa-
rate associations for glass-making and bangle-making units; and within the bangle-
making units there are separate associations for Hindu and Muslim entrepreneurs.

7.3.2 Environmental policy

The environmental policy for the cluster attained significance only in the 1980s,
when it was recognized that the polluted ambient air was affecting the famous Taj
Mahal adversely. As Firozabad is located near the Taj Mahal and lies within the

202
SSIs hold an important place in the state’s economy. There are 340,000 SSIs in U.P. with in-
vestment of Rs. 32310 million, providing employment to 1.5 million people
([Link]).
203
The origins of the CDGI date back to 1984, when a committee set up to investigate the rea-
sons for high coal consumption in the glass industry recommended the establishment of a
glass technology institute. The project was approved by UNIDO in 1990 and by the Indian
government in 1991.
204
The Associations differ in their composition and structure. The UP Glass Manufactures Syn-
dicate is an association of entrepreneurs with tank units (membership varies: 36 members at
the time of the survey), and mainly deals with issues like natural gas availability and price.
The Glass Industrial Syndicate is an association of bangle manufacturers (open-pot units),
and is the oldest in Firozabad (membership varies: 30 members in 2002). It deals with issues
of labour, fuel, clearance, etc. The Industrial Estate Samiti is an association for all units in
the Industrial Estate area, where number of units are located.
136

TTZ205, it too came in the preview of environmental concerns. There were four main
developments that helped shape the environmental policy in the cluster (Figure 7.2).

[Link] Demarcation of the TTZ

Till the late 1970s, little attention was given to environmental aspects related to the
cluster. The late 1970s and early 1980s marked the beginning of environmental
awareness. Several assessments were undertaken (e.g. by the UPPCB, Varadharajan
Committee, and technical institutions like NEERI), which added to the knowledge
base. In this regard, the TTZ was demarcated in 1983 by the central government vide
its notification (dated 3 May 1983), for protection of the Taj Mahal.

[Link] Public interest litigation filed

The impetus, however, was provided in 1984. Mr M C Mehta, an environmental
lawyer, filed a public interest litigation (PIL) seeking protection of the Taj Mahal
from environmental pollution (Writ Petition (Civil) No. 13381 of 1984).

GAIL
commences
Supreme Court’s
decision to ban supply of gas
the use of
coal/coke in TTZ

Recommendation
for emission
standards and
CDGI set up

Environment
(Protection) Act
Public litigation
filed by
Demarcation M C Mehta
of the TTZ

Air (Prevention &

Pollution Control)
Act

1981 1983 1984 1986 1992 1996 1997

Figure 7.2: Timeline of relevant events and environmental regulations for the clu ster

205
The TTZ is a geographical area measuring 10,400 sq. kms around the Taj Mahal. It includes
Agra, Mathura and Firozabad. Firozabad is located at a distance of 40 kms from Agra.
 137

The Supreme Court passed various orders in this regard, such as directing the rele-
vant authorities and organizations to undertake increased air monitoring, survey for
identifying polluting industries and explore possible alternatives (like access to
cleaner fuels or relocation of industries), issued notices to polluting industries to in-
stall pollution control device (PCDs) and waste treatment plants and that no new pol-
luting unit could be set up in TTZ. A study of the glass industry (CPCB 1993) came
up with recommendations for emission standards to control the SPM levels (under
the umbrella Air and Environment Protection Acts), with the UPPCB as the relevant
authority to monitor its performance.206 In 1992, the CDGI was also set up.

[Link] Supreme Court’s decision

The Supreme Court gave a landmark decision in response to the PIL on 30 December
1996 (M.C. Mehta v. Union of India, WP 13381/1984 (1996.12.30) (Taj Trapezium
Case)). The ruling led to a ban on the use of coal/coke in the TTZ. A time schedule
was set up for specified industrial units to make a switch-over to cleaner fuels
(though the litigation did not specify the alternative fuel that may be used, it was in-
ferred that it meant a switch-over to natural gas), or alternatively relocate or shut
down. It thus became mandatory for the glass cluster to switch over to cleaner fuels.

[Link] Commencement of natural gas supply

The Supreme Court order (1996) had also directed the Gas Authority of India Lim-
ited (GAIL) to enable supply of gas to the TTZ. In response, GAIL started supply of
gas to the glass cluster in Firozabad in December 1997. 207 A main criticism of im-
posing the ban has been the non-availability of alternative fuel sources (if there were
no alternatives available how should the units comply – or was it a way to com-
pletely shut them down!). However, with commencement of the natural gas supply
enforcement of the policy instrument became more feasible.
As per the initial assessment, the total natural gas allocation for Firozabad was fixed
at 0.3 million standard cubic metres per day (MMSCMD). However, it was estimated
that the total gas requirement of the glass cluster might be more than 0.8–0.9
MMSCMD and thus may far exceed this allocation (another 0.3 MMSCMD of gas
was allocated for the cluster by GAIL in February 2000). GAIL also commissioned a
study to ascertain the safety aspects of natural gas supply and thereby declared seven
pockets as “no gas zones” – areas where supply of gas was not feasible or practical.
In 1998, the central government had also constituted the “Taj Trapezium Zone Pollu-
tion (Prevention and Control) Authority” to ensure compliance and monitor progress

206
This included a standard for the pot furnace at Firozabad set at 1200 mg/Nm3 for particulate
matter (see [Link]/[Link]; EPA, Notification [GSR 93(E); Feb. 21,
1991). It required the units to set up PCDs (such as settling chamber, cyclone, chimney).
207
GAIL provides the gas supply through the HBJ (Hazira–Bijapur–Jagdishpur) pipeline, which
passes through the states of Gujarat, Madhya Pradesh, Rajasthan, U.P., Delhi and Haryana.
138

of the implementation of various schemes for environmental improvement in the

TTZ (The Gazette of India , Extraordinary, Part II – Section 3 (ii) dated 13 May
1998). Some of the schemes that have or are being introduced are the credit-linked
subsidy scheme for technology upgradation of the SSIs (CLCSS)208, and the technol-
ogy development and modernization (RTDM) scheme. 209

7.4 Policy implications

Based on the previous section, this section deals with the policy implications for dif-
fusion of cleaner te chnology in the cluster. Here, we discuss the main incentives pro-
vided by the policy and their effects. In the next section, we will deal with the main
contextual factors that also helped in shaping the SSI–environment interaction.

7.4.1 Incentives
The environmental policy has provided incentives for change in the cluster especially
after the Supreme Court’s decision. It has largely relied on the use of regulatory in-
struments (basically, ban on coal use), supplemented by economic and suasive in-
struments. The main incentive provided has been regulatory (Table 7.3).
Regulatory : Avoiding penal action for non-compliance in terms of relocation or clo-
sure provides a direct regulatory incentive for the entrepreneurs. The incentive is
strong particularly as it was triggered by the Supreme Court’s decision to protect the
Taj Mahal and is backed by threat of penal action. Judicial intervention also led to
the closure of coal/coke -based iron foundries in Agra (in the TTZ). This precedence
of penal action by government authorities portrayed their seriousness about enforce-
ment of the ban. 210
The ban was followed by the initiation of natural gas supply, which made the switch-
over from coal feasible. Strict measures undertaken by local authorities to ensure
compliance made the incentive stronger. These even included some drastic measures
like actually pouring water on the furnaces to put out the fire. However, in practice
enforcement has been more lenient in the case of the SSI units in Firozabad than in
other parts in the TTZ (par ticularly Agra). In Firozabad, coal is still used (inclu ding
in some units that have switched to natural gas), and the ban, though it has brought
about a drastic change, has not been able to achieve as much as it could have. There
is a general feeling of complacency among entrepreneurs and government agencies

208
The scheme aims at technology upgradation of SSIs in specified sub-sectors (including glass)
by providing 12% capital subsidy for induction of technologies approved under the scheme.
209
Interview no. 12. SFC 2002.
210
Before imposing the ban, an emission standard was also recommended. However, it could not
control emissions. There was a lack o f alternative fuels, and as it was not matched with ef-
fective enforcement measures, it lacked the intended regulatory incentive for the entrepre -
neurs.
 139

(including UPPSB) after a unit has switched over to natural gas. The policy also pr o-
vides no dynamic incentive for continued innovation or change.
In addition, the possible relocation site (New Industrial Area, Jalesar Road) being set
up (by UPSIDC) on the outskirts of Firozabad is not yet developed. It is at a distance
of about 10 kilometres from the main market (and where most household units and
workers are based), the access road is not good, and e ntrepreneurs are unwilling to
shift there (for various reasons, e.g. logistic, infrastructural and relocation costs)211.
In addition, suasive instruments have helped in awareness creation and capacity
building (though primarily due to concern for the Taj Mahal!). An important step in
this direction was setting up the CDGI. The institute has good infrastructure and re-
search facilities (and is often quoted as an important cluster development initiative)
and provides increased opportunities for technical support for the cluster. However,
there is very little interaction between the entrepreneurs and the researchers at the in-
stitute. Most of the products and technologies that have been developed there have
not been introduced in the cluster. In fact, the institute is commonly known as a
“white elephant” among the glass-makers community.

7.4.2 Incentives and their effects

[Link] Till 1980

With hardly any policy pressure or incentive, there was very little change in the
technology used in the cluster over many years. Although some mechanization was
brought in, in terms of energy efficiency improvement there was little change.

[Link] Period between 1980 and 1995

The period between 1980 and 1985 saw increased environmental awareness in the
cluster, and considerable interest generated among many local, national and multina-
tional agencies (like ADB, UNDP and UNIDO) for reducing pollution. The focus has
been on reducing SO2 and SPM emissions due to coal consumption in the glass units.
Inefficient use of energy also leads to CO 2 emissions, but this aspect has not been
highlighted or documented substantially. At this time, the emission standard was in-
troduced; however, progress in terms of effective implementation was limited. The
ban on setting up new coal-based units though, did manage to freeze the number of
registered glass units.

211
The CDGI is also located in this area. It may be one of the reasons why CDGI have been is o-
lated and unable to network and interact more with the entrepreneurs.
140

Table 7.3: Incentives under the environmental policy

Instrument Type Incentive Effect
Strengths Weaknesses
Main instrument
Regulatory Ban with penal Threat of penal action Design Successful:
action for non- • Judicial intervention: Backed and trig- • Ban without proper infrastruct ure Fuel switch in 145 units (out of 410 in
compliance (re- gered by Supreme Court’s decision to • Focus on fuel switch not efficiency TTZ) has or is likely to occur (others
location, closure) protect the Taj Mahal • Lack of dynamic incentive: No pres- face threat of relocation or closure)
• Precedence of penal action – closure of sure for continued innovation; compla-
iron foundries operating on coal/coke cency after switch is made Failure
in Agra (part of the TTZ) Enforcement • Coal still being used
• Leniency vis-à-vis SSI units in Agra • Little focus on efficiency
• Relocation finds no takers
Other instruments
Economic Subsidies (like Opportunities Design Failure:
credit-linked • For financial support • Bureaucratic procedures, conditions • Limited reach
subsidy scheme) and formalities • No real help during the transition
• Logistical constraints (offices of SIDBI
and UPFC not in Firozabad)
• Mismatch between environmental and
support objectives
Suasive Capacity build- Opportunities • Little interaction between local entre- Failure: CDGI known as a “white ele-
ing – Institute • For technical support preneurs and the CDGI staff phant” among glass makers
exclusively for • For training • Unable to win industry confidence
development of or help in transition
the industry • Pilot technology not replicated
• Training programmes not well at-
tended
 141

[Link] Period between 1996 and 2004

This period witnessed significant change following the strong regulatory incentive
provided under the ban on coal. These changes were in terms of fuel switch rather
than energy efficiency. However, due to reasons such as delay in setting up the gas
distribution network, resistance from the entrepreneurs (owing to uncertainty, lack of
technical know-how), and the review petitions filed in the Supreme Court by various
stakeholders 212, the actual enforcement of the ban has been slow over the years.
Switch-over to natural gas. Initially, there was strong resistance by the entrepreneurs
to the switch-over. But once the actual operations started more entrepreneurs began to
get interested in switching over. Here, the regulatory incentive was made stronger
when combined with economic motive as use of natural gas reduced production costs.
As of early 2004, 91 units have gas supply and another 54 have an agreement with
GAIL for the supply of gas (Table 7.4).213
Technical change The majority of changes in the glass units was brought about lo-
cally by simple modifications of the traditional technology, and often was not based
on technical considerations. These leave significant scope for energy efficiency im-
provements (see Section 2.5). Most closed-pot furnaces that had switched to gas con-
verted to the conventional open-pot furnaces (TERI 2000) 214.
The fuel switch has reduced production (fuel) costs 215, led to improvement in quality
of products (more significantly for glass items, which has contributed towards in-
crease in their exports216), and better working conditions. On the other hand, it has
also led to an increase in production (because the allocation of natural gas is fixed for
the units, the production is no longer flexible, especially in the case of bangles). 217 In
addition, many tank owners have started making bangles (earlier made largely by the
open-pot units), and closed-pot units have converted to open pots – again adding to
the production (and eating into the market of the smaller unit owners). Increasing pro-
duction has also been a major factor in the decline in the prices of glass products in

212
Also see (Rajalakshmi 2000).
213
In the first phase of registration by GAIL, gas was allocated to 64 units (24 tank, 30 open -pot
and 10 closed -pot furnace units). In the second and third phases, 16 and 6 units were given gas
respectively.
214
The main advantage of closed pot is that the glass is protected from soot and ash arising during
coal combustion. When natural gas is used, the glass products do not need protection as much.
215
The fuel costs have come down by 30–50% (survey figures and interview 3. Firozabad. 2002)
216
In 1997– 98, only five units were making direct exports of about Rs 62.6 million. In 2001–
2002, the number of exporting units rose to 26, and the quantum of exports rose to Rs 430–
470 million (DIC 2002).
217
Earlier, entrepreneurs could adjust production according to market demand, but now they have
to more -or-less produce fixed amounts irrespective of the demand since they get (and pay for)
fixed amounts of gas.
142

the local markets218. The associations, however, do play some role in controlling pr o-
duction (for instance, by organizing strikes).

Table 7.4: Glass units and natural gas

Item Number of units
Total units in Firozabad 421
Units in the TTZ 410
Units located in the “gas zone” 381
- Operating on gas 91
- Not operating on gas but have an agreement with GAIL 54
Units located in the “no gas zone” 29
- Tank furnace 5
- Pot furnace (open and closed) 24
Source : DIC 2002b

Main technology initiatives: Initiatives were undertaken by various organizations to

introduce cleaner technologies (e.g. efficient melting furnace design), but they came
in late and have not found any real takers. The main initiatives in this regard are:
One, the CDGI has been involved in developing better designed furnaces. However,
there has been hardly any actual implementation of these designs in the cluster. In the
two units where the energy-saving measures (process control software) were intro-
duced, a reduction in fuel use by 18 –22% has been reported (UNIDO 2002).
Two, the Swiss Agency for Development and Cooperation (SDC) initiative has set up
an open-pot furnace demonstration unit with energy consumption that is 58% less
than the conventional coal-based furnaces (implies a reduction of about 1300 tonnes
of coal equivalent and 1850 tonnes of CO2 per annum). The furnace is also 35% more
efficient than the conventional gas furnaces (Chand and Krishnan 2000). The unit
(first based on oil in 1999 and then on natural gas in 2000), however, failed in its ob-
jective of being a “demonstration project” as only very few entrepreneurs have actu-
ally seen it. On the other hand, it does bring out the potential for energy efficiency
improvements for the cluster. In another development under this initiative, a demon-
stration gas-fired muffle furnace was also set up in 2001 that is almost 30–40% more
energy efficient than the conve ntional coal-based furnaces (TERI 2002).

[Link] Beyond 2004

At present, 145 units, of the 381 located in the gas zone, have or will be provided
natural gas for their operations . For allocation of gas from GAIL, units require a regis-
tration and no-objection certificate from the DIC. They are charged a fixed security
deposit as fees for laying the pipeline and for metering219. The procedure has favoured

218
According to some entrepreneurs (also Interview no. 1. Firozabad 2002), at the time of the field
study, the price of glass bangles was Rs 42 per tora (a set of about 300 bangles) as compared
to Rs 58 per tora two years before. Similarly, price of plain glass tumblers had declined from
Rs 60 to Rs 30 per dozen in two years.
219
Interview no. 11. GAIL, 2002; and Interview no. 9. DIC. 2002.
 143

the bigger units who were able to get the connection more easily, and generally the
smaller units find it more difficult to get the connection. In addition to this a large
component of units, i.e., the muffle units, has been left out.
There is no provision of gas for the muffle units as of now (as their gas requirement is
small, they are not registered and many lie in the no-gas zone). The working conditions
are bad but can be considerably improved by using a gas-based furnace. Some of the big-
ger glass unit owners, who have been allotted natural gas for their tank/pot furnac es, are
now sub-letting portions of their space (and natural- gas allocation) for muffle operations.
Also, muffle-unit owners are trying to form cooperatives/societies so that they can collec-
tively file for natural gas connections. At present, seven societies of muffle owners have
been registered with the DIC. However, registration of new cooperatives is time-
consuming, and whether these will be allocated gas connectivity is still que stionable (as
supply of gas has been fixed).
The glass units that continue to use coal and do not have gas connections do face an un-
certain future. “Jab tak chal raha hai theek hai” (till it is going on, it is okay with us)
some of them say. But this “wait-and-watch attitude” does show uncertainty in the current
scenario. These units will keep using coal, but for how long (with the ban on coal, and
energy costs for the coal-fired units being on average about 30–40% more than the gas -
fired units)? They will eventually have to close down or relocate/shift out of the TTZ.
Alternatively, in a more optimistic scenario, the energy needs of the cluster may be
met more effectively if the infrastructure is developed such that natural gas supply to
the cluster is increased (or may be even use of renewable energy); energy efficiency
of the existing units is improved; and/or the conditions in the new industrial area are
made more conducive for the units to shift there. However, this will also depend a lot
on the contextual factors discussed in the next section.
Thus, the main implications of the environmental policy have been the following:
1. The environmental policy has been a driver in bringing in technological change
(fuel switch) by providing a direct incentive for the entrepr eneurs. The change has
resulted in the improvement in environment (local – SO2, SPM; and global – CO2
emissions) and working conditions. However, there is still significant potential for
further improvement. Most of the changes have been brought in without the use of
economic instruments or technical support from the CDGI. The conversions also
indirectly impact the market conditions.
2. Coal is still being used in the cluster despite the ban and the related developments.
It is used not only in the coal-based units, but also in some of the units that have
gas connections.
3. For the natural gas-based units, there is little regulatory incentive for further
change (or no dynamic incentive). As far as they are concerned, they have made
the switch to natural gas and have done what was required. Thus, even though
there exists significant potential, the current policy does not provide them incen-
tive for undertaking any further change.
4. The units without gas (those located in the no-gas zone or those without access or
commitment for gas) face threat of relocation or closure. For the muffle units,
144

there is no clear policy as yet (they are normally unregistered but are important for
the production process). On the other hand, the policy has also led to other deve l-
opments like emergence of subletting and cooperatives.
Overall, the policy incentive has been strong enough to force a substantial change.
However, there are differing perceptions regarding the policy development process it-
self. There are still doubts on whether the cluster should have been included in the
TTZ at all 220, should the SSIs be the major targets of regulatory pressures, and the
manner in which the policy has evolved. For instance, (i) little consideration was
given to gas supply and capacities of different units, and (ii) no technical solutions
were available to the industry to make the switch-over from coal when the ban was
imposed. In addition, as the city has numerous power cuts, use of diesel generators,
and the transport situation (Varadharajan Committee Report 1995) adds to the local
pollution; the SPM levels are still high in the TTZ (CSE 2000a, b). It was suggested
that a better alternative would have been to improve infrastructure221 or even set up a
natural gas-based power station instead of directing the coal-based SSIs to close down
in the first go.

7.5 Contextual factors affecting cleaner technology diffusion

This section deals with factors that affect diffusion of cleaner technologies in the clus-
ter (Table 7.5). In this regard, there are differences in perceptions of the entrepreneurs
and other stakeholders (Table 7.6).

7.5.1 Environmental factors

Proximity to the Taj Mahal has forced awareness and concern for the local environ-
ment within the cluster (though the global environment is not yet an issue for the local
actors). The need for better working conditions, safety and pollution control is a
driver for diffusion of cleaner tec hnologies. Improvement in working conditions and
other benefits with the use of natural gas also demonstrated additional benefits (other
than the environmental benefits) of a cleaner technology. In spite of this, however,
environmental concerns remain a low priority for entrepreneurs.

220
This issue came up in several interviews. A common reason is that the Supreme Court’s order
for TTZ s pecifies that the brick kilns within 20 kms from the Taj Mahal and all unregis tered
kilns in the TTZ should shut down. However, in the case of glass units all the coal-based units
in Firozabad, which is 40 kms from Agra, have to close. In 1992, the government even com-
missioned a study (NEERI 1993) to look into the need for redefining the TTZ.
221
There is also the question of distribution of natural gas. The gas connections are given based
on a fixed amount, and are used by entrepreneurs for the production processes as well as for
electricity generation, subletting, etc. The cost of natural gas to the cluster is considered to be
high as compared to some other consumers along the same gas pipeline.
 145

7.5.2 Organizational factors

The units across the cluster are old, with technologies passed on from one generation
to the next. Normally, the smaller units are operated by entrepreneurs with inadequate
managerial and marketing skills (there are only a few large units with proper marke t-
ing and management in place), and with flexibility in production. 222 No unit has any
certification (e.g. ISO), though a few are now planning to apply. Many entrepreneurs
are dependent on their workers for technical inputs and advice. However, they do not
invest much in capacity building since a majority of the workers are employed on
contract and are not permanent employees. On the other hand, the contract workers do
in some cases take information from one unit to the next where they are employed.

7.5.3 Economic factors

Finance : As most entrepreneurs work with limited capital and at low profit margins,
their financial capability is limited (this may not be the case for the large unit owners
like the tank units). They are unlikely to invest in cleaner technologies unless they are
convinced of the benefits 223. Even if they are, they still may not invest due to unavail-
ability of low -cost finance or if the upfront cost is too high 224. The financial support
available is limited despite the increasing opportunities owing to the interest among
the local, national and international agencies and initiatives in the TTZ. Most of the
financial needs of the industry are still met either through local banks or usually
through their own resources.

222
Flexibility in production has declined with natural gas use. With coal, owners worked mostly
on credit. With gas, they have to keep the units running as they pay a fixed min imum fuel
charge.
223
There was strong resistance to the policy to switch over to natural gas initially. But with the
demonstrated benefits in terms of cost savings, more entrepreneurs want to work with gas.
224
For instance, the payback period for the pot furnace under the demonstration project is 3– 5
years, but the capital cost is about 5 times more, which is a strong barrier for the entrepreneur.
Table 7.5: Contextual factors
Factor Driver Barrier Effect
Environmental • Proximity with Taj Mahal forcing environ- • Increased awareness
mental awareness
Organizational • Limited awareness and traditional practices • Limited marketing and manage -
Old, family -owned, informal units (few big/ ment skills
automated units) with flexibility in working • Limited capacity building of
• Skills: Production skills, availability of skilled • Limited managerial and marketing skills (one- workers
workers man show usually)
• Workers : Contract workers (as carriers of • No product/ process certification
knowledge) • Reliance on workers – and contract workers
Economic • Reduced production cost with natural gas use • Economic capability low • Economic capability low for
• Interest of multilateral, national, local agencies • Limited financial support many units
increasing opportunities for financial support • Market uncertainty and conditions (overpro - • Economic support limited
• Increased market competition duction, competition, demand situation) • Competition a driver for tank
units. Market uncertainty a bar-
rier for smaller bangle units
Technological • Existing local technological skills, capability • Dependence on traditional knowledge • Technological skills limited
• Technical support may be available due to • Low technical capability (acces s, know-how) • Technical support limited
technical institutes, consultants and demonstra - • Technical support is limited (demonstration • Perceived natural gas benefits a
tion projects projects are captive; no help from technical in - driver
Perceived benefits of natural gas use like reduced stitute, associations; consultants are expensive) • Infrastructural constraints a bar-
production costs, improve quality and better work- • Infrastructural constraints: associated with rier
ing conditions natural gas, unreliable power supply
Social • Attitudes: Motivation, attitudes, mindsets • Attitudinal constraints
• Networking: Collective efficiency (joint action, • Networking: Limited interaction (weak asso- • Limited networking
subletting) ciations, competition) • Social, cultural, political signifi-
• Culture: involvement of younger generation • Culture: Dependency on the industry; entre - cance a driver
(IT, techniques) preneurs suspicious of government
Market: The market situation presents both a driver and barrier. There is significant
market potential for glass bangles and items that are a driver for the entrepreneurs.
However, competition has been increasing from other units within the cluster (in-
creased production), from alternative materials such as plastic (e.g. metallic and pla s-
tic bangles and other items are also becoming popular as they last longer), as well as
products from other countries (like Chinese glass items) (Dutt 2000) . There is hardly
any product differentiation across the units, as almost all produce similar kinds of
products. On the one hand, compe tition is a driver towards energy efficiency. On the
other, market uncertainty (due to overproduction, unstable demand) is also a barrier.
Table 7.6. Most important constraints perceived by various stakeholders
Actor Main potential factors
Big unit owners (with gas) Rules and procedures
Small unit owners (with gas) Natural gas pricing (and inflexibility)
Competition (and market conditions)
Limited finance
Unit owners (without gas) Infrastructure and availability of fuel
Government rules and procedures
Limited finance and technical support
Glass-making units (association) Natural gas pricing
Bangle-making unit (association) Marketing and demand conditions
Labour issues
Limited finances and technical know-how
Technical institute Lack of motivation/willingness of entrepreneurs
Limited finance
Consultancy organization, NGOs Lack of interaction and competition
Limited government initiatives
Government departments Lack of motivation of entrepreneurs

Almost all the units are dependent on the local market or agents, with very few units
that have their own marketing networks225 or use the marketing support provided by
the associations or government. There are various stages through which the bangles
go both during production and marketing, which makes the profit ma rgins smaller.

7.5.4 Technological factors

Costs associated with the cleaner technology226 do pose a barrier as most entrepre-
neurs are averse to taking risks. They have a “wait, watch and copy” attitude, and are
more comfortable with simple and less costly technologies that can provide them

225
Only some of the bigger units (maybe 6– 7) have their marketing networks. As per the survey
results only about 35% of the units actually sell their products outside Firozabad.
226
For instance, the demonstration technology leads to more than 30% fuel savings, but costs 5
times more.
148

flexibility of operations (many cannot afford or do not feel the need to hire qualified
technical consultants). 227
With natural gas use, awareness has been created regarding the benefits of cleaner
technologies and fuels. After the initial resistance, the entrepreneurs, including the
small muffle unit owners (or operators), want to shift over to gas (even though initial
costs are high). Non-availability of natural gas supply poses a barrier in this case.
Some small unit owners also face problems due to natural gas allocation and pricing,
as they have to make a fixed monthly payment for the gas supply and do not enjoy
the flexibility they had before 228. On the other hand, GAIL emphasizes the problem
of overdrawing of gas by the glass units above their allocation (for which there is no
real pe nalty) 229
Technical knowledge: The majority of modifications in the technology are brought
in by the workers or by entrepr eneurs themselves. Almost all the entrepreneurs agree
that technical know -how is a major constraint (Figures 7.3, 7.4). A few big tank unit
owners, on the other hand, are exploring possibilities for improving technology based
on experiences in other countries.
Basically, although opportunity exists, there is little technical support available, in-
cluding that from CDGI – the institution specially developed to provide support to
the industry. Entrepreneurs say that there is need for practical knowledge – the CDGI
model is not practical. However, there has been little interaction between the various
institutions, support agencies and the entrepreneurs. The TERI model on the other
hand is costly, and has not really been “demonstrated” across the cluster. The train-
ing provided in some cases by the CDGI or DIC is usually not well attended and ac-
cording to those who have attended not needs-based.

7.5.5 Social factors

The cluster is the main livelihood for the town’s population. Its development is there-
fore important for the authorities and people alike (it also makes strict enforcement
measures by the authorities difficult given their social and political ramifications –
especially their influence on the votes (e.g., see Raguram 1996) .
Another constraint is the lack of motivation of the entrepreneurs – not only to make
technological changes but also to avail the opportunities (e.g. government schemes

227
For example, the burners in the demonstration unit cost Rs 40,000. Other good burners cost
about Rs 50,000. The units copy them and claim to make them in just Rs 20,000 (Interview
at the demonstration unit).
228
Earlier most of the coal was bought on credit, which is no longer the case with natural gas. In
case of non-payment for gas, an interest rate charged. On exceeding a stipulated time period,
gas supply may be cut off.
229
A unit was reported to be overdrawing as high as 110% (Interview no. 11. GAIL. 2002)
 149

and initiatives of other organizations). 230 Many of them have limited technical
knowledge and short -term perspectives, and are constrained by the procedures in
availing these incentives as well as limited information. Fixed mindsets of the vari-
ous stakeholders including the workers are all barriers. With the involvement of the
younger generation, however, new concepts and skills are being introduced (e.g. in-
formation technology).

5
Average grade

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Figure 7.3. Factors affecting adoption of technologies at the unit level

Grades – 1: not important, 2: slightly important, 3: important, 4: very important, and 5: most important (based on
survey results – perspectives of entrepreneurs)

There is limited interaction between the entrepreneurs (not socially, but for exchange
of information, etc.); they see the mselves as competitors. Though the associations do
provide a platform, it is used to discuss administrative matters (raw materials, strikes,
and political issues) rather than for exchange of technical information. In some cases,
they are based on religion or common social interests rather than economic interests.
In addition, there is very little interaction between the various institutions, support
agencies, government departments and entrepreneurs, as in the case of the DIC and
the CDGI in spite of them having several common objectives regarding the devel-
opment of the cluster.
Thus, there are several contextual factors that together with the policy implications
influence SSI–environment interaction. These include not only techno-economic but
organizationa l, social (including political) and environmental factors as well.

230
Various interviews and Dasgupta 1999.
150

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Figure 7.4: Factors that can encourage adoption of cleaner technologies at unit level
Grades – 1: not important, 2: slightly important, 3: important, 4: very im portant, and 5: most important (based on
survey results – perspectives of entrepreneurs)

7.6 Conclusions
This case study brings out clearly the significance of SSI–environment interaction
and the policy implications. The environmental policy by banning coal usage pr o-
vides a direct incentive for a fuel-switch in the cluster. This coupled with the ec o-
nomic motivation due to reduced production cost with natural gas use has brought in
a significant change within the cluster.
Reliance on the use of regulatory instruments on the other hand has restricted the dy-
namic incentive for diffusion of cleaner technologies. While focusing on switching to
a cleaner fuel, it has ignored the energy efficiency aspects (though cleaner fuel is in-
creasingly being used, the energy efficiency still is low across the cluster). The pol-
icy has resulted in a number of units switching over to natural gas, however, the coal
consumption within the cluster still remains significant. The top-down approach of
setting up an institute for technical support has also not been very successful. Thus,
there still exists a potential for energy efficiency and thereby CO 2 reduction.
Several contextual factors are significant in influencing the cluster. The issues per-
taining to units that have or will be shifting to natural gas (like natural gas pricing,
marketing of products, etc.) and those still operating on coal (like natural gas avail-
ability, relocation possibility, etc.), are different in spite of many common ones (like
technical, financial, bureaucratic procedures). These also influence the development
and implications of the national policies. In a business -as-usual scenario, it is diff i-
cult to expect much change in the current situation as far as cleaner technologies are
concerned.
 151

The case study shows that strong regulatory incentive can bring in technological
change in which the judiciary also played an important role. On the other hand, top-
down approaches (like setting up of high profile technical institutes) do not work
unless these really cater to the needs of, and work with, the local industry. This case
provides an evidence of how innovative options like subletting, cooperative forma-
tion, and in general networking and increased interaction, can be an important means
of bringing in cleaner technologies and make economic or business sense as well.
8. Brick cluster in Chandigarh

8.1 Introduction
Brick making is one of the oldest activities in the world. India is the second-largest
producer (next only to China), with an annual production of more than 140 billion
clay bricks. The activity falls mainly in the unorganized rural sector and is among the
largest employment-generating industries in India. It is also a major coal-consuming
industry (Chapter 3) and is associated with environmental concerns such as emis-
sions of local pollutants and CO2, topsoil erosion and deforestation.231
The SSI constitutes a seasonal (with production limited to the dry season of 5–6
months in a year) and weather-dependent activity. Based on the soil quality, the brick
making regions in India are divided into two zones, which differ in terms of tech-
nologies as well as the national policy focus. Zone 1 includes the Indo-Gangetic
plains in north and north-eastern India (i.e. from Punjab to Assam), and accounts for
almost 65% of the pr oduction in India. Zone 2, on the other hand, includes peninsular
and coastal areas in the southern and south India (i.e. all states below Uttar Pradesh).
This zone accounts for 35% of the brick production, but comprises 70% of the total
number of units in the country.
This chapter presents the case study of the brick cluster in Chandigarh, Punjab. Pun-
jab is the largest brick-producing state in Northern India in zone 1. As the brick units
are quite scattered and tend to be located in small or micro-clusters, a cluster here is
taken as a combination of the m icro-clusters located around the Chandigarh city (the
units have to be located beyond the city limits). The cluster has experienced techno-
logical changes over the last few years largely becaus e of the national policy provi-
sions and related initiatives. Section 8.2 describes the SSI–environment interaction.
Section 8.3 discusses the implications of national policy, and Section 8.4 outlines the
main contextual factors for the cluster. An additional Section, 8.5, briefly presents
the findings of a study undertaken in Pune, Maharashtra in zone 2. As the production
methods in zone 1 are quite different from those in the other parts of India, and the
second case study allows for a comparison of the two zones. Section 8.6 presents the
main conclusions.

231
An estimated 40,000– 50,000 acres of land and 300 million tons of topsoil are used every year
for obtaining clay for the bricks (Clancy and Garg 2002; TERI 2000b). The SSI consumes
2.6 million tonnes of wood and 41.6 million tonnes of coal annually, and accounts for 4.5%
of GHG emissions in India (PSCST 2001b).
154

8.2 SSI–environment interaction

8.2.1 Industrial activity

The brick-making production process may be divided into four stages: clay prepara-
tion (and winning), moulding of bricks, drying, and firing (Annexure 1). The units
are normally located on leased-out lands near clay sources.

[Link] Cluster profile

The Chandigarh cluster comprises around 100 operational brick units located in four
micro-clusters (Table 8.1). Three of these micro-clusters are in Punjab state, while
one (in Kakarmajra) is in the state of Haryana. 232 They produce clay bricks and tiles
for meeting the local demand (clay brick is the most popular construction material).
A few units cater to outside markets as well (other districts in Punjab and Haryana,
and neighbouring states of Delhi and Himachal Pradesh). Most units comprise tradi-
tional activity for the entrepreneurs (64% of units surveyed were owned by more
than one generation). On an average, the age of units is around 15 years (with 30%
less than 10 years old), and they provide employment to 150–200 workers each.

Table 8.1. Brick units around Chandigarh

Micro-cluster District Total number of Number of units
units (approxi mate)* surveyed
Derabassi Patiala (Punjab) 45 14
Parol Ropar (Punjab) 12 6
Togan Ropar (Punjab) 13 7
Kakarmajra Ambala (Haryana) 30 6
Other Other (Punjab) 5
*Source: various interviews

These units may be classified in various ways (e.g. on the basis of size, technology,
number of workers, production capacity). However, two classifications are especially
relevant – one based on technology, and the second on size. Based on size, the unit
categories may be small (production: less than 1 million bricks per year), medium
(production: between 1–2.5 million bricks per year) and large (production: more than
2.5 million per year) (Maithel et al. 1999) . Availability of alluvial soil in Punjab (as

232
Chandigarh is the state capital of the two states, Punjab and Haryana (as well as a Union Ter-
ritory). The brick micro-clusters lie very close (on the outskirts) of Chandigarh city. Though
the focus of the case study is on Punjab, Kakarmajra in Haryana is also included as it forms
part of the brick cluster in Chandigarh. In addition, to the operational units, there are some
non-operational units as well which have closed down their production for the time being. In
fact, the Chandigarh Brick Association has approximately 250 members.
 155

in zone 1) makes large-scale production viable; and thereby, the units around
Chandigarh are either medium- or large-sized. 233

[Link] Technology used

The common kiln technology used for brick making (essentially firing of bricks) in
P unjab is the continuous kiln. The continuous kilns, generally used in the medium- or
large-sized units, include the Bull’s trench kiln (BTK), the High Draught kiln (HD
kiln) and the Hoffman kiln (the latter two are generally more efficient than the BTK).
The BTKs may be either moving metallic chimney BTKs (traditional technology) or
fixed chimney BTKs (efficient version of the moving chimney BTK). In the Chandi-
garh cluster, the main technology used is the fixed chimney BTK (in more than 80%
units). A few units also use the HD kiln. There is no moving chimney BTK in the
cluster, though it was the prominent technology till some years ago (the transition is
discussed in Section 8.3). Most units use hand-drying and manual moulding methods
during raw brick preparation (very few units have moulding machines). 234
Table 8.2 provides a comparison of main technologies in India. 235 It may be me n-
tioned here, that in zone 2, scattered and smaller deposits of suitable soil (and avail-
ability of building stones and concrete blocks as alternate materials) encourage pr o-
duction in small- and medium-sized units. For these units, intermittent kilns or
clamps are used (biomass or coal based), which are the most basic and traditional
kilns and less energy efficient than continuous kilns (see Annexure 1).

233
As per survey figures, 75% of the units are large sized with the average production of around
than 5 million bricks in one year.
234
Almost all the units in the country employ hand -moulding and sun-drying methods for brick
pre -firing stages. Only a few units, about 1% of units in the country, including two–three in
the Chandigarh cluster, have installed clay mixing and moulding machines (Damle 2002).
Also, there is one highly mechanized unit in the cluster, and it is probably the only one in In-
dia with an ISO certification. No other unit has any kind of quality cert ification.
235
There are some modern kilns used in other countries but they are not appropriate for Indian
conditions. For example, the tunnel kilns are modern but they require high degree of mecha-
nization and investment (Maithel et al.).
156

Table 8.2. Comparison of the main kiln technologies used in India

Kiln Size Specific energy Specific fuel CO2 emissions Potential Approxi- Benefits Constraints
type (capacity) consumption consumption due to coal use SPM in flue mate cost
(MJ/kg of fired (tons of coal per (per 100,000 gas of kiln (Rs)
3
bricks) 100,000 bricks bricks) (mg/Nm )
More applicable in Zone 1
Moving M edium to 1.2–1.75 20–28 35.2–49.3 500–2000 •Economical •Chimney needs regular re-
chimney large placement
BTK •High energy use, emissions
Fixed Large 1.1–1.5 16–24 28.2–42.2 1200– 4200 1,000,000 •Coal sav ing •Construction costs
chimney (without (for PSCST •Convenient (vis-
BTK GSC) design) à-vis moving
100–500 chimney)
(with GSC)
High Large 0.9–1.1 13–16 22.9–28.2 •Coal sav ing •Initial and operating costs
Draught •Annual produc- •Technological complexity
Kiln tion possible •Need power (approx. 5– 6
kWh/1000 bricks)
More applicable in Zone 2
Clamp Small 1.0–3.0 32–48 56.3–84.5 Almost zero •Low costs •Brick quality not very good
kiln (• Biomass fired: •Flexibility – fuel •Energy wastage
1.9–3.0 • Coal used and produc- •Working conditions poor
fired: 1.0– 1.75) tion
VSBK Small to 0.8–1.0 13–16 22.9–28.2 50– 300 1,200,000 •Fuel saving •Appropriate for smaller ca-
medium •Better brick qual- pacity
ity, work condi- •Construction and operating
tion costs (esp. compared to
•Annual produc- clamps)
tion •Only few units opera t ing
 157

8.2.2 Energy cons umption and environmental impacts

The brick-making SSI is highly energy intensive and involves use of significant
quantities of fuel especially during firing (bricks are fired at temperatures between
600–1000oC). 236 The main fuel used in the cluster is coal, with each unit on an aver-
age consuming 800 tons of coal per production season. 237 Other energy sources like
fuel wood, agricultural residues, and for the HD kiln – electricity, are also used. En-
ergy intensity leads to environmental concerns including local pollutants (such as
SPM, CO, SO 2) and CO 2 emissions (CO2 emissions related to coal use are of the or-
der of 1408 tonnes per season per unit, using the default emissions factor and coal
consumption figure). Another major impact (though not related to energy use) is top-
soil erosion due to the excavation and use of clay for making bricks. The relevance
of the SSI to the environment, on the other hand, is also associated with its potential
to contribute towards addressing the problem of fly -ash disposal (by using various
combinations of clay and fly ash for making bricks).238 This indirectly also means,
using less topsoil than otherwise required (thereby, addressing the problem of top-
soil depletion). Fly-ash bricks save energy as well.
There are major social iss ues associated with the cluster as well (Gupta, J 2003;
MoLR 1984) . First, there are health problems due to the working conditions in the
brick units. The workers involved in moulding, raw material mixing, firing and coal
sieving encounter respiratory, skin and orthopaedic disorders. These are aggravated
by the unhealthy living conditions at the unit sites, and also for the firemen who live
in small rooms on top of the kilns 239. Secondly, is the issue of child labour (Dwivedi
2001) – children staying at the kiln rarely go to school, and many “help” their pa r-
ents especially in moulding. 240 In addition, are issues related to bonded labour – most

236
Energy is extensively required during drying and firing of bricks (Zhang 1997). However, as
the units mainly rely on sun or natural drying methods, firing is most the energy intensive.
237
Interview no. 9. PSCST 2002.
238
Fly ash is a by-product resulting from coal combustion in thermal power plants. Over 60% of
the power plants in India are coal based that result in 80– 100 million tonnes of fly ash each
year. Of this, only 10% ash is used (Chand and Krishnan 2000). It is es timated that even if
only 20 billion bricks (of the 100 billion produced every year) use 25% fly ash, 15 million
tonnes of fly ash can be gainfully utilized, saving 15 million tonnes of topsoil (TERI 2000b).
239
They are responsible for feeding coal in the kilns at regular intervals (usually 15 minutes),
working 12 hours a day (2 shifts).
240
Main reason is that brick making is a seasonal activity. Also, moulders are employed as fami-
lies (husband, wife and children) and paid on the basis of number of moulded bricks. In
Pune, some workers are enrolled in adult education schools, and in a cluster (Sangamner) a
school is being run for children of brick workers.
158

workers are migratory and seasonal241, and are employed as contract labour and in
effect are bound by the contract (DA 2003). 242

8.2.3 Potential for cleaner technologies

The efficiency of the kiln depends on its design, operating practices (particularly fir-
ing), and type and the quality of fuel used. 243 Only a few units actually run efficiently
across the cluster 244, and the coal used has high ash content. Use of cleaner technolo-
gies can improve energy efficiency and reduce the associated environmental impacts
(local pollutants and CO 2 emissions). 245 It can also improve product quality and
working conditions, and lower production costs (as fuel costs are 35–50% of the total
costs)246. The importance of cleaner technologies is even greater considering it is dif-
ficult to reduce the other components of the cost (land, labour, raw material).
The technology options include cleaning technologies or pollution control devices
(PCDs) such as the gravity-settling chamber (GSC), scrubbers or filters, for reducing
local emissions (Box 8.1). Those that lead to energy efficiency improvements (and
thereby local and global environmental benefits) or cleaner technologies include: use
of more efficient kilns and modifications in design of existing kilns (e.g. more eff i-
cient designs of BTKs and HD; and even options like tunnel kilns); use of efficient
oper ational and firing practices (e.g. optimizing coal feeding rate and coal particle
size, and reducing air leakages in kilns); use of better quality coal (with lower ash
content) or alternative cleaner f uels (industrial wastes, renewable energy); and use of
internal fuels (e.g. sustainable biomass, fly ash). Simple changes like constructing
sheds can reduce risk of rain (and make annual production feasible), or the way
bricks are stacked during firing can reduce wastage and breakages. Improvements in
operating practices can help reduce fuel consumption up to 20% in fixed BTKs.247

241
Most workers are migratory – firemen mainly come from Pratapgarh in Uttar Pradesh, while
moulders come from Madhya Pradesh and Rajasthan. The local workers work mostly as la-
bourers (for loading, stacking, handling bricks) or transporters.
242
Labour laws ban bonded labour and child labour, but they are part of the social system. Some
important laws include the Contract Labour (regulation and abolition) Act, 1970; Employees’
Provident Funds and Miscellaneous Provisions Act, 1952, and Interstate Migrant Workmen
(regulation of employment and conditions of service) Act, 1979. There have also been sug-
gestions for a separate legislation for brick kilns (Gupta, J 2003; MoLR 1984).
243
Type of clay used, moisture content, amount of first grade and rejects obtained are also impor-
tant parameters that affect performance, but in most cases no in formation is provided on
these subjects making direct comparison between different kilns more difficult (FAO 1993).
244
Almost 90% of the units are run inefficiently (Interview nos 1, 9 and 10. Chandigarh 2002).
245
Other factors also influence like weight and quality of bricks fired (Maithel et al. 1999).
246
These are especially relevant as many stakeholders interviewed felt that, in the coming years,
several smaller units will be rendered uncompetitive, with the increasing coal prices and
market competition, and will have to close down unless they upgrade.
247
Interview no. 1. TERI 2002; and interview no. 9. PSCST 2002.
 159

8.3 National policies

This section discusses the main policy implications of the environmental policy for
the brick units around Chandigarh. As in the previous chapter, we begin with de-
scribing the organizational structure before discussing the main policy provisions and
implications.
Box 8.1. Technological options for the cluster
Cleaning technologies
• Installation of pollution-control devices (e.g. gravity-settling chamber, scrubber, filter)
Cleaner technologies
• Operational practices and housekeeping
• Use of efficient kilns (e.g. HD/Hoffman, tunnel kilns)
• Modifications in designs of existing kilns (e.g. efficient BTK)
• Use of better-quality or cleaner fuels (better-quality coal, renewables)
• Use of internal fuel (e.g. fly ash)

8.3.1 Organizational structure

The organizational structure for policy making and implementation in the cluster is
provided in Figure 8.1. The central government frames the national policy and strat-
egy for the SSIs (Chapter 5) within which the Punjab state government designs its
own policies and initiatives, and extends the incentives through its implementing
agencies. 248 Brick kilns, however, are unique in the sense that unlike other SSIs, they
can be installed and operated on getting a license from the Department of Food and
Supplies (DoFS), Punjab. 249 For obtaining this license, one of the conditions is to
have a no-objection certificate from the Punjab Pollution Control Board (PPCB). The
department , however , does not have promotional functions for the kilns. The labour
laws (especially those related to bonded and child labour) also bear a significant rele-
vance for the SSI.
For financial support to SSIs, the apex institution is the Small Industries Develop-
ment Bank of India (SIDBI) at the national level, and the Punjab Financial Corpora-
tion (PFC) at the state level. It is only the mechanized brick kilns that normally qua l-
ify for direct financing from the PFC; while the brick kilns based on hand-moulding
and sun-drying methods are not eligible. Specifically for them, the Khadi and Village
Industries Commission (KVIC) provides financial support including soft loans
through the Punjab KVI Boards.

248
SSIs occupy an important position in the development of the state. There are presently more
than 0.2 million SSI units, employing more than 0.8 million workers and constituting a vital
and dynamic segment of industry. The units include bicycles, sewing machines, agricultural
tools, medical instruments, hosiery, machine tools and sports goods
([Link]).
249
Earlier, the supply of coal to the brick kilns was regulated and the units were registered with
the DoFS. Even with deregulation of coal, brick units remain under the purview of the d e-
partment.
160

Photo 8.1: Brick cluster near Chandigarh

Photo 8.2: Conventional Bull trench kiln with a moving chimney

 161

Photo 8.3a: Stacking of bricks in a conventional clamp kiln

Photo 8.3b: A vertical shaft brick kiln

162

Photo 8.4: Mixing of clay for preparing bricks

Photo 8.5: A girl carrying bric ks for stacking them in a clamp

 163

Photo 8.6: A Bull trench kiln with fixed chimney Photo 8.7: A high draught brick kiln
164

Technical organizations
The main organizations associated with technology development in the cluster are
the Punjab State Council on Science and Technology (PSCST) in Chandigarh, which
functions under the aegis of the Department of Science, Technology and Environ-
ment of the state government, and the Central Building and Research Institute
(CBRI) in Roorkee in Uttaranchal state, which undertakes research and development
activities for the building industry. While PSCST has been involved with developing
and disseminating an “efficient” design of BTK with fixed chimney (with GSC), the
CBRI was responsible for indigenously deve loping the HD kiln.

National Punjab state

Policy Ministry of Small Scale Industries (MoSSI) Punjab Directorate of Industries (DOI)
Ministry of Agro and Rural Industries (MoARI) District Industries Centers (DIC)

Small Industries Development Organisation (SIDO) Punjab Small Industry and Export Corporation
Khadi and Village Indutries Commision (KVIC) Limited (PSIDC)
Department of Food and Supplies (DOFS)
Punjab Khadi and Village Board (KVI)

Environmental Ministry of Environment and Forest (MoEF) Department of Environment (DoE)

policy Central Pollution Control Board (CPCB) Punjab Pollution Control Board (PPCB)

Financing Small Industries Development Bank of India (SIDBI) Punjab Financial Corporation (PFC)
organozations Khadi and Village Industries Commision (KVIC) Punjab Khadi and Village Board (KVI)
Commercial banks (like SBI) Commercial banks (like SBI)

Associations All India Bricks and Tiles Manufacterers' Federation Punjab Brick Manufactueres Association
(AIBTMF) Chadigarh Brick Asociation
Cluster specific Associatitions

Technical Central Building and Reserach Institute (CBRI) Pubjab State Council for Science and Technology
institutes Others (e.g. Aligarh Muslim University) (PSCST)

Figure 8.1: Organizational structure for the brick SSI

Brick Associations
The brick association at the national level is the All India Bricks and Tiles Manufac-
turers’ Federation (AIBTMF). The AIBTMF takes up issues of the industry with the
government and concerned regulatory bodies, and is linked to the lower level asso-
ciations. The other relevant associations include the Punjab Brick Manufacturers’
Association (PBMA) at the state level, the Chandigarh Brick Association (CBA) at
the cluster level, and associations at the district and micro-cluster levels.

8.3.2 Environmental policy

The environmental policy for the brick SSI is largely regulatory, and is implemented
at the state level by the PPCB.250 As mentioned before, the environmental aspects of
the brick industry are significant. These got translated within the national environ-

250
The micro -cluster in Haryana is regulated by the Haryana Pollution Control Board (HPCB).
 165

mental policy in the mid-1980s, and started to gain importance especially following
the writ petitions filed by Mr M C Mehta, which also led to closing down or reloc a-
tion of the brick units in Delhi and Agra (Delhi land use; and protection of Taj Mahal
cases). The brick units are to be located beyond the city limits.

All units within 50 kms of

a thermal power plant
First emission standard for SPM level: should mix at least 25% Ban on
•1000 mg/Nm 3 for small kiln capacity:<15,000 of ash by weight. movable
bricks per day (less than 4.5m trench width) chimney
•750 mg/Nm 3 for medium kiln capacity:15,000- Ban on movable chimney BTK:
30,000 bricks per day (4.5-7.0 trench width) BTK: Extension till June Extension
•750 mg/Nm3 for large kiln capacity:>30,000 30, 2001 till June 30,
bricks per day (more than 4.5m trench width) 2002

Ban on moving chimney BTKs: Existing kilns to Ban on

be dispensed by December 31, 1997 movable
chimney BTK:
All units within a radius of 50 kilometers (km) Extension till
from any thermal power plant, shall utilize fly June 30,1999
ash in optimal proportion

Environment
Air (Protection) Act
(Prevention &
Pollution
Control) Act

1981 1986 1996 1998 1999 2001

Figure 8.2: Timeline related to environmental policy for the cluster

[Link] Incentives

The focus of the national environmental policy is on regulatory instruments: (i) emis-
sion standard for the kilns (set under the umbrella legislations – Air Act and Envi-
ronment Act), and (ii) regulation for the promotion of use of fly ash (Figure 8.2).
While the former targets and pr ovides incentive for process changes, the latter deals
with both process and product change. The need to regulate the use of topsoil is also
recognized by imposing a “royalty” (tax) on the soil excavated as a deterrent towards
over-explo itation.

Emission standard and ban on moving chimney BTKs

The MoEF notification in 1996 introduced the emission standard for SPM level. It
specifies the SPM level limit of 750 mg/Nm 3 for medium- and large-sized kilns (Ga-
zette of India, Extraordinary, Part III – Section 3 – subsection (i), April 1996). Al-
though the regulation emphasized only the limits on the SPM le vel, generation of
SPM (as well as the CO 2 emissions) is closely linked to the energy efficiency of the
kilns. The notification recommends meeting the standard by installing fixed chimney
166

BTKs, HD and/or PCDs (such as the GSC), and imposes a ban on the use of moving
chimney BTK. The notification had defined a time limit (up to 31 December 1997)
for the existing moving chimney BTKs to convert to fixed chimney BTKs or HD
kilns. Subsequently, however, based on representations by the AIBTMF, the MoEF
has been granting extensions by which the deadline has been extended. These revi-
sions are subject to furnishing affidavits and submitting bank guarantees to the re-
spective state PCBs for completing the conversion in the pr escribed period.

Promotion of the use of fly ash

The MoEF notification of 1996 also provided that the brick-making units within the
radius of 50 kms from any thermal power plant shall utilize fly ash in ‘optimal’ pr o-
portion. This would help to address problem of fly-ash disposal as well as topsoil de-
pletion. Further, in 1999, MoEF prescribed the ‘means’ of utilizing the fly ash (mix-
ing at least 25% ash – fly ash, bottom ash or pond ash – with soil by weight), and re-
stricted excavation of topsoil, for the units within a radius of 50 km of a thermal
plant (Gazette of India, Extraordinary, Part II, Section 3, Sub-section (ii), 14 Sep-
tember 1999). In case of non-compliance, the consent order issued to establish the
kiln and/or its mining lease could be cancelled. The stipulation, however, could be
modified (waived/relaxed) by the state government in case of non-availability of ash
from power plants in sufficient quantities.

8.3.3 Policy implications

There had hardly been any change in the technology over the years till the mid-
1990s. The policy notification in 1996, initiated changes with respect to diffusion of
the BTK with fixed chimney. Punjab is amongst the states where the largest number
of fixed chimney kilns have been constructed (the other states being Haryana, U.P.,
Rajasthan and West Bengal; limited lar gely to selected regions in the north-western
parts of India). However, there are still a large number of units that have not installed
any PCD or are still using the moving chimney BTK (Table 8.3). In some areas, new
moving chimney BTKs are also coming up despite the regulations. As regards the
MoEF notification, enforcement has been weak; and though some units have been set
up in which fly ash is used, its use is still very limited (states where units have come
up include Orissa and Andhra Pradesh). In Chandigarh, however, significant change
has been experienced (as mentioned before) – none of the units use the moving
chimney BTK any longer, and all units have switched over to either a fixed chimney
BTK with GSC or the HD. There has, however, been less significant change with us-
ing fly ash as per the notification. (Table 8.4).

[Link] Incentives and their effects

Regulation – emission standard and ban on moving chimney BTK

Prior to 1996, there was little change in the technology in the cluster used over the
years with no real policy incentive or pressure to make a change. The first fixed
chimney BTK (also known as the Beant chimney BTK) was installed in the region in
 167

the 1980s, but its diffusion was slow in spite of the potential advantages it offered,
and the moving chimney BTK remained the main technology.

Table 8.3: Some indicators related to the brick industry

Kiln type Chimney PCD Total Produ ction Fuel consumption per CO 2 emissions
type number per season 100,000 bricks (tonnes) per 100,000
(million) Coal Wood bricks (tonnes)*
India
BTK Fixed GSC 9194 3.7 11.4 20.1
BTK Fixed None 10217 3.8 16.0 28.2
BTK Moving None 12444 2.7 15.9 28.0
HD/Hoffman Fixed - 549 1.6 14.8 26.1
Clamps - - 58086 0.6 16.6 29.2
Punjab
BTK Fixed GSC 2020 5.3 13.5 1.0 23.8
BTK Fixed None 410 4.7 15.0 1.5 26.4
BTK Moving None 50 4.5 17.0 2.0 29.9
HD/Hoffman Fixed - 20 4.9 12.0 0.5 21.1
Notes: PCD: pollution control device – the GSC (gravity-settling chamber) ** Own calculations for emissions only from coal
combustion, using CO 2 emission factor for coal in India – 1.76 kg/kg (ALGAS 1997).
Source: (PSCST 2001a) based on a countrywide survey.

The post-1996 period saw rapid changes in light of the environment policy, and the
enforcement initiatives of the state government. Between 1996 and 1998, the shift
from the moving to fixed chimney in some units, and modifications in fixed chimney
BTKs in others, was initiated. However, most of the changes were brought about by
local “mistries” (or the kiln constructor), who generally provided the traditional de-
sign that has significant scope for improvement especially related to the installation
of a proper PCD. In this regard, therefore, two important initiatives related to tech-
nology development of more efficient kiln designs (that also met the emission sta n-
dard, one involving PSCST and the other involving CBRI) were started to assist in
compliance. Subsequently, after 1998, there were increased conversions to “efficient”
design BTK of the PSCST, and in a few cases to HD kiln of the CBRI.
In this period, the PBMA approached the PSCST for providing air pollution meas-
ures for the cluster (and other units in Punjab). The PSCST found out that the pollu-
tion load in terms of SPM levels of the units around Chandigarh was between 1200–
4200 mg/Nm3 (more than the prescribed emission standard), and started getting in-
volved in developing and disseminating an “efficient” design of BTK that met the
emission norm. It was in 1998 that the PSCST in collaboration with M/s Priya Bricks
set up the first efficient kiln design. It quickly became popular in the cluster, and the
design is being replicated in several units around Chandigarh even as of 2006.
168

Table 8.4: Policy implications for the cluster

Instrument Type Incentive Effect
Strengths Weaknesses
Main instruments
Regulatory Emission standard • Threat of penal action • Periodic extension of dead- Successful:
and ban on moving • Availability of technology op- lines • All units have converted to
chimney BTK tion approved by government • Lack of dynamic incentive fixed chimney BTK/HD kiln.
(Reduced bureaucratic proce - No moving chimney BTK
dures in obtaining clearances used.
+ technology package offered
by PSCST) Failure
• Little change in operational
practices ? potential for effi-
ciency improvement still high
• No incentive for further change
Regulation for fly • Threat of penal action • Enforcement very weak with Failure
ash use • Indirect incentive (free prov i- little action from state de - • Hardly any action
sion of fly ash by power sta- partments
tions; less clay use and thus
less royalty)
Other instruments
Suasive Capacity building • Opportunity for training, • Not necessarily needs-based • Increased awareness but still
technical support training potential exists.
 169

The importance of the initiative lies not only in developing but also efforts taken for
disseminating the technology.251 The SPM level on an average from a PSCST de-
signed kiln is 369 mg/Nm3 (meets emission norm).

At the same time, the CBRI, on the other hand, was approached by the AIBTMF to
develop a suitable design of fixed chimney suitable to meet the emission standards
(for brick kilns across India). The importance of this initiative also lies in the effort
of the AIBMTF to approach a technical research institute for technology develop-
ment (the HD kiln design with GSC was thus developed).252

In addition to these, another important development was SDC’s (Swiss Agency for
Development and Cooperation) initiative: the ‘India Brick Project (IBP)’. 253 This
project brings together a network of institutions (including the PCSCT) for dissemi-
nation of cleaner technologies and providing technical support for the phase -out of
moving chimney BTK, and promoting cleaner technologies in India. The main focus,
however, is on diffusion of the vertical shaft brick kiln (VSBK), a technology more
suited for small and medium units rather than those in Chandigarh. The India Brick
Project also focuses on other technologies like improving energy efficiency in exist-
ing fixed chimney BTKs kilns.

Effect What is important is that the regulation has been “diffusion forcing ” and suc-
cessful in bringing significant change across the cluster. The diffusion of fixed
chimney BTK followed a typical S-shaped curve with the acceleration phase being
triggered by the introduction of the emission standard (Figure 8.3). In more than 75%
of the sampled units using BTKs, the design provided by the PSCST is being used
(installed mostly in 1998–1999). Most of the conversions have been financed by the
entrepreneurs themselves (though PSCST is a government agency, the consultancy
was not offered at a discounted price, and a fixed consultancy fee was charged). The
diffusion of the design may be linked to three major reasons:
a) Proximity to the state capital made information dissemination as well as en-
forcement of the regulations easier than in other regions; and proximity to
PSCST made interaction between the entrepreneurs and the institute easier.
b) The design was developed by PSCST and was approved (and therefore indirectly
pushed) by the state government (and backed by the PBMA). The PPCB nor-

251
Punjab was probably the only state where a government institution (the PSCST) provided con-
sultancy and design for technology improvement; and the technology has been replicated in
about 2500 brick kilns across the country (mainly in North India, particularly in Punjab).
252
The HD kiln had been d eveloped by CBRI in the 1970s. At present, there are about 150 HD
kilns operating in India. It improved this design to include the GSC. This was probably the
first time that AIBMF has been involved in efforts for technology deve lopment.
253
The Swiss Agency for Development and Cooperation (SDC) initiated the India Brick Project
(IBP) in 1995. As part of this initiative it introduced in India the VSBK technology (orig i-
nally Chinese, but adapted to meet Indian conditions). At present, there are about 27 VSBKs
in operation in India (in Madhya Pradesh, Maharashtra, Orissa, Uttar Pradesh, Karnataka and
Tamil Nadu.
170

mally awards a no-objection certificate easily in cases in which the units use the
PSCST designed kiln (which is needed get the licence to operate from the DoFS).
c) The nature of the PSCST initiative and efforts of their consultancy cell: (a) it
provided a consultancy package including technical advice, design and training;
(b) for the first time training of the entrepreneurs and the workers was attempted
in an organized manner, and (c) it brought in cooperation between SSI entrepr e-
neurs and government agencies (PSCST, PPCB).

BTK with moving

chimney
Dispersion (number of kilns)

BTK with
fixed chimney

HD kilns

1996
Time

Figure 8.3: Diffusion of kiln technologies in the cluster

Takers for the CBRI design, on the other hand, have been fewer (though it is more
energy efficient than BTK, is state -government approved, and had the AIBMF back-
ing). This may be because of the nature of the HD kiln technology itself (it is more
costly, needs power, etc.), and also logistical factors (PSCST is in Chandigarh, and
therefore more accessible and reliable; and its efforts in disseminating the technol-
ogy).
Thereby, energy efficiency improvements were brought in, and this has led to a de-
cline in the related emissions across the cluster. As per PSCST estimates, there have
been benefits in terms of 10% of coal savings (Rs 0.2 million per season in monetary
terms), and increase in output by 10–15% for an average capacity kiln. Although
most entrepreneurs were not able or willing to give exact figures, one entrepreneur
reported that the changes in energy consumption recorded by him in his unit were as
follows:
• Moving chimney BTK: 23–24 tons of coal consumed per 100,000 bricks ;
 171

• Fixed chimney BTK (traditional): 22 tons of coal consumed per 100,000 bricks;
and
• Fixed chimney BTK (PSCST design): 18–20 tons of coal consumed per 100,000
bricks.
While the efficiency of kilns has definitely improved, the sample data reveals that the
coal consumption is still high (Table 8.5). Theoretically, the coal consumption in an
ideal kiln could be around 9 tonnes per 100,000 bricks (Maithel 2002). The PSCST
design aims at coal consumption between 12–14 tonnes per 100,000 bricks. But in
the cluster, average coal consumption in the units with PSCST design as against
those quoted by the entrepreneurs using other BTK designs is only slightly higher.
Even though the data has a margin of error (as it is based on information collected
from the entrepreneurs themselves), it does highlight the potential for further im-
provement and the significance of proper operational and firing practices.

Table 8.5: Average coal consumption by technology type

Type of technology Coal consumption in ton per 100,000 bricks*
BTK (with fixed chimney) 15.83 (14–22)
High Draught 12.00 (11–14)
*the range is given in parenthesis.

So, why haven’t the units been able to achieve the efficiency that is potentially feas i-
ble? One of the reasons is that though there has been a change in ‘hardware’ compo-
nent of the technology, the basic operating and management practices have remained
almost the same. The emission standard though made suggestions for improvements
in technology and installation of PCDs, but it did not mention the need for improving
operating practices. It thereby laid stress on SPM reduction and end-of-pipe solutions
rather than on energy efficiency improvements. There still remains significant scope
for improvement in energy efficiency – at least another 10–20% of energy saving can
be achieved through proper firing and management practices (PSCST 2001b).
Thereby, diffusion of cleaner technology does not necessarily lead to upgrading of
technological capabilities, and these too need to be looked at while designing policy
prescriptions. 254 This has been mainly due to contextual factors as discussed in the
next section.
Beyond 2004: The regulation has mixed implications for the future development of
the cluster. On the one hand, it does not provide any incentive for further change
(dynamic incentive) once the units have installed a PSCST-designed kiln (based on
this, they can get the PPCB certificate for 1–10 years, sometimes even 15 years). On
the other hand, the level of awareness has increased across the cluster not only due to
the enforcement of the emission standard, but also due to the efforts of the state de-
partments including PSCST, and other initiatives under the IBP. Punjab is known for

254
The emphasis is on production capability – skills and knowledge required to run a given pro-
duction technology efficiently (Lall 1992).
172

its entrepreneurial skills and the kiln owners here are generally competitive. 255 Rising
levels of awareness have made the entrepreneurs realize the importance of cleaner
technologies and further changes. In another development, a project proposal is being
developed by the GEF/UNDP-India office with its partners for reducing GHG emis-
sions from the brick SSI through capacity building and technology demonstration
and promotion (GEF Operational Programme–5). This proposal, if accepted is likely
to have a significant impact for the cluster.
However, regarding the regulation itself, many entrepreneurs do feel that the regula-
tions do not take into consideration aspects like soil quality and availability of clay.
They see advantages of using a better technology, but also recall facing difficulties
during the transition period (especially financial and access to information) and re-
sisting any change in technology (technical uncertainty). In addition, many first
changed over to a traditionally designed BTK and then to the PSCST-specified de-
sign, which added to their costs. The main incentive for most entrepreneurs for con-
version to a PSCST or CBRI-design kiln seems to have been the reduction of bu-
reaucratic hassles in achieving a no-objection certificate from the concerned gov-
ernment departments rather than availing the benefits of the new technology.

Regulation related to fly ash

The fly ash regulation is not applicable in most units around Chandigarh. Only the
units in Ropar district fall in the purview (many are within a radius of 50 km of Guru
Gobind Singh Super Thermal Plant in Ropar) and are covered under the MoEF noti-
fication of 1999. However till 2002, none of the brick kilns functioning in the district
had complied with the regulation. 256 Only one unit, that too in Derabassi and not in
Ropar, is using fly ash from the thermal power stations in Ropar and Bhatinda. The
steps are taken by the PPCB to ensure the use of fly ash have been limited (Mohan
2002).
The incentive under this regulatory instrument is weak as it is not suitably enforced.
The notification specifies the regional officer of the PPCB as the authority for ensur-
ing the use of specified amount of fly ash by the brick-kiln. However, it was only af-
ter almost three years of notification that the PPCB have issued notices to the brick-
kiln owners to use the fly ash in manufacturing bricks (Mohan 2002). The entrepre-
neurs have also opposed the regulation on fly ash (Singh 1998; Tribune News Ser-
vice 2002). Their main arguments are that there is limited technological know -how
on fly-ash utilization and related costs, and the cost of transportation will add to the
production costs (there is disinterest on the part of the power plants in disposal of the
fly ash). In addition, uncertainty regarding availability of fly ash (they are not fully
aware of the policy) and no real existing market or any premium for fly ash bricks
adds to the reasons for non-compliance. There is no demonstration unit set up in the

255
This was also reflected in the fact that some entrepreneurs have made modifications in the ex-
isting technologies to suit their needs. For instance, in one unit the design is based on the
CBRI technology but the chimney is like in the BTK (instead of high draught power-run fan).
256
Interview no. 10. CBMF 2002.
 173

region that could be a model for other units. 257 However, a demonstration project
would be successful if a market exists (Srivastava 2002) , or if there is incentive to
undertake these efforts. With little regulatory incentive as of now, and lack of aware-
ness and initiative regarding the technology among the consumers, the power stations
and the entrepreneurs, the effect of the regulation is negligible.

Other policy instruments

The performance and significance of the other instruments has been much less dr a-
matic than the regulatory instrument. For instance, imposing a “royalty ” on soil e x-
cavated does serve as a negative incentive towards exploitation of topsoil; however,
it is not big enough to induce the entrepreneurs towards cleaner technologies (e.g.
use of alternative and internal fuels) or to take care of the reclamation costs of the a f-
fected land (Damle 2001) . In addition, there have been widespread protests across
the cluster (and in other regions in Punjab) against imposition of the royalty (and fine
on failure in payment) by the state government (Tribune News Service 2001, 2002) .
The suasive efforts in terms of opportunities for training, capacity building, and
technical support offered by various governmental departments and other organiza-
tions (PSCST, SIBDI and under the IBP), on the other hand, have brought in some
change. The main success has, of course, been the PSCST initiative for technical
support. However, this alone do not provide a strong incentive; only when combined
with the regulatory incentive, will they together be able to bring about a significant
change. While, on the one hand, these have been successful in increasing awareness
regarding technical options, environmental concerns, etc., on the other hand, it is felt
that these are often not needs -based (e.g. do not ade quately train the workers or mis-
tries who are largely respons ible for working of the kilns).

8.4 Contextual factors

The important features of the brick SSI are its scattered and seasonal nature. It is a
complex process influenced by a number of factors including soil quality, fuel used,
skills available and local climatic and market conditions. In addition, more often it is
only a secondary occupation for the entrepreneurs due to which their motivation for
bringing in cleaner technologies is limited. However, there are a number of factors at
play (Table 8.6).

257
The only unit that is using fly ash is a mechanized unit which is private so other entrepreneurs
are not allowed to see it.
Table 8.6: Contextual factors
Factor Driver Barrier Effect
Environmental • Environmental concerns • Increased awareness
Organizational • Low awareness and traditional practices. Old, • Limited marketing and management skills
fa mily-owned units with flexibility in working in many units
• Brick unit may be secondary occupation
• Limited managerial and marketing skills
• Reliance on ‘mistries’
• Use of contract workers (as carriers of • Use of contract workers • Traditional firing practices being used
knowledge) • Limited capacity building of workers
Economic • Economic capability low (high risk activity) • Economic capability low for many units
• Financial support available • Financial support limited • Financial support limited for many units
• Demand (sustained) • Market conditions (consumer preference) • Market conditions a factor
Technological • Limited technical capability (know-how) • Technological capability limited for many
• Technical support available (CBRI, • Technical support is limited (benchmarking, units
PSCST) demonstration units, fly ash technology) • Technical support available; however, con-
• Seasonality/weather dependence tinued support limited
• Infrastructural constraints: (coal quality, power
supply)
Social • Attitudes: Motivation, attitudes, mindsets • Attitudinal constraints
• Initiative by associations (AIBTMF, • Networking: Limited interaction (competition) • Limited networking
CBMA) • Bureaucratic procedures
• Involvement of younger generation
(brings in awareness, IT, etc.)
8.4.1 Environmental factors
The environmental concerns related to the SSI, are a driver towards diffusion of cleaner
technologies. However, environmental consciousness (and motivation), though some-
what increasing with rise in awareness, is still low.

8.4.2 Organizational factors

Most stakeholders feel that one of the barriers for diffusion of cleaner technology is
the limited involvement of the entrepreneurs and their dependence on the “mistries”
(firemen).258 Most entrepreneurs (85–90%) do not devote adequate time to their units
leading to little supervision and control over workers. 259 Some entrepreneurs own
more than one unit within the family, and for yet others it is their secondary occupa-
tion. Thereby, majority of the entrepreneurs are dependent on their “mistries”, and
follow their advice. Being only a seasonal activity, hiring managers on a full-time
basis does not seem lucrative to them. It has been observed that when the owner goes
to his kiln regularly or the younger generation takes over, eff iciency is higher. 260
The workers play an important role in technology diffusion. As mentioned before,
they are migratory and are hired on contract (workers go home after the production
season and return in the next season, but may or may not work in the same unit). On
the one hand, entrepreneurs do not want to invest time and money in training them,
as it is not sure whether they will stay during the next season. On the other hand,
however, the workers act as “carriers” of technology information when they move
from one unit to another. This is significant as normally there is little exchange of
technology information between entrepreneurs due to increasing competition, as the
market is limited to local and neighbouring areas. Some of the bigger unit entrepre-
neurs said that they did not allow other entrepreneurs to see their units, and there was
limited exchange of information261.

8.4.3 Economic factors

One of the main barriers towards adoption of cleaner technologies is the capacity of
the entrepreneurs to take economic risks – “production process is highly dependent
on labour and nature”. Low profit margins and their economic positions make them

258
There are two kinds of mistries in the industry – one for kiln construction and another for su-
pervision of the firing activities at the kilns. The head fireman is usually the supervisor.
259
Being a labour-intensive activity, the performance of the operation depends a lot on worker
efficiency. For instance, during firing, coal has to be fed at regular intervals. Under little su-
pervision and tiring conditions (and heat), workers often adopt a relaxed attitude, and coal
feeding is rendered inefficient (without proper measurement, irregular intervals).
260
For example, a son and father each own and manage a unit using the same technology, but the
former is doing better as he spends time at the unit regularly inspecting the op erations.
261
I too experienced this during the survey when I asked one entrepreneur if he had received help
from any of the financial institutions such as PFC or SIDBI, and he replied in the negative.
However, later in an interview at the PFC, I found that he had received funds from there.
176

risk averse. This is especially for the medium units, for whom access to external fi-
nancial resources is also limited. As the produc tion process is continuous – each cy-
cle for production of one batch of bricks takes 28–30 days – it is not possible to
monitor the workers all the time, which further lowers the risk-taking ability
Thereby, the economic capability of many units is low. The re are opportunities for
getting financial support (PFC, KVIC, etc). For instance, a few large unit owners
(five units – two in Derabassi and one in Ropar) have been provided funding by PFC
for installating moulding machinery and other equipment.262 But for the medium and
non-mechanized kiln owners, however, access to finances is a limitation (they are not
eligible for direct funding by the PFC, SIDBI, etc, and they normally prefer to rely
on their own resources to avoid procedures). Most of these units also undertook the
kiln conversions using their own resources.
A sustained demand for bricks (as a main input for the construction industry) is a
driver for improving productivity and efficiency. Market conditions in the last three
years have shown a decline in demand, however, by and large, it has been stable. 263
The costs of production have gone up slightly due to labour and raw material costs.
On the other hand, competition has also increased – though there are units that have
closed down or decreased production, others have also been set up. Consumer pref-
erence is also important in shaping market demand (e.g. there is no premium paid on
fly ash bricks).264

8.4.4 Technological factors

The very nature of the brick-making activity – seasonal and weather-dependent – in-
culcates flexibility in the production process. It is a high-risk activity (e.g. there is
high breakage and in the event of rain the material can get ruined and the production
process may have to be stopped), making the entrepreneurs wary of using new or un-
proven technology. There also exist technology-specific and infrastructural con-
straints. Technology-specific constraints include costs, and electricity requirement as
in the case of HD kilns; whereas infrastructural constraints are poor access roads
which add to damage during transport, and lack of or delay in getting electricity con-
nections. The technology used therefore is simple to operate, and workers skilled in
its operations are available in the cluster.
While technological knowledge is traditional and limited, there are opportunities for
technology support – both in terms of technology access and know-how (from

262
Interview no. 11. PFC 2002.
263
The average selling price for bricks is between Rs 1100– 1400 for 1000 bricks. It varies based
on the quality (grade) of bricks. Grade 1 bricks sell at Rs 1300– 1400. The production cost, on
the other hand, varies – and was reported to be around Rs 1000–1200 for 1000 bricks. Some
entrepreneurs did say that their production costs were Rs 1400 and they were selling at a
slight loss – however, it was difficult to verify this. Many said that the trend was cyclical
(good seasons followed by bad ones) which evens out.
264
It is believed that the quality of the brick is associated with its colour (though not necessarily
true): the redder the brick, the better its quality – so entrepreneurs prefer to manufacture red
bricks and not use fly ash which renders the bricks paler.
 177

PSCST, CBRI, etc.). However, there is still no adequate know -how especially with
regard to management and operational practices, no demonstrated technology or
benchmarking of technologies in the region, which the PSCST or AIBTMF can pro-
mote as an efficient or model technology.
Though technical knowledge has improved it still remains limited among the entre-
preneurs “when they themselves are not trained, how will they train others – partic u-
larly their workers”. The association members point out that there is lack of dedi-
cated, practical and need-based training. “Rudimentary training has been provided
(e.g. PSCST and SIDBI), but what is needed is at least a week-long training on site
and under supervision”. “PSCST provides training like it is required by secondary-
school students – but in reality training should be provided as that for the kinderga r-
ten”. “We need either demonstrated technology or focused training on our site for at
least a week”. PSCST, on the other hand, points out that even if training is provided,
the problem is the mindsets – not just of the entrepreneurs but also of the workers. It
is difficult to change worker mindsets – “they are convinced that more smoke out of
the chimney implies that the combustion is better”. However, awareness has in-
creased and concern for working conditions and efficiency is there, laying the foun-
dations for technical changes in the future.265

8.4.5 Social factors

Some stakeholders (other than the policy makers) feel – in the same light as the e n-
trepreneurs themselves – that the procedures to be followed by a unit owner are very
stringent and time-consuming (like paying income tax, sales tax and royalty, and ge t-
ting a no-objective certificate). There is no single window – and the entrepreneurs
have to go through 20 or so departments (and the issue of middlemen becomes im-
portant). Forms – such as that for consent to operate – are difficult to fill. “Forms are
made so that no one can fill them”.266 The need is to change the procedures – make
them transparent and user-friendly, and also to create awareness among the entrepre-
neurs (develop effective training mechanisms at all three levels – owner, worker and
policy).
The associations at the district levels in general have been weak and there is little inter-
action between the entrepreneurs. However, at the higher levels, initiatives have been
undertaken – for instance, AIBTMF advising on technical issues and organizing training
programmes, etc. The involvement of the younger generation is also bringing in new in-
formation, awareness and ideas.

265
Some changes have already begun, for instance, sheds over the kilns is now talked about to
avoid weather wraths; one entrepreneur has even installed a portable shed, and another has
set up a 24-hour canteen for the workers to get (hygienic) food at affordable price.
266
Interview no. 9. PSCST 2002.
178

8.5 Brick clusters in and around Pune

The above sections focused on the Chandigarh cluster. As the production methods in
the zone 1 are quite different from those in the other parts of India, this section pr e-
sents the observations and findings of a study undertaken in Pune, Maharashtra in
zone 2. Pune district is a fast-growing industrial area in Maharashtra, which is the
largest brick-producing state in zone 2. The comparison is important as the technolo-
gies here are quite different from those in Chandigarh and the implications of the en-
vironmental policy is almost negligible. This also provides a case for performance of
local associations in addressing the problems of the entrepreneurs267.

8.5.1 SSI–environment interaction

There are around thirteen brick-making clusters in and around Pune, of which four
important clusters were covered in the mini case study (Table 8.7). 268

Table 8.7: Clusters around Pune included in the study

Cluster District Approximate num- Number of units sur-
ber of units veyed
Vittalwadi Pune 80 5
Daund Pune 80 3
Sangamner Ahmednagar 140 3
Thergaon and others Pune 50 5

Like in Punjab, these are family-owned businesses269 catering to the local markets.270
However, these are larger clusters comprising of small sized units with average pr o-
duction of around 0.6 million bricks per unit per season. Table 8.8 brings out the
contrasts in the characteristics of the units in Pune and Chandigarh.
The main technology used is open clamps, and the main fuel used is coal (with low
calorific value). The VSBK has been introduced in the region (two VSBK units are

267
The cooperative society movement in Maharashtra – initially confined to agricultural credit
but then spread to other areas – has played an important role in its development, particularly
in the rural areas.
268
The Vittalwadi cluster is closest to Pune city, and comprises very small units with production
ranging from 100,000– 400,000 bricks per annum. On the other hand, the units in Daund clu s-
ter are larger with production in some of them being more than 1 million per annum. San -
gamner cluster is farthest from Pune city and falls in another district (Ahmednagar).
269
In Daund, the situation was slightly different. In the earlier years, many were employed as
railway staff, but with those jobs declining, the next generation had to shift to other activities
(e.g. agriculture, brick making).
270
There are two kinds of bricks made in Pune – the conventional bricks (size 9” x 4” x 3”) and
the double bricks (size 9” x 6” x 4”). The double bricks, popular in M aharashtra, account for
60% of the production and are sold mostly to building companies.
 179

included in the sample). 271 The coal consumption in the units on an average is 15
tons per 100,000 bricks (the range being 8–20 tons of coal per 100,000 bricks for the
clamps). On the other hand, one of the two units using VSBK reported their coal
consumption at 6–8 ton per 100,000 bricks, which is quite low compared to clamps.
There are a range of other fuels used as well like bagasse, industrial ash, rice husk,
agricultural waste (like husk from bajra), and firewood, etc.272

Table 8.8: Comparisons between brick units around Chandigarh and Pune
Characteristic Chandigarh Pune
Zone Zone 1 Zone 2
No. of operational units 100 350
Average age of units 15 years 23 years
Product Bricks (conventional) and Bricks (conventional and double
brick tiles bricks)
Production season September to June November to May
Production capacity/size Medium and large Small and medium
Number of workers 150– 200 25– 100
Main technology BTK fixed chimney Open clamps
Main fuel Coal Coal
Other technologies HD kiln VSBK
Policy implication Significant Limited
Main contextual factor Organizational (reliance on Technological (appropriate tech -
workers) nology, know-how, raw material)
Based on survey information.

Energy efficiency in the clusters is very low, and the working conditions very
poor.273 These can be improved by use of more efficient operating practic es, use of
internal fuel such as fly ash, and switching to more efficient technologies (B ox 8.2)
including efficiently designed clamps (like multi-chamber kilns can improve effi-
ciency by 25%) and VSBK (can improve efficiency by 50–70%). The cost of VSBK
is quite high compared to the clamps (which are famous for their zero costs), and
therefore, it is referred to as a “five star technology” (viable for bigger entrepreneurs
only) by a consultant active in the region. And, the information about the multi-
chamber kilns is also very limited (setting up of demonstration projects has been
proposed in the proposal to UNDP–GEF, contingent on its acceptance). Fly ash is
also not very popular. On their own initiative, two units in Sangamner were using fly
ash. However, one of them had closed down and the other was facing difficulties –

271
There was also a BTK owner who has now closed his unit as it was not viable. The main rea -
sons that he gave for closing it were: (i) soil is more suited for clamps, (ii) production was
much more in BTK than could be marketed, and (iii) labour problems, as the workers were
trained for clamps and not BTKs.
272
In many of these clusters, entrepreneurs use all kinds of material available – some also re-
ported using rubber shoes and tyres some years back but have now stopped using them.
273
For instance, firing in case of clamps, the workers have to carry loads of bricks (12– 14 bricks
at a time) usually on their heads, to stack them.
180

technical and marketing (there are few buyers for “white” bricks – implying limited
marketing skills).

8.5.2 National policy and policy implications

Unlike the situation for the Chandigarh cluster, the ban on BTKs with moving chim-
neys under the MoEF notification (1996) does not include clamps, so it does not af-
fect the units in Pune. On its own initiative, however, the Maharashtra Pollution Con-
trol Board, vide its letter dated 18 February 1997 to all District Collectors, included
clamps under the purview of the said Regulation. However, this has not been fol-
lowed up with concurrent extensions and efforts towards its enforcement have also
been absent (Damle 2002). Thus, there is hardly any policy incentive towards use of
cleaner technologies. A meeting with a senior official at the MPCB branch at Pune,
also gave the impression that dealing with the brick units is not an area of concern
for the Board.
Box 8.2. Technological options for the Pune cluster
Cleaner technologies
• Operational practices and housekeeping
• Use of efficient kilns (e.g. VSBK, multi-chamber kilns)
• Modifications in design of existing kilns (e.g. efficient clamps)
• Use of better quality or cleaner fuels (better-quality coal, renewables)
• Use of internal fuel (e.g. fly ash)

The location or sitting policy of industrial units has some implications for the clusters
around Pune, which prohibits the setting up of the units within the city/residential ar-
eas. The Vittalwadi cluster faces the threat of closure as it is situated very close to
Pune city, however, the entrepreneurs are not so concerned as land prices are very
high – “we will see when the time comes, right now we are all rich due to our lands”.
On the other hand, the threat of relocation or clos ure for the Daund cluster – where
the units are situated mainly on agricultural land – has entrepreneurs living with the
fear that some day a court order will be issued asking them to shut down.

8.5.3 Contextual factors

The main contextual factors that constrain diffusion of cleaner technologies are the
lack of motivation and appropriate technologies. The clamps are popular for two
main reasons. First ly, the cost of the kiln is almost “zero ” – as no permanent struc-
ture is needed and most entrepreneurs work on leased land there is hardly any fixed
capital involved in the production. Secondly, it allows complete flexibility in terms
of capacity and fuel used – it is accepted that when the demand rises, production of
bricks can be increased by increasing contractual manpower and arranging more
clamps on the land available, and vice versa . In addition to this, there is little policy
pressure. Thus, there is little motivation or need for small entrepreneurs to change
over or invest in a new tec hnology.
 181

There are also a number of problems faced by the entrepreneurs that make it more
difficult to invest in change. These include:
• Availability of clay: There is scarcity of clay/sand, and it is usually got from
quite distant areas. Royalty and transportatio n add to the costs. The “Prajapati”
community (traditional brick makers) is exempt from paying royalty on provid-
ing evidence that they belong to the particular caste. However, in this case also
there are lengthy procedures involved (in proving eligibility for exemption).
• Bureaucratic procedures: An entrepreneur has to spend a lot of time in meeting
the requirements of different government departments (sales tax, royalty, etc).
There is no single -window facility for them. There is also no real platform in the
state or districts to put forth their concerns. “Government does not harass – it
does not know”.
• Coal availability and quality: Coal is mostly bought from middlemen, as it is re-
quired in small quantities.274
• Labour problems – The workers are migratory in nature and shift to different
units if their demands are not met.
• Payments – Most transactions are based on credit, and marketing skills are lim-
ited.
• Other problems – These include finance and technological know-how (access and
affordability). The KVIC does provide loans at a concessional rate, however,
very few have availed of this option.
Associations in some of the micro-clusters are addressing many of these problems
making a case for collective action. These exist only at the local levels; and the two
which have made a significant difference are the Navjeevan Society at Sangamner
and the society at Vittalwadi (see Box 8.3). The rest are relatively weak (the weakest
is in Daund). 275
However, quite a few entrepreneurs are even interested in cleaner technologies which
can be cost-saving. Some factors that have contributed to this have been: (a) increas-
ing awareness as well as capacity building under the IBP under which the VSBK has
been set up and the work of private consultants; (b) involvement of the younger gen-
eration. Maharashtra has a high literacy rate, and the introduction of information
technology has brought in awareness about technologies, experiences of other coun-
tries and financial institutions among the internet users in the younger generation
who want to bring about a change (this was seen in Sangamner which is about 70 km
from Pune city, and among a couple of owners at Vittalwadi – but not much in other
clusters). One entrepreneur who has set up a VSBK commented – “earlier my son (a
graduate in business management) did not want to join my brick business, but now

274
Government usually will process a requirement of a minimum of 1000 tonnes of coal, which
is a large quantity for individual brick makers.
275
The association at the Daund cluster that has been formed relatively recently. There are cu r-
rently 150 members from Daund and nearby areas. However, almost 90% of the members
failed to pay the nominal membership fee due to which it remains extremely weak (interview
with member). None of the three units surveyed in this area is a member of this association.
182

with this new technology he too has got involved and enjoys the work”. The entre-
preneurs in general are not ready to talk about new (and expensive) technologies like
the VSBK, but they are interested in knowing about efficient ways and operating
practices which could make their production more cost-effective.
Entrepreneurs are thereby searching for ‘appropriate’ technologies (that are cheap,
applicable to a small scale and simple) which are not available to them. On the other
hand, the main barrier still remains technology and information (both about tec h-
nologies and financial and policy options), and the major problem is availability of
quality clay.
Box 8.3: Main activities of the two successful associations
Vittalwadi: The Vittalwadi association has been formed relatively recently in 1997, and is
based on the Navjeevan model discussed below. There are about 80 small units in Vittalwadi
and all are members of this association. The main reason for the creation of the association
was to deal with problems related to coal. The association makes a bulk purchase of coal en-
suring better quality, price and delivery for the entrepreneurs. It also deals with issues relat-
ing to royalty (to deposit group royalty instead of individual payments) and help in market-
ing of the products. The association also plans to organize training programmes to help im-
prove the existing production practices. And, it also provides a platform for interaction
among the entrepreneurs (there was little interaction before).
Sangamner: In Sangamner, there are two societies co-existing – Navjeevan and Amritvahini,
together with a credit society for the brick units. Navjeevan has about 136 members, all be-
longing to a particular caste – Prajapatis (Jhorwekars), and is the most successful. Amritva-
hani, on the other hand, has 50 members who are all non-Jhorwekars. The Navjeevan Soci-
ety was started in 1963 with 25 members. It was actually established in 1956 as the Sant
Gorba Society. However, in 1963, there was a split in the Sant Gorba Society and the Jhor-
wekars separated and formed the Navjeevan Society. The motivation for formation of the so-
ciety was to obtain special privileges that were available to a registered society like tax ex-
emption, waivers and preference in government tenders.
The success of the Navjeevan Society may be attributed to the common interests of a partic u-
lar caste of people and that it has been presided over only by representatives of one family.
Its activities are: to procure coal and distribute it among the members at a reasonable price,
announce labour rates so that shifting of workers between units is limited (most workers do
not shift between units – and many have been working in one unit for 10 –15 years), help in
the marketing of products (the units not possessing a sales tax number can use the society’s
number), and collective pa yment of royalty. This kind of a close-knit and open system does
provide an avenue for ‘demonstration and ripple effect’. Although the members are compet i-
tors the association provides a platform for exchange of ideas

8.6 Conclusions
This case study presents the case of a traditional SSI where a regulatory incentive is
combined with an opportunity for technical support. The case study brings out the
importance of the role associations can play not only in motivating their members
and sending petitions regarding their concerns to the requisite authorities, but also ar-
ranging opportunities for technical advice. In addition, it provided evidence of in-
digenous development of a technology (HD kiln) as well as technology adaptation of
an imported technology (in case of the VSBK).
 183

The environmental policy has been diffusion-forcing for the Chandigarh cluster –
there has been strong enforcement of the policy provisions and it provided added in-
centives in terms of availability of approved technological options, reduced burea u-
cratic hassle in obtaining licenses (indirect impact), accessibility to consultancy
package and increasing awar eness. However, it does not provide direct incentives for
further improvements (though there is indirect incentive owing to increased aware-
ness) or at improving the operational practices across the units. The technological
capacities in terms of operations and firing practices have not changed, mainly due to
contextual factors such as limited technical knowledge and reliance on workers by
the entrepreneurs. This has resulted in under-achievement of the technological and
energy-efficiency potential of the diffused tec hnology (and policy objectives), and
thereby scope for improvement. In the current policy scenario though awareness has
increased, the exploitation of the energy efficiency potential is not going to happen.
One would think that with installation of the currently available and installed tech-
nologies across the cluster, there may be no options for bringing in cleaner technolo-
gies. However, as pointed out there does exist potential for energy efficiency im-
provements by improving the operational practices, as well as by introducing new
designs. This may happen as information is increasing and the associations as well as
the entrepreneurs are becoming more aware not only in terms of the technologies but
also various incentives available to them. However, arguing that this cluster has al-
ready shown a change, it also makes a case for replication of the efforts made here
across other clusters in the country. Steps towards this have been undertaken in terms
of capacity-building efforts, and an increasing number of consultants and organiza-
tions becoming involved. However, given the magnitude of the number of units that
are there, this requires much greater effort which may be taken as an extension of the
current efforts as well as new initiatives and using the climate change instruments.
The Pune case does give an example of a cluster where action may be undertaken.
The environmental policy here is weak and does not provide an incentive for change.
This is mainly due to their small size, limited resources, benefits of existing technol-
ogy (cost, flexibility), and absence of comparable appropriate technology. However,
the Pune case has shown that even in an unorganized set-up entrepreneurs have come
together to form associations in order to meet their requirements.
9. Current paradigm: Is small beautiful and clean?

9.1 Introduction
This chapter presents a comparative analysis of the three case studies and adds addi-
tional elements based on desk research and interviews with select relevant stake-
holders, in order to draw insights for the Indian SSI sector as a whole. It follows a
bottom -up approach in examining the link between CCIs and SSIs by assessing the
influence of local circumstances on SSI–environment interactions. It therefore helps
in addressing the third research question: What are the main drivers and barriers re-
lated to diffusion of cleaner technologies in the SSIs in India?
Section 9.2 discusses the SSI–environment interaction holistically. Section 9.3 exam-
ines the local situation including the role of national policies and the contextual fac-
tors to bring out the context and the reasons why SSIs are constrained in adopting
cleaner technologies in the present situation. This brings to the fore the gaps in the
current paradigm, and presents a base for a shift towards a more sustainable para-
digm for the SSIs, as is detailed in Section 9.4. The last section draws the main con-
clusions related to the policy options that can be used for inducing such a transition,
and whether a role for CCIs can be envisaged in this regard.

9.2 SSI–environment interaction

The case studies highlight the relevance of the SSI sector from a sustainable deve l-
opment perspective. They provide empirical evidence for local (environmental and
developmental) and global (GHG emissions) impacts of the SSI activities.
The SSIs make a notable contribution to the value added and exports of the country
and help build upon the local skills and expertise (e.g. local handicrafts as in the case
of glass). Being labour intensive, they are a source of livelihood to many (including
skilled as well as unskilled and migrant workers), and lead to indirect benefits such
as local self-sufficiency, improved standards of living and poverty alleviation. How-
ever, there are social concerns pertaining to SSIs as well including health impacts
and labour issues involving contract and bonded labour. Although, there are policy
provisions addressing these concerns, they are not always adhered to (for example,
field observations children reveal that work in the brick and informal household glass
units despite a ban on child labour). The working conditions are especially poor in
most of the units surveyed. For instance, the workers work in high temperatures and
handle material – mixing raw material in glass units, sieving coal in clamp brick
units and pouring molten metal in foundries – without proper protection and at times
in small covered areas (as in glass and foundry units).
Evidence shows that in most SSI units energy is used inefficiently and comes from
different sources (fossil fuels including inferior quality fuels like low grade coke,
186

biomass and electricity). Even when relatively cleaner fuels like natural gas and s u-
perior coke is used, little attention is paid to efficiency. This contributes to the nega-
tive environmental impact and poor working conditions. The environmental impact,
though small at the unit level, is quite relevant collectively at cluster and SSI levels,
as shown for all the three clusters studied. Their GHG contrib ution too is not as
prominent as large-scale industries, but the collective degree of energy inefficiency is
a matter of concern for environmentalists as well as for developmental age ncies.
The use of traditional technologies in SSIs provides significant potential for cleaner
technologies, both hardware and software technologies. Evidence shows that diffu-
sion of select cleaner technologies brings down energy consumption and GHG emis -
sions in the sector, along with other socio -economic and environmental benefits. For
example, use of natural-gas f urnaces in glass units reduces production costs and im-
proves working conditions and product quality. There is still significant potential for
further efficiency improvement in all SSIs, including glass which has already exper i-
enced change. These include options ranging from simple modification in operating
practices to adoption of modern technologies, and from indigenously developed (e.g.
HD kilns) to those based on technologies used in other countries (e.g. VSBK).

9.3 Why do SSIs not adopt cleaner technologies?

The case studies help in drawing lessons about what encourages or hinders the SSIs
from adopting cleaner technologies.

9.3.1 National policies

The theoretical literature suggests that appropriate policy instruments can encourage
diffusion of cleaner technolo gies in the SSIs (Section 2.2). An examination of the na-
tional policies (in Chapter 5) reveals that national policies can be drivers as well as
barriers to change.
SSIs in India have for long enjoyed a protective national policy environment. This, in
effect, has created perverse incentives for them to remain small and brought in com-
placency. Gradually, the policy focus is shifting from protection to promotion in line
with the broader macro policies advocating reforms, liberalization and globalization
of the economy. Units now face increasing market opportunities as well as competi-
tion (Section 5.2). While these provide a motivation for SSIs to adopt cleaner tech-
nologies; uncertainties regarding market and policy scenarios also constrain them,
particularly the small units, from doing so. The SSI policy continues to provide, a l-
though reduced, preferential treatment, incentives in terms of subsides, and opportu-
nities for training, marketing and technical assistance. The cluster development pr o-
gramme in particular is targeting clusters rather than individual units. This has posi-
tive implications but is also limited in not recognizing the heterogeneity among the
units. Though several SSI units and clusters have benefited, the reach of policy in-
centives is narrow given their large numbers. In the ‘case study’ clusters, there are
 187

only a few units that have effectively used these opportunities (research shows that
only 10–15% of the units in the three clusters have availed of policy incentives).
The emphasis of the environmental policy is particularly on regulatory instruments,
supplemented by suasive and at times economic instr uments. The policy exerts some
pressure on SSIs to adopt cleaner technologies, but it is limited. This is because, first,
there are few polic y provisions related to energy efficiency in the SSIs. The envi-
ronmental issues are either ignored or given concessional treatment (Section 5.3). O f-
ten they get incorporated in the overall policy making primarily for reasons other
than concern for inefficient use of energy; such as protection of the national heritage
and cleaning of the river Ganges. Second, the policy thrust is on end-of-pipe solu-
tions or on fuel-switching; efficiency aspects in terms of design or hardware and op-
erating practices or software have largely been ignored. Even in the case of the glass
cluster, though the focus is on switch to cleaner fuel, energy efficiency has not been
given due attention (Section 7.4). Third, the focus has been on local pollution and not
global environment issues. There are no standards for CO2 or other main GHGs as of
2006. Fourth, the enforcement of the policy provisions is ad hoc and generally weak.
Among other reasons, the fact that the sector constitutes a large vote bank makes po-
litical will towards active enforcement weaker. For example, the closure notice for
polluting industries in Delhi has not been successfully implemented.
This provides evidence that there is significant potential for efficiency improvement
in the SSIs, and energy efficiency is st ill not a priority for the national SSI policy.
Overall, there exists a gap between the promotional and environmental objectives of
the SSI policy, and there is little coordination between the concerned departments.
Though there are support policies and pr ogrammes (such as fiscal benefits, UPTECH
programme) that help the SSIs comply with the environmental regulations, they are
limited and inadequate. In the case of foundry units, a regulation supplemented by a
subsidy provided an impetus for an initiative that brought together small units and
increased compliance in the cluster. For cleaner technologies, the emphasis of the
promotional policy has been only on capacity building and demonstration pr ojects.
It is important to also point out that SSI representation in the policy-setting process is
little or almost negligible. In most cases, uniform standards are set across industrial
units that do not consider the ‘special needs’ of small units and at times are not
backed with adequate infrastructure (for example, natural gas supply for muffle glass
units). In this event, these units are threatened with closure or relocation. In other
cases, the scientific basis for setting the standards is unclear or they are adopted
based on international standards which may or may not be relevant in domestic situa-
tions. For instance, why was the emission standard for the Howrah foundries set at
the particular level (based on notification of Environmental Protection Agency) and
later revised to another level for all units? In addition, why is it that while the envi-
ronmental policy has been relaxed for SSIs in general, it has been made stringent for
some units? An example is the insufficient reasoning for including glass units in Fi-
rozabad under the ban of coal in the TTZ and excluding some nearby brick units also
falling within the zone. The question that arises is that are these instruments dis-
188

guised ways of closing down some ‘dirty’ units? Uncertainty regarding policies (re-
visions of standards, etc.) poses a constraint for the entrepreneurs for proper pla n-
ning.

9.3.2 Contextual factors

This section examines the drivers and barriers for diffusion of cleaner technologies.
According to the standard economic theory, the main motivation for entrepr eneurs is
profit-making and they are likely to adopt cleaner technologies that make economic
sense. However, the case studies show that it is not economic factors alone but an in-
terplay of several contextual factors that impact policy effectiveness at the local level
and shape the existing technological paradigm for the SSIs (Table 9.1).
Internal/organizational: The internal factors emerge due to specific characteristics
and the behavioural and contractual structure of the SSIs such as small size and un-
organized nature. Though significant inter- and intra-cluster differences exist, in gen-
eral entrepreneurs are lacking in awareness, environmental consciousness, technical
knowledge as well as managerial skills. The foundry cluster is relatively more mod-
ern than others in terms of operations, manage ment and information. Within each
cluster also there are a few units that are relatively more ‘progressive’. In general,
there are three types of units within a cluster. The big (and export-oriented units if
present) are relatively technically advanced. The smaller units (catering to the local
market) have relatively less technological and financial capabilities, are most vulner-
able to external pressures be it policy or otherwise, and most of them are ‘survivalist’
units. The middle-sized units are generally more stable than the smallest units but
less advanced compared to the bigger ones. In Chandigarh, the units were more or
less similar; however, there were marked differences between these micro-clusters,
and contrasts were also evident when compared to traditional units in Pune.
For many entrepreneurs, the SSI activity is only a secondary activity, and they rely
on their workers for production processes. For example, brick clamps may be located
on rented land and depend on raw material bought on credit a nd contract workers,
which highlights the informality in some SSI units. The workers do build on local
expertise and knowledge; but due to lack of capacity building, they tend to continue
with the traditional methods. These factors contribute to the low environmental con-
sciousness and motivation for change as well. In addition, the marketing skills of the
entrepreneurs are limited. There is little systematic monitoring or any kind of process
or product certification (only observed in Howrah cluster where the big export-
oriented units have ISO certification). Product differentiation is also not evident as
the same kinds of products are produced within a cluster; this was observed even in
the case of glass decorative items which allows for creativity in terms of design.
Environmental: Working conditions, safety and local pollution are all drivers for
diffusion of cleaner technologies. Proximity with environmentally sensitive areas, as
in the case of glass and foundries, has led to social awareness or increased monitor-
ing by regulatory authorities to lower pollution. Overall environmental
Table 9.1: Contextual factors (based on case studies)
Type Driver Barrier
Environmental • Local pollution • Environmental concern low among various actors
- Proximity with environmentally sensitive area (e.g.
Howrah; Firozab ad in the Taj Trapezium Zone)
- Civil society involvement (and public interest litig ation)
• Safety, working cond itions
• Increasing awareness, even regarding climate change (CCI
projects in place, e.g. in steel re -rolling, brick, pottery units)
Organizational • Low awareness (Traditional units, informal nature)
• Flexibility in working (may be seasonal or secondary occupation; e.g.
brick)
• Availability of skilled workers with local expertise • Limited managerial & marketing skills
- Limited product differentiation, innovation
• Contract workers act as ‘knowledge carriers’ (e.g. glass) • Dependence on contract workers ? no incentive for training (e.g. brick)
Economic • Economic capability of some entrepreneurs high • Economic capability low for many units (low capital, profits)
• Market conditions and competition • Market conditions and competition
- Market niches for select products (sanitary castings, ban - - Fixed market (lack of compet ition)
gles, bricks) - Market uncertainty (due to competition)
- Rising competition ? need to improve efficiency, co m- - No market premium on ‘clean’ products (e.g. fly ash bricks) or
petitiveness even q uality products (e.g. better quality bangles)
• Financial options available • Limited financial support for cleaner technologies
- Under national development and SSI programmes and - Options for cleaner technology and their reach limited, procedures
policies (e.g. subsidy for power, PCD) and transactions costs, suppliers’ attitude
- External support, esp. with interest of international and - Limited awareness, hesitancy to approach o r to declare financial
local agencies in some cases (e.g. to protect Taj Mahal) position ? preference for local/informal sources
Technological • Perceived benefits of cleaner technologies (e.g. reduce produc- • Limited technological access, know-how
tion costs, improve product quality, etc.) • Lack of appropriate technologies
- Technology-specific (e.g. upfront and operating cost, power and la-
190

bour requirement, inflexible production)

• Technical support • Limited technical support
- Some, but few, units innovate - Little in-house R&D, awareness or reach of programmes
- Under programmes and policy of government (e.g. tool - Limited benefits of technical institutes (e.g. CDGI)
rooms) and specialized technical institutes (CDGI, CBRI, - Captive demonstration projects (e.g. glass)/hardly any technology
etc.) ‘demonstration’ (e.g. foundry, glass)
- Demonstration projects - Consultants are expensive
- Consultants (e.g. brick, foundry) • Infrastructure
• Infrastructure - non-availability of cleaner fuels (quality coke for foundry, natural
- Improving infrastructure (e.g. natural gas pipeline to Firo - gas for muffle units),
zabad) - Erratic power supply, poor connectivity by roads (? brea kages)
• Raw material/fuel availability • Raw material/fuel availability
- Availability of raw material (e.g. pig iron for foundry) and - Non-availability or high price of raw material (e.g. clay for bricks),
fuels (e.g. cheap low-quality coke/coal, fly ash for brick quality (e.g. high grade coal/coke) and alternate fuels
units near power station)
Social • Motivation • Motivation, attitudes, mindsets
- Culture, entrepreneurial spirit: willingness to innovate and - Fixed mindsets (of entrepreneurs, workers, policy makers, etc.)
experiment to move business forward (e.g. in Punjab) - Culture and entrepreneurial spirit: complacency, ‘wait-and -see atti-
tude’ (e.g. in Howrah)
- Entrepreneurs suspicious of government
• Collective efficiency • Limited networking
- Joint action (e.g. formation of cooperatives in Firozabad - Weak associations (only a few active members no rmally)
for natural gas connection; societies in Pune dealing with - Competitors considered threats
issues of coal availability, price, labour, etc.) - Little interaction between government departments, entrepreneurs
- Networking by associations (e.g. AIBTMF, PBMF) (delays, bureaucracy), and within departments (inconsistency at
- Linkages (e.g. subletting gas-based glass muffle fu rnaces) times, industry and environment departments work independ ently)
• Involvement of younger generation • Involvement of younger generation
- New ideas, information technology, motivate (e.g. brick) - Disinterest (e.g. foundry)
- Social status of the industry (e.g. foundry)
consciousness, including climate-related (for example, a UNDP and MoEF initiative
is targeted at improving awareness regarding climate change and CDM in SSIs), is
increasing; however, it is not a priority for entrepreneurs. Their concern is mainly to
adhere to policy requirements and not environmental protection in itself. Entrepr e-
neurs remain wary of any questions about environmental issues and consider them as
conflicting with their economic priorities. The interest in any cleaner technology is
largely because of business considerations such as reduced production costs (as in
glass units).
Economic: The economic factors include financial positions and market conditions.
These are most relevant from the business perspective and therefore are focussed on
in the economic literature as well as in SSI policy debates in India.
Financial: Most SSIs have limited economic capabilities. Firstly, they operate on low
profit margins and finances (some units do have financial capability yet deliberately
remain small). Secondly, financial incentive is offered under support policy and pro-
grammes and by other organizations (financial, developmental, technical). These are
mainly for setting up new units and capacity addition in existing units, as well as for
technology development for existing units. However, financial support for cleaner
technologies, in particular, is limited. Thirdly, the formal support available is associ-
ated with procedural and transactions costs. Owing to lack of awareness among e n-
trepreneurs coupled with a hesitant attitude and the “hidden” economic motive not to
display their assets, most SSIs prefer informal forms of credit from local lenders,
family or friends, where they get credit in less time and without many questions
asked or forms to fill. It is only very few SSIs that manage to avail formal financing
and government-driven incentives.
Market: Market conditions play a crucial role in diffusion of cleaner technologies.
With liberalization becoming a integral part of in the national development strategy
and a policy shift away from protection for the SSI sector, competition from within
and outside the clusters (other clusters, large-scale industries, other countries) as well
from alternative goods and materials (e.g. plastic in case of iron or glass items) is in-
creasing and poses a challenge to the entrepreneurs. On the one hand, this may act as
a driver for change, as in the case of the glass industry where entrepreneurs are inte r-
ested in shifting to natural gas in order to be competitive (coal- based production is
more expensive). On the other hand, it acts as a constraint as the entrepreneurs, espe-
cially of smaller units, would not like to invest in a new technology until the market
situation is likely to be favourable.
In addition, as many SSIs have fixed markets, they do not have enough mot ivation to
upgrade their technologies. At least as of now, the local market does not pay a pr e-
mium on cleaner products and processes, nor is it aware of these products. For ex-
ample, though fly ash bricks are cleaner (as they address fly ash disposal and top soil
erosion issues) and a better quality product, the manufacturers’ in Pune could not sell
them. One reason was that the colour of fly ash bricks was not the bright red associ-
ated with well-baked (and hence tough) clay bricks and thereby could not find ac-
192

ceptability in the market. In the bangle industry too, quality is not an issue as the
price of bangles is fixed for all bangles and no proper grading is done.
Technological: In general, technological access and know-how is limited among the
SSIs. There is little in -house R&D, expect in a few big units, and most innovations
are due to efforts of local workers (again not out of concern for the environment).
Technical support remains limited, in spite of organizations and assistance pr o-
grammes of government and other organizations; due to reasons including:
a. Qualified consultants are few and expensive.
b. Associations are weak and generally do not undertake technical assistance activi-
ties. There are instances when associations have played a significant role (for ex-
ample, for brick at the all-India level, in approaching technical institutions to de-
velop technical options; and in foundry, in motivating and assisting small units to
set up PCDs), but that again was because of external forces like regulatory pres-
sures.
c. Training programmes organized by the government or other organizations are ei-
ther not well attended or are not useful or needs -based. They are mostly targeted
at entrepreneurs; whereas those targeting workers, usually the main pla yers in the
production processes, have been negligible. In cases where they have been con-
text-specific (as in some programmes for brick-unit owners under the SDC’s
brick project) the programmes were found to be more useful.
d. Demonstration projects for energy-efficient and cleaner technology are important
tools for diffusion, but in most cases they have not been replicated or in some
cases not even ‘seen’ by the entrepreneurs. The demonstrated projects are nor-
mally housed in selected units with assured fina ncial and technical support, and
which may not be available to others. For example, in the case of foundry and
glass, TERI in collaboration with SDC, has set up demonstration projects which
have failed mainly on account of: high costs of demonstrated technology, and in-
sufficient information dissemination and even misinformation.
e. Most technical institutes take a top-down rather than a need-based approach. The
case of Firozabad is a classic example where a specialized technical institute, the
CDGI, with good infrastructure, research facilities and highly technical staff has
failed to meet the needs of the glass units. The CDGI has not been able to repli-
cate its designs in the cluster, and has basically emerged as a ‘white elephant’.
The case studies also highlight the significance of technology-specific factors in dif-
fusion of cleaner technologies. These include technology costs, availability of raw
material and fuel. For example, the relative technology costs, the upfront and operat-
ing costs are all important (even with short payback period, high upfront costs are a
deterrent) and the SSIs need affordable and applicable options. This is clearly re-
flected in the Pune brick cluster, where clamps provide a flexible and low-cost tec h-
nology option, and any high capital-cost technology like VSBK, which is no doubt
cleaner (improves productivity, quality and working conditions), is not a viable op-
 193

tion for most unit owners. In addition, infrastructure support, such as power supply
and access to natural gas, is also important.
Social: Social factors include culture (entrepreneurial spirit), workers’ attitude (as
carriers of information, in resisting change), level of bureaucracy (procedures, de-
lays, red tape) and mindsets of various stakeholders (short-term perspectives). Net-
working is an important tool in keeping abreast of developments in the sector, but in
general interaction is low between the entrepreneurs themselves, and between them
and government and other departments. Involvement of the younger generation and
introduction of information technology also plays an important role, either positive
or negative. There is evidence that the younger generation brings information tec h-
nology and fresh ideas (as observed in the glass cluster); in some cases reluctance of
the younger generation to join the family SSI units has motivated parents to adopt
improved technology (as in case of VSBK in Pune). In other cases they give the
older generation no reason to change or lead them to closing down their businesses
(as in the foundry clu ster).
All these factors influence SSI–environment interaction and indicate a complex sce-
nario for policy intervention. There is a need for an integrated approach in addressing
the needs of the sector. Before discussing an alternative paradigm that facilitates dif-
fusion of cleaner technologies across clusters, however, the next section addresses
the question whether environmental policy is a driver and why environmental policy
works in some cases as in the three case-study clusters?

9.3.3 Why does environmental policy work in some cases?

[Link] Triggering the change

In each case study cluster, policy intervention brought in technological change in the
1990s (Table 9.2). The issue is: what has been the main driver or the triggering fac-
tor(s) for bringing about the change? Was it the environmental policy or any other
factor(s)? It was primarily reasons beyond the concern for environment or inefficient
use of energy that triggered the change. Basically, it was judicial intervention in re-
sponse to public litigations and civil society concern that played a critical role.
Foundry industry, Howrah : Compliance with the specified emission standard in the
c luster with a niche market for low -grade castings was limited, until the intervention
of the Supreme Court. A judicial order issued by the Court increased enforcement
measures of the regulatory bodies (PCBs) and led to almost all the units installing
PCDs in order to comply with the emission standard (some units closed down). It
however did not lead to sustained enforcement (many PCDs are inefficient and not
properly maintained; some operate only during inspections; entrepreneurs perceive
cleaning technology a liability). The regulatory standard was supplemented for a
fixed period with a partial subsidy for PCDs. This led to a joint initiative between a
local industry association, a technical institute and a financial institution for assisting
in PCD installation in select small units and recommending better technology design.
194

Glass industry, Firozabad: Fuel switching in this large cluster occurred following
the Supreme Court’s order to ban use of coal and recommending a shift to natural gas
in the Taj Trapezium Zone (TTZ). The Court’s order was in response to a PIL for
protection of the Taj Mahal, a heritage monument. This illustrates a case of a strong
policy provision, but without focus on efficiency considerations and inadequate in-
frastructure. After initial resistance and stringent enforcement measures by local au-
thorities (including radical measures such as forcing shut-down of furnaces by pour-
ing water), many units initiated a switch to natural- gas furnaces, while some coal-
based units also closed down. The economic benefits of natural gas (reduced produc-
tion costs) in addition to the regulatory pressure led to more units making the switch
and even smaller units e xploring this option. The larger units that receive natural gas

Table 9.2: Environmental policy and implications

Characteristic Foundry (Howrah) Glass (Firozabad) Brick (Chandigarh)
Policy focus End-o f-pipe technology Fuel-switching Technology forcing
Main policy in- Emission standard Ban Emission standard, tech -
strument nology standard (incl.
ban), rule (fly ash use)
Recommended Install pollution control Shift from coal to natu- • Switch from moving to
action device (PCD) ral gas use fixed chimney BTK
• Use fly ash (for units
near power station)
Main incentive • Regulatory (threat of • Regulatory (threat of • Regulatory (threat of
penal action) penal action) penal action)
- No-objection cer- • Supreme Court order • Technical consultancy
tificate from state Po l- to ban coal in Taj Tra- package offered by gov-
lution Control Board pezium Zone (TTZ) ernment-approved de -
(PCB) required • Commencement of partment (not subsidized)
- Periodic revisions in natural gas supply • Approved techno logy
the standard • Technology institute provided easier access to
• Economic: Subsidy for the cluster license and enforcement
for PCD (for a fixed by lo cal authorities
time p eriod)
Main effect • PCD in all units • Fuel switch in many • Prescribed technology
(may/may not operate units (without focus on in all units
efficiently, or may be efficiency). Others face • Hardly any change in
operated only during relocation/closure operating practices
inspections) threat
• Coal still being used
in many units (includ-
ing u nregistered small
units)

supply are even subletting their space and infrastructure to units that have been un-
able to access natural gas supply. However, coal is still being used in several units. In
addition, technical support was offered by setting up a technical institute specifically for
 195

the glass industry. With little interaction with entrepreneurs however it has failed to meet
the needs of the cluster and is often referred to as the “white elephant”.
Brick industry, Chandigarh: Technology-forcing in this SSI was brought about by
introducing an emission standard which included a ban on the conve ntional form of
brick kiln technology. The enforcement of a standard was pushed following the Su-
preme Court’s response to a PIL that highlighted the adverse impacts of coal use in
the SSI. However, compliance was achieved in the cluster largely because an alterna-
tive technology (not too expensive compared to the conventional one) was provided
as a consultancy package (not subsidized) by a technical institute. This technology
was approved by the local authorities and helped the units in getting required li-
censes. The regulatory pressure (reinforced due to the close proximity of the units to
the state capital), however, did not encourage improvement in operational practices,
in spite of increasing awareness and technical levels of the entrepr eneurs.

[Link] So, is env ironmental policy a driver?

The evidence indicates that environmental policy is ‘diffusion forcing’ provided there
is effective enforcement of the policy provisions in the SSIs. Thus, it is the enforce-
ment of environmental policy that is diffusion forcing, and not the policy in itself. In
the case study SSIs, policy instruments were introduced long before a change was
brought about essentially through strict enforcement measures. These measures in-
cluded increased inspections by regulatory authorities and threat of closure of the
units. In the case of the brick SSI, reduced bureaucratic procedures for obtaining li-
censes once the recommended technology was in place was an added incentive. The
enforcement itself is triggered by external factors; here, it was judicial intervention.

9.4 Gaps in the current paradigm

The above sections indicate that there are no off-the -shelf or blanket solutions in
dealing with the different SSIs. Stand-alone incentives and top-down initiatives (for
example, a high-profile technology institute for the glass industry) are less likely to
work and an integrated approach may be necessary based on the existing circum-
stances. The contextual factors shape the activities and influence the impact that
policies have on the SSI–environment interactions. There is, therefore, a need to
move beyond the current capacity-building and regulatory measures to (i) increase
focus on energy efficiency and cleaner technologies, (ii) strengthen the incentives for
motivating and providing easy access to finance and appropriate technologies, and
(iii) take steps to integrate environmental and promotional policy objectives, the
former including global environmental considerations as well (Table 9.2). In addi-
tion, a greater ‘policy push’ together with social awareness (and judicial watch) in
terms of effective enforcement of regulatory provisions is required.
A critical need is ‘effective’ capacity building: in terms of awareness, environmental
consciousness, marketing and managerial skills, tec hnologies, etc. Capacity-building
programmes are organized by various organizations (SSI associations, government
departments, technical institutes, NGOs, financial organizations and even private
196

Table 9.3: Towards a sustainable paradigm for SSIs

Contextual factors/issues* Current paradigm New paradigm
Internal (and environmental)
• Traditional, informal set-ups • Low energy efficiency Effective capacity building:
and environmental con - • Awareness and skills: Techn i-
cerns cal, management, marketing,
etc.
Economic
• Support available, but for • Limited finance for Easier and increased a ccess to
cleaner technologies in particular cleaner technolo gies finance for cleaner technologies
it is limited • Increase support options
• Reliance mainly on family or • Increase awareness, capacities
informal sources • Reduce transaction costs

• Limited marketing skills, access • Fixed markets and prod - Avail market opportunities
• Increased market competition ucts • Build on market opportunities
• No market premium on cleaner • Incentives for cleaner prod-
products/processes ucts, processes (economic or
regulatory)
Technological
• Limited technical support and • Dependence local capac- Context -specific, targeted tech-
access to appropriate techno logy ity (lock-in) nical solutions building on ex-
• Infrastructural factors (avail- isting capacities
ability of raw material, cleaner • Access to information
fuels, basic infrastructure) • Access to appropriate technol-
ogy
• Capacity building (entrepre -
neurs and workers)
• Better infrastructure
Social
• Attitudes and mindsets • Limited awareness and Target collective efficiency
• Limited networking networking • Motivate and strengthen asso-
ciations, nodal agencies
• Improve networking among
stakeholders
Policy specific
• Concessions for SSIs (including • Weak incentives: Limited Increased policy incentive for
political motivations) regulatory policy push and cleaner technology
• Enforcement is weak motivation • Better information and aware-
• Focus on end-of-pipe techno l- ness among stakeholders
ogy (extreme cases relocation, • Effective enforcement
closure) • Focus on energy efficiency
• Focus on local pollution and cleaner technology
• Promotional and environmental • Integration of promotional and
policy objectives distinct environmental goals
Notes: * For detailed discussions of the contextual factors and policy specific issues see 9.2

bodies); however, more often these are top-centric and not needs -driven. A policy re-
sponse will be to modify the existing programmes and develop context -specific and
needs-based ‘capability enhancing’ approaches with focus on cleaner technologies
 197

and targeting various stakeholders (entrepreneurs, workers, technology suppliers, fi-

nancial institutions, policy makers, etc.). The programmes ma y be geared towards in-
creasing environmental consciousness and awareness regarding policies, benefits of
cleaner technologies and market opportunities.
Another angle is awareness and information of other stakeholders regarding the SSIs.
At present, the official database on energy usage and environmental impacts of SSIs
is insufficient (Section 3.3). The information base has to be built and will be useful in
policy formulation and implementation. In addition, an essential pre-requisite for ef-
fective policy enforcement will be building capacities of the PCBs and relevant a u-
thorities in terms of scientific, technical as well as administrative matters
Access to finance has been the focus of national SSI policy since the initial formula -
tion of the policy. Significant incentives are provided, but those for cleaner technolo-
gies are still limited. The finance may be provided by local, national or international
sources. Given that private and informal funds are already being used and govern-
ment funding is available (with focus on SSI promotion rather than environmental
impact), there is still a large demand–supply gap. An option could be to merge tech-
nology and environmental funds to focus on cleaner technologies. Additional and
targeted funds are clearly needed, and one option could be through CCIs. However,
considering that SSIs prefer informal sources of funding, these funds will have to be
made accessible to SSIs; for example, by increasing awareness regarding these op-
portunities and reducing the transactions costs.
Another way of providing economic incentives is by assisting in utilizing market op-
portunities. Increasing competition is creating market opportunities, but many SSIs
perceive this as a threat and uncertainty for the future (several SSIs are closing down
as toy manufacturing units facing competition from China). The sector would have to
be geared towards facing competition, wherever applicable, and availing the oppor-
tunities. The current efforts in this regard need to be strengthened and use of cleaner
production emphasized. Incentives may also be provided by facilitating a ‘market
premium’ on cleaner products and processes or at least ensure that they are not at any
disadvantage. This may be, for example, in the form of a mark-up on the market
price or even a certification (e.g. the eco-mark). However, producer and consumer
awareness and consciousness will be critical in making such a scheme effective.
Improved access to appropriate technologies, which are affordable, efficient and
suitable for local conditions, is needed along with effective technical support and
proper infrastructure. One of the main reasons for most demonstrated technologies
not being replicated in practice (such as CDGI designs, TERI–SDC design for DBC
and efficient pot furnace) is their costs especially the initial costs relative to other ex-
isting tec hnologies. For instance, a small clamp owner will find it difficult to change
over to a VSBK for reasons including high upfront costs, little flexibility, and the
need for fixed land and workers. On the other hand, the PSCST brick design has been
replicated, not only due to regulatory pressure but also its affordability.
198

It is also observed that though there exist opportunities for technical support, most
innovations have come in by building local capacities and by local actors (workers or
entrepreneurs). For example, CDGI was set up before the ban on coke was recom-
mended by the Supreme Court but it played an almost negligible role in the fuel shift
across the cluster. Thus, efficient technical support is required in line with the needs
of the SSIs. In addition to this, another basic requirement of any industrial unit is the
infrastructure, not only in terms of basic amenities (power supply, roads, etc) but also
availability of raw material and fuels.
Evidence indicates that a few units gain from the support, service and opportunities,
and thereby highlights the need to target collective efficiency and facilitate network-
ing. The existing networks (such as SSI associations, unions, NGO networks) may be
strengthened and developed so that they provide an interactive platform for exchange
of ideas and taking proactive steps for meeting technological needs. Strong associa-
tions enhance the entrepreneurs’ confidence in the measures being imple mented and
thereby their success rates (as in the case of AIBMF for brick SSI, and HFA for the
foundry cluster). Greater interaction is needed among entrepreneurs as well as differ-
ent stakeholders including financial organization, technical institutes, government
departments, regulatory authorities and NGOs. Representation of SSIs in relevant
policy-making and review forums, which has been missing till now, is especially re-
quired to bring transparency and encourage cooperation.

9.5 In conclusion
The discussions in this chapter indicate that there has been very little technological
change in the SSIs over a long period of time. One of the reasons has been the per-
verse incentive created by the national policy characterized by regulatory instruments
focusing on end-of-pipe solutions and a protective approach due to social and politi-
cal motivations. The other has been the SSIs’ own limited technological capabilities
(production, innovative and investment capabilities) coupled with social (attitudes
and culture) and techno-economic (including lack of market demand and access to
technology and finances) deterrents. Initiatives to change the status quo have been
successful only in some cases wherein the push has come from external sources;
more often the piece-meal appr oaches benefit only a select few. A transition to the
new paradigm therefore requires an integrated approach, under which increased regu-
latory push, effective capacity building, adequate financial and technological sup-
port, possible market incentives and networking are facilitated. However, the ques-
tion remains: how can this be done?
Theory lists various pathways or levers for change, including private (SSI-unit level),
community (networks, associations) and policy-driven initiatives. Owing to the pre-
vailing contextual factors (such as low capabilities, intra-cluster competition and lim-
ited networking for community initiatives), it is difficult to envisage that the SSIs
themselves would undertake concerted efforts for cleaner technology diffusion.
Though networks and associations have proactively or collaboratively brought a
 199

change in some cases, they usually do not really focus on cleaner technologies diffu-
sion. The national policy provides but limited incentives for cleaner technologies.
In addition to these, the CCIs provide incentives for cleaner technologies by offering
opportunities for capacity building and increased access to additional funding, tec h-
nologies and market avenues (for GHG credits). Mapping SSI needs with the CCI
objectives indicates tha t in principle the CCIs can assist in the transition as can the
national policies. For example, they could facilitate targeted capacity-building activ i-
ties, address the issue of putting a premium on cleaner products and processes, sup-
port programmes for improving basic infrastructure and access to cleaner fuels, and
also assist in developing the existing initiatives further. The issue is: can CCIs help
the SSIs, and whether SSIs can make use of the CCIs and in turn contribute to GHG
reduction efforts. This CCI–SSI link is addressed in the next chapter.
10. Towards a new paradigm

10.1 Introduction
Climate change is a global problem that calls for internationally negotiated global s o-
lutions to address rising GHG emissions in the atmosphere. Although the institu-
tional and legal framework to address the problem is determined basically at the in-
ternational level, the human activities that impact the climate occur at the national
and, more specifically, at the local levels. Therefore, while the broad environmental
policy issues are coordinated at the highest level of governance, the struggle for eco-
logical sustainability must ultimately be won at the local level (Costanza et al. 1997).
It is in this regard that this thesis has looked at the link between the global climate
change policy (with focus on CCIs) and a local- level SSI activity.
The research essentially deals with this link at three levels, the international, national
and the local. Thereby, it examines the role of CCIs in shaping SSI–environment in-
teraction by looking into the implications of the international and national climate
change policies and the (local) contextual factors. The initial proposition was that the
CCIs will not focus on the SSIs, unless appropriate measures are applied (Section
1.2). This chapter revisits this proposition, and concludes that, in the present sce-
nario, the link between CCIs and SSIs is weak (10.2). Further, it provides recom-
mendations for possible policy responses for strengthening the link (10.3) and how
these recommendations may be operationalized. The chapter and the thesis conclude
with discussion on practical lessons and theoretical insights (10.4).

10.2 The CCI–SSI link

The rationale for examining the CCIs–SSIs link was discussed in Chapter 1: can
CCIs act as a lever for sustainable development and efficiency improvement in local
industries? Chapter 2 brings out the complexities while dealing with international
policy instruments designed to protect a global public good in a political setting, with
scient ific uncertainty and several heterogeneous actors involved at different levels of
social organization. The number of actors in any case complicates the design and ef-
fectiveness of policy instruments (Section 2.2.3). It is further maintained that SSIs
form a diverse group of small industrial units, often located in clusters, and having
significant relevance for sustainable development. The issue here is whether the link
between CCIs and SSIs exists.
A broad mapping of CCIs’ objectives and the SSIs’ needs does indicate synergies be-
tween them. CCIs can facilitate sustainability in SSIs, and SSIs can help in the global
efforts for addressing climate change (Section 9.4 and 9.5). However, in the current
scenario it is difficult to envisage a strong link between CCIs and SSIs. This section
202

provides a further examination of the link using arguments and counter -arguments to
determine whether it is a ‘weak link’ and, if so, then why.

10.2.1 Climate change instruments

The climate change policies and policy instruments are based on the economic theory
of environmental protection (Section 2.2). The CCIs relevant for developing coun-
tries have dual objectives of facilitating sustainable development at the global (GHG
reductions) and the national/local levels (additional economic, social and environ-
mental benefits). While the initial focus of the climate change regime was on a sub-
sidy-based financial mechanism, the emphasis over the last decade has been on mar-
ket-based economic instruments (Section 4.2). The main argument (A) for the use of
CCIs is that they promote diffusion of cleaner technologies across various sectors in-
cluding the SSIs. However, the counter -argument (C) is that the CCIs tend to focus
on specific sectors and SSIs are generally ignored.

[Link] Arguments
The main argument (A) underlying the CCIs is that they are designed to provide in-
centives for undertaking climate-relevant activities. Recognizing the needs of devel-
oping countries, they offer solutions that are cost-effective on a global basis and fa-
cilitate additional sustainable development benefits. These could include or be ex-
tended to SSIs in India as well. The argument is based on the incentives they pr ovide
per se as solutions to the global problem of climate change.
The first sub-argument (SA1) is that the CCIs provide incentives including economic
opportunities for additional finance (grants, concessions, incremental costs and credit
pricing), cleaner technologies (including through technology transfer) and suasive
capacity building. As the focus is on sustainable development and ‘additional’ global
environmental benefits, they have a broader agenda than other environmental policy
instruments. With the market-based instruments becoming increasingly important,
the CCIs are geared to encourage not only government but also private-sector in-
vestments and a large market for climate-relevant activities is envisaged. The energy-
intensive SSIs, in light of their energy-saving potential, may make use of the ince n-
tives to improve sustainability in their sectors. For instance, the CCIs could address
SSI needs by facilitating targeted capacity-building, address the issue of putting a
premium on cleaner products and processes, support programmes for improving the
basic infrastructure and access to cleaner fuels for the SSIs (Sections 9.4 and 9.5).
SSIs, in effect, fare strongly on two accounts: ‘additionality’ and national sustainabil-
ity benefits. SSIs constitute a sector where very little happens on its own in terms of
pollution control and climate change, and needs an external impetus. SSI develop-
ment is also a national priority, especially as SSIs will continue to provide economic
and livelihood opportunities to significant proportions of its rising population.
The second sub-argument (SA2) pertains to the inclusion of small projects under
CCIs. The main deterrent for inclusion of small projects in normal circumstances is
the associated transactions costs, which are higher for the smaller projects on a rela-
 203

tive basis. Recognizing the need for special consideration, initiatives have been un-
dertaken to bring smaller projects within the purview of CCIs. These include simpli-
fication of procedures and streamlining methodologies aimed at lowering the transac-
tions costs, platforms such as the Small Grants Programme and Project Development
Funds (PDF) under the GEF, and introduction of the small-scale CDM allowing for
bundling of projects and other initiatives such as the CDCF and those targeted at in-
termediates that facilitate interventions in the SSIs (Section 4.3.1) . They bring down
the transactions costs and provide added incentive for inclusion of smaller projects
including those in the SSI sector.
The third sub-argument (SA3) pertains to national policies in India and how they ad-
dress climate change issues. As a signatory to the FCCC, India is committed to in-
corporate climate-change considerations in its development policies and strategies. It
is undertaking several initiatives under its economic and energy policies that are also
climate-relevant, such as increasingly emphasizing energy efficiency under the en-
ergy policy (Section 4.4.1). These have implications for the SSIs as well. With sig-
nificant GHG emissions, India offers a range of potential mitigation options includ-
ing those in the SSI sector. In order to tap these opportunities it provides a conducive
policy environment by institutionalizing a basic framework for approvals, and is pe r-
ceived as a key host nation for undertaking CCI-relevant activities. For instance, In-
dia is among the leading countries having a large pipeline of potential CDM pr ojects.
The government is also slowly shifting towards a more active role along with other
stakeholders including the private sector.

[Link] Counter -arguments

The counter-argument (CA) is based on experience and current trends related to the
climate change policy. The CAs highlight the key issues influencing potential CCI
incentives, which are the basis for the first sub-argument (SA1). Chapter 2 has high-
lighted these issues as uncertainty, transactions costs and market biases. These are re-
inforced based on practical experience. The various climate change portfolios, inter-
national and in India, comprise a large number of projects. However, only a few of
these projects are in the SSI sector, with a focus on capa city building. This indicates
that the CCIs, especially the market-based instruments, tend to focus on specific sec-
tors such as renewable energy, and in the process SSIs are generally ignored.
The first sub-counter -argument (SC1) relates to the incentives provided by CCIs in
the context in which they are designed and implemented. In principle, CCIs bring in
opportunities for financial, technological and capacity-building inputs for developing
countries. Analysis of the policy instruments has shown that the focus of CCIs has
been on financial inputs with cost-effectiveness among the main criteria and not on
technology transfer. The financial resources made available in terms of direct inter-
national transfers and subsidies are significant, but small compared to magnitude of
the climate change problem (IPCC 2000). The carbon market, especially under
CDM, creates financial opportunities; however, its evolution ha s been speculative in
light of uncertainties pertaining to the future of the climate change regime and mo-
204

dalities related to the instruments. The size of the market for carbon credits from de-
veloping countries is increasing rapidly since the ratification of the Kyoto Protocol,
modalities becoming clearer and as the first commitment period draws closer. The
price of carbon credits offered (generally just a mark-up price as discussed in Section
4.3) however, normally does not reflect the ‘real costs’ of carbon credit based on
marginal costs of GHG mitigation (principle on which the JI concept is based), and
may be termed as just ‘icing on the cake’ for developing countries.
The other factor conducive for inclusion of SSIs is the dual objectives of the CCIs.
However, experience shows that the activities are often driven by motivations of dif-
ferent actors rather than the sustainable development objectives, be it direct interna-
tional transfers, subsidy-based mechanisms or market-based instruments. For exa m-
ple, in the case of market-based instruments the foremost investor focus is non-risky
and cheap carbon credits w ith many a time other criteria not adequately addressed.
The carbon markets being large ly investor-driven (the buyers are far less compared
to the sellers) and often the projects consultant -driven, brings in biases. Develo ping
countries, including India, do not display a proactive stance, and there is no concrete
‘host country-driven CCI programme’. Given all this, the ‘top-down’ approaches and
cost-effectiveness criterion tend to undermine the importance of additional national
and local level benefits, which make a case for the SSIs.
The next sub-counter-argument (SC2) is that the initiatives for inclusion of small-
scale projects do not imply that SSI projects are being undertaken. In the current cli-
mate change portfolios, there are but a few cases of SSI-relevant activities (e.g. GEF-
IFC SME project, fly ash bricks project under the CDCF, steel projects under GEF
and CDM in India); however, these are geared more towards capacity building
(awareness, demonstration projects) rather than towards actual implementation of
cleaner technologies in the SSI units. There is no contention that the ongoing initia-
tives raise the probability of SSI inclusion. However, sustained efforts are required
before a more level-playing field exists for SSI-related activities. For example, the
transactions costs for the small-scale CDM projects, though reduced by an estimated
50– 65% relative to transactions costs of regular CDM, still remain as high as up to
several hundred dollars. SSIs in deve loping countries including India generally lack
economic capabilities to meet these costs.
The third sub-counter-argument (SC3) deals with the climate change activities and
related policies in India. In the current scenario, there is international interest in India
(and China) as it is a significant contributor to GHG emissions, and the large number
of projects being developed also indicates the attractiveness of the nation from the
point of view of climate -relevant activities. However, the focus has not been on the
SSIs. For instance, take the case of the CDM – India has the largest number of CDM
projects that are being develope d, but the point is how many of them involve energy
efficiency improvements in the SSI sector? Considering that the investors are looking
for cheap and non-risky carbon credits, and that most of these projects are unilateral
projects pushed by consultants or the private sector, the investors’ interest and em-
phasis on the SSIs is low (Section 4.4.2). In several international multilateral or bi-
 205

lateral meets and conferences related to climate change, there is representation of In-
dian industry, but within that the SSIs are practically absent. Thus, in the interna-
tional arena, the SSIs do not emerge as dominant or even average players.

10.2.2 Diffusion of cleaner technologies in the SSIs

The main argument (A) for SSIs assisting in the global efforts towards addressing
climate change is that diffusion of cleaner technologies within the sector can be en-
couraged with the help of CCIs. However, the counter-argument (CA) is that a l-
though the energy usage patterns in the SSIs do provide a lot of scope for energy sa v-
ing and thereby GHG emissions reductions, it is difficult for them to make use of the
ince ntives that CCIs provide.

[Link] Arguments
The main argument (A) is based on the local context and the circumstances within
which the SSIs operate. While the prevailing practices and the energy usage pattern
have led to inefficiencies in the production system, the social organizational factors
have resulted in a lock-in situation in many SSI units. The overall macro-economic
(and sectoral) policy environment in the country poses significant challenges for the
sector and induces the need for efficiency improvements.
The first sub-argument (SA1) pertains to the SSI–environment interaction, specifi-
cally the environmental impact of the existing energy-use patterns in the SSIs. Evi-
dence indicates a significant potential for efficiency improvements and adoption of
cleaner technologies. For instance, the energy-saving potential in many units sur-
veyed was around 50%. These may not appear to be ‘climate relevant’ at the face of
it; however, aggregation of emissions across several units in geographical clusters re-
flects a significant emission contribution (a case for collective efficiency or externa l-
ities) as has been illustrated by the case studies (Section 9.2). The relevance is even
greater for national sustainable development benefits, particularly in terms of local
environmental or pollution problem as well as working conditions.
The second sub-argument (SA2) stems from the current national policy environment
in India and the incentives they provide to SSIs to adopt cleaner technologies. The
macro-policies aimed at liberalization and globalization of the economy is reflected
in the sectoral policies as well. While SSIs still enjoy special consideration due to
their social and economic relevance (SSI policy recognizes equity as the guiding
principle), the national SSI policy is gradually shifting from a protective to a prom o-
tional focus (Section 5.5). 276 These pose a challenge for SSIs to increase their eff i-
ciency in light of increasing competition from within India and from other countries.
In addition, it is projected that the national environmental policy is going to become
stringent. The overall global landscape is also shifting towards increased environ-

276
The recent Central Budget (2004) of the Government of India also acknowledges this by an-
nouncing de-reservation of 85 pro jects of the SSI sector.
206

mental consciousness, including climate change concerns. As a signatory to the

FCCC, India is committed to incorporate climate change considerations in its devel-
opment policies and strategies, and is undertaking initiatives under its economic and
energy policies that are also climate relevant such as promotion of energy efficiency
and renewables. The Tenth Five Year Plan of the Government of India as well the
Approach Paper to the Eleventh Five Year Plan recognizes the link between ec o-
nomic development and environmental de gradation. In this scenario, and given that
the technological and economic capabilities of many SSI units are limited (Sections
9.4 and 9.5), there is a need for external stimulus for cleaner technology diffusion,
including CCIs as possible options.
The third sub-argument (SA 3) pertains to the national policies relevant from the per-
spective of climate change and CCIs. There is substantial interest in the CCIs in In-
dia, especially related to the market- based instruments, which is relevant across sec-
tors (Section 4.4). The gover nment is also slowly shifting towards a more active role
(DNA for CDM, NATCOM process for developing national inventories, listing the
approval criteria for CCI projects, etc.), and several other stakeholders (private sec-
tor, financial organizations, consultants, NGOs etc.) are getting involved. Industrial
organizations and the private sector view these as an opportunity for technology up-
gradation, and consultants and organizations are offering services in terms of scie n-
tific and technical assistance in developing CCI-relevant projects. There are several
projects developed or in the pipeline under the CCI platforms, which also include se-
lect initiatives in the SSI sector (for example in brick and steel re-rolling units, and
capacity building for small-scale CDM projects). Thus, the overall framework is
conducive for developing CCI projects for the SSI sector.

[Link] Counter-arguments
The counter-argument (CA) pertains to the conditions that constrain the SSIs in
availing the incentives under the CCIs. These stem basically from the policies and
contextual factors or the circumstances (internal and external) that surround SSIs.
These impact the SSIs and their ability (in spite of them being important candidates
for CCI) to leverage opportunities offered by climate change policies. The SSI sector
in general is associated with low awareness and transactions costs.
The first sub-counter -argument (CA1) is based on energy usage in the SSIs. Energy
inefficient practices offer options leading to GHG reductions and national and local
sustainable development benefits. However, attractiveness of these options depends
on the contextual factors as well. Aggregation of units or a cluster approach brings in
collective efficiency and provides the GHG benefits that CCIs look towards, espe-
cially in the context that the SSIs operate on an informal and dispersed manner which
increases the transaction cost. Since there is hardly any monitoring of energy usage
in SSIs which is essential under CCIs, the transaction cost will further increase. The
task is to bundle units with common characteristics but yet quite heterogeneous for
undertaking climate-relevant activities. At the same time, most of the SSIs are un-
aware of the emerging opportunities and associated procedures under emerging envi-
 207

ronmental negotiations. Owing particularly to socio-political and economic factors

the SSIs are also not motivated enough to introduce clean technologies unless some
external impetus such as regulations and judicial orders are made mandatory. Net-
working among the units as well as with other relevant organizations (financial and
technical organizations, NGOs) is also limited, and the linkages with the state and
government departments are inadequate. While the current energy usage pattern in
SSIs do provide pote ntial, however, there are greater challenges related to input and
transaction cost which make it difficult for GHG mitigation options in the SSIs be
taken up by the CCIs, especially under the existing market-based instruments.
The second sub-counter-argument (CA2) pertains to the current and emerging chal-
lenges faced by the SSIs that provide an incentive for them to adopt cleaner tec h-
nologies. The challenges include increasing competition in face of a liberalized pol-
icy environment, and the threat of stringency of environmental policy in the future.
However, SSIs still enjoy, though reduced, preferential treatment under the national
SSI policy, which weakens this incentive . The largely regulatory environmental pol-
icy for SSIs provides concessions and is constrained in terms of enforcement (inclu d-
ing at times lack of political will to enforce the policy provisions). The SSIs also lack
experience related to market-based instruments or formal incentives as those pro-
vided by the CCIs. The emphasis of national policy is on end-of-pipe solutions and
there are no standards for CO2. Thus, the focus on energy efficiency improvements in
SSIs and on global environmental concerns has been limited. Environmental con-
sciousness in the sector and the urgency for environmental improvement is low, ex-
cept in some cases for reasons other energy efficiency concerns (Section 9.3.1) .
In addition, there exists a gap between the promotional and environmental policy ob-
jectives related to SSIs. There are SSI-policy provisions aimed at technology up-
gradation and cluster development, but within these the provisions for cleaner tec h-
nologies are limited in number and reach. Evidence has shown that more than 85% of
the energy-intensive SSIs surveyed have not benefited from the incentives provided
under national policies. Filling in this gap by diffusion of cleaner technologies is
clearly an additional activity option for the CCIs. However, additionality aspects are
not always adhered to as has been the experience with CCIs until now.
The third sub-counter-argument (CA3) deals with the national policy and perceptions
with regard to climate change. The government is now slowing shifting towards a
more active role in terms of CCIs and there is considerable interest among various
actors, especially related to market- based instruments. However, there are still uncer-
tainties and lack of a comprehensive policy, and many of these activities have re-
mained top-centric though efforts are being made to take them to ‘lower levels’ as
well (Section 4.5). The approval processes are associated with transactions costs. In
climate change-related debates and activities, normally representation of SSIs is low
or even non-existent. Information about the potential GHG-reduction options and
needs of the SSIs therefore do not adequately reach higher levels. There are cases
where consultants and relevant players are involving the SSI sector; but again com-
208

pared to the involvement of the other sectors this is quite limited. Therefore, it will
be fair to say that SSIs are low in priority within the national climate change policy.

10.3 Policy responses to strengthen the CCI–SSI link

10.3.1 It is a weak link!

The arguments and counter-arguments presented in the previous section and summa-
rized in table 10.1, indicate that the CCI–SSI link exists; however, in the present cir-
cumstances, it is a “weak link ”. The ‘weakness’ in the link is based on the analysis of
the policies and policy instruments at different levels of social organization and their
interaction. At the local SSI level, there is low environmental consciousness and sig-
nificant contextual barriers. At the national level, the SSIs are low on the priority list
within the national environmental and climate change policies. In terms of CCIs, at
the national and international levels, the incentives for SSIs are associated with un-
certainties, transactions costs and market biases. In effect, the SSIs are not able to ef-
fectively utilize the emerging opportunities, and CCIs are unable to effectively target
the GHG-reduction potentials of the SSIs. The weakness, therefore, also stems from
the inadequate transmission of CCIs and the intentions they reflect. The ‘CCI-
signals’, their objectives and incentives offered, somehow do not reach the local SSI
performance and the local needs are not adequately comprehended or represented at
higher levels. This, among other reasons, is due to a lack of fit at the different levels
in terms of corresponding policies and instruments.

10.3.2 Potential policy responses

The CCI–SSI link may be strengthened to influence SSI–environment interaction,
and to facilitate a transition to a new and more sustainable paradigm across the sector
and globally. While policy intervention in this direction is a necessary step, perhaps
it is not a sufficient one in practice. The organizations and agencies that connect the
policies On the one hand and the SSIs on the other also need to be strengthened, such
that they may operate towards enforcing the CCI–SSI link. Going back to the re-
search framework (Figure 10.1), potential policy responses may be to: (a) strengthen
the incentives that the policies and policy instruments provide, and (b) address the
contextual factors by removing the barriers and reinforcing the drivers for diffusion
of cleaner technologies in the SSIs. Additionally, response may be to (c) strengthen
the synergies between policies and policy instruments at international and national
(including state, industry, local) le vels.

[Link] Strengthening policy incentives

The climate change policy implications for any s ector may be significant, provided
the incentives they offer are strong and are communicated accordingly. The strength
of CCIs lies in their dual objectives. Following the “ideology of efficiency”(Bromley
1990), the policies that focus on cost-effectiveness and use economic instruments,
 209

especially market-based ones, tend to ignore evolutionary characteristics of the cli-

mate change regime. Top-down assessments of the policy instruments in general do
not capture the sectoral details and dynamic complexities of human actions espe-
cially at the local level. SSIs have a high potential to contribute to sustainability, but
lack the ability to attract investments in a pure market situation.

Table 10.1: The CCI–SSI link

Arguments Counter-arguments Potential policy response
Link betw een CCIs and SSIs: CCIs as levers for sustainability in SSIs
(SA1) Incentives (CA1) Issues
• Opportunity for finance, tech - • Focus on financial inputs • Build focus on sustainable
nology, capacity build ing (not technology transfer) development benefits
• Dual objectives: global and • Focus on cost- • Address market biases
national/local sustainable de- effectiveness (not na-
velopment tional sustainable devel-
opment benefits)
(SA2) Incentives for inclusion of (CA2) Transactions costs are • Further reduce transactions
small-scale projects under CCIs high costs
(SA3) Climate change considera - (CA3) Focus on few sectors • Build focus on sustainable
tions in India ’s national policy and investor and/or consult - development benefits
ant-driven projects • Reduce (national level)
transactions costs
Link between SSIs and CCIs: SSIs as candidates for GHG reduction by using CCIs
(SA1) SSIs offer GHG reduction (CA1) Low environmental • Reduce (local level) trans-
potential and sustainable deve l- concern and policy pressure actions costs (build on col-
opment benefits • Transactions costs at SSI lective efficiency)
cluster level are high
(SA2) SSIs face challenges under (CA 2) Contextual factors in- • Address relevant contextual
national policy (macro: liberaliza - cluding concessions, weak factors
tion, globalization; SSI: shift from enforcement and disjointed • Integrate development and
protection; environmental: stricter policy objectives leading to environmental objectives
instruments) technology lock-in
(SA3) Position regarding CCIs (CA3) Involvement
• Basic structure for CCIs in • Climate change not a • Adopt a clear and proactive
place) priority approach
• Stakeholders interest (includ - • SSIs are low in priority • Facilitate inclusion of SSIs
ing some initiatives for SSIs ) in climate change policy

This necessitates a greater focus towards host-driven projects, integrating sustainable

development and climate change benefits, and developing clear indicators of sustain-
able development benefits. Research shows that the SSIs fail to effectively make use
of incentives which come with complicated procedures and transactions costs. Ef-
forts to reduce transactions costs and uncertainties (such as clear and transparent mo-
dalities and methodologies) will have to be built in as a policy response. In purely
economic terms, this would push the abatement costs down and make the SSI-
specific activities more attractive in the global carbon market. The initiatives to in-
210

clude small projects in the CCIs are useful but these are still limited in their implica-
tions for the SSIs, and may be accentuated. Some specific recommendations include:
 211

Reducing policy uncertainties: For a conducive and inclusive scenario, greater clar-
ity regarding (a) direction of the international climate change regime, (b) approach of
national polic ies to climate change and (c) modalities of the CCIs from the SSI per-
spective is needed. Scie ntific backing, technical knowledge and in particular political
consensus are important in this regard. Initiatives are being undertaken, but the proc-
ess may be ac celerated through greater transparency, information dissemination, in-
teractions and clear guidelines for CCIs at different levels.
In this direction, suasive measures for effective capacity building and increasing the
knowledge base at all policy levels may be required. The knowledge base of those in -
volved with climate change activities may be enhanced regarding the potential of the
SSIs. At the same time, information related to climate change policies and the current
and emerging opportunities including CCIs needs to be disseminated down to the SSIs.
This implies building capacities not only at the macro policy-making levels, but also
of decentralized entities such as district level authorities and local departments. In
this regard, SSI participation may be facilitated in the different national and international
environmental policy and climate change forums. As several CCI activities tend to be
top-down, it may be important to have SSI representation, active involvement and under-
standing of their needs not only during project implementation but also during project
identification and development. Specialized bodies or agencies may also be set up for
disseminating information and also for developing SSI projects, helping in host –investor
negotiations, and providing policy and technical advice.
In addition, a coherent national policy (with incentives for compliance) based on na-
tional priorities can be communicated to all stakeholders for greater clarity, which
may draw and provide guidance on country priority listing of mitigation options that
lend themselves to the CCI criteria. Given the importance of SSIs for national sus-
tainable development, SSIs could figure high in this list.
Highlighting sustainability and additionality aspects related to the climate change
activities : to address market biases, and provide stronger incentives for undertaking
climate-relevant SSI projects. This may be done for the existing instruments through
suasion and greater transparency. The national government in particular can play a
proactive role by translating international CCI incentives and developing national
CCIs, under which a sectoral or cluster-level emphasis may be provided. Innovative
methods may also be introduced in this regard; for example, through
a. An additional incentive in the form of a “sustainable development premium” may
be offered on projects with clear sustainable development and additionality bene-
fits, as in the case of SSIs. This may be a direct incentive through a higher mark-
up price (such as for CDCF) or just by giving a priority status to SSI projects. 277
b. An international ‘sustainable development fund’ may be set up as a separate en-
tity or a subset of an already existing mechanism (such as small-scale CDM or
CDCF) to deal with SSI projects that have direct sustainable development bene-

277
For instance, small projects are already being encouraged by providing greater flexibility and
reduced administration/certification costs.
212

fits.278 This may also be done at the national level, as a national sustainable d e-
velopment fund . The government can also build such a national level fund by im-
posing a tax on each CER or project approved by the national authorities.279 This
may be on an absolute or a regressive basis, and is relevant particularly for mar-
ket-based instruments. The fund in turn can generate revenue for the government,
which may be used for SSI promotion or developing climate -relevant SSI pro-
jects.
c. A National Carbon Fund may be formed wherein unilateral projects in the sec-
tors including, or exclusively for the SSI sector are undertaken and the GHG
credits offered in the carbon market. Till now, the investor countries have had
their CCI programmes outlining their priorities, but no ‘real’ developing country
programme has actually been put in place. This national-level carbon fund or a
sectoral approach may be extremely useful in pushing SSI projects. Such a fund
may also be developed by a group or a ‘cartel’ of developing countries.

Reducing transactions costs : This may be through: (a) clear guidelines, indicators
and criteria for approval of proposals, (b) further simplif ication and streamlining of
procedures for SSI-related projects at the internatio nal and national levels (for project
development, approval, verification and certification processes, etc), and (c) greater
transpa rency in all processes. This is especially useful for activities in SSIs.

In this regard, nodal agencies or intermediaries may be empowered for developing

SSI projects. Schemes to build on existing networks and associations may be intr o-
duced and new partnerships developed by strengthening nodal agencies. This is
highly recommended for the success of any climate -relevant CCI project and making
the SSI–CCI link stronger. As illustrated by the case studies, national environmental
policies have brought about greater diffusion of cleaner technologies when associa-
tions or nodal agencies are involved. Nodal agencies can act as an interface between
the local level SSIs and the higher levels relevant for CCIs. They can provide a sin-
gle-point contact for negotiations and reporting, be responsible for aggregation or
bundling, and work towards bringing CCI signals to the clusters and communicating
SSI needs to the higher levels. As SSI units are associated with low capacities, these
agencies could function on their behalf to develop, negotiate and implement CCI pr o-
jects. This all would in fact reduce the transactions costs at the local levels. Separate
fund(s) may also be set up to help meet the existing transactions costs which may be

278
The fund may be set up, for example, in addition to the three additional funds under the Kyoto
Protocol; by collecting the proceeds by certification of CERs as the adaptation levy; based on
the non-compliance fine principle, etc. The developing countries may even push these activ i-
ties through a common position at the negotiations or under the market-based instruments
forming a cartel for doing so; however, there are issues related to heterogeneity of countries
and their political motives and stands.
279
However, this can raise the costs of CDM vis-à -vis other po licy instruments (including JI and
GEF).
 213

through specialized funds for only SSIs, or as subset of existing instruments (e.g.
small-scale CDM with even lower transactions costs for SSI pr ojects).

[Link] Addressing barriers to cleaner technology diffusion in SSIs

Contextual factors may be addressed by reducing barriers and reinforcing drivers for
cleaner technology diffusion in SSIs and enable their participation in the CCI activi-
ties. While focusing on the mic ro details, however, the wider picture regarding the
macro-context, and the complexities related to implementation of the policy instru-
ments at higher levels of social organization (which are taken as given) may be left
out. Thus, the contextual factors need to be addressed within the overall macro mi-
lieu. It is not just the techno-economic factors but an interplay of different factors
that provide the overall context. In this regard, effective capacity-building and ap-
propriate policy responses (Section 9.4) may be instrumental in making a difference.
It is important however to move beyond piece-meal approaches to an integrated ap-
proach for overall development while addressing the climate change issue. In this re-
gard, some recommendations include:
Strong nat ional policy incentives: For this, the national policies may be designed
for integrating environmental and development goals. They may also reflect global
environmental goals to encourage policy-driven change for cleaner technology diff u-
sion in the SSIs.
In effect, greater policy push in terms of effective enforcement of regulatory provi-
sions and increased awareness, as well as their relevance for the SSI (Section 9.3) is
required. The use of market forces and other economic instruments may also be use-
ful in this regard. The policy may be structured so as to focus more on energy eff i-
ciency and cleaner technologies rather than end-of-pipe solutions, and even with
clear incentives for addressing climate change which is missing in the current sce-
nario. The jud icial system and the civil society has been successful in some cases to
bring about a change and may be further charged to do so, not in terms of local envi-
ronmental issues but also those related to climate change. At present, however , offi-
cial information regarding energy usage and environmental impacts of SSIs is insuf-
ficient (Section 3.3). This information base has to be built up, and capacity-building
of all stakeholders will be useful in this regard. In addition, an essential requirement
towards effective enforcement of policy provisions would be building capacities of
the state PCB in terms of scientific, technical as well as administrative ma tters.
Effective increasing awareness and building local capacity: Since directly influ-
encing the characteristics and operational practices of the SSIs is difficult; effective
capacity-building for the entrepreneurs and other stakeholders may be undertaken to
reduce organizational and social barriers, either by targeting individual units or clus-
ters through associa tions or agencies. This is in terms of awareness and understand-
ing, especially environmental concerns, energy-efficiency potentials, cost–benefits of
cleaner technologies, and issues and opportunities related to CCIs. For SSIs to avail
the available national policy and CCI incentives, they have to be made aware as well
as capacitated and motivated. In addition, capacity-building in terms of marketing
214

and managerial skills, monitoring operations, and cleaner technological options, etc.
may also be required. Monitoring, managerial and negotiating skills are especially
needed for any CCI activities, which need to be built upon.
Reducing other contextual barriers and building capabilities: The other factors
including techno-economic and political also impact SSI operations and practice,
their technological capabilities (Section [Link]), and thereby the CCI–SSI link.
The SSIs generally prefer informal sources of funding; however, capacities may be
developed through integrated awareness and skill-enhancement approaches so that
they are able to avail economic incentives under national policies as well as through
CCIs. Local stakeholders such as financial intermediaries, local authorities and asso-
ciations may also play a proactive role in providing training and assistance, and pr o-
viding additional financing for such activities. Efficient technical support may be
provided regarding technological options that are affordable, efficient and suitable
for local conditions. Existing traditional expertise and knowledge may be tapped and
built upon. Information related to design, costs, operations and maintenance of tec h-
nologies; and adequate infrastructure including basic amenities, raw material and
quality fuels may be made more available. Monitoring stations and tool room s are a l-
ready supporting SSIs (chapter 4) , but may be made more accessible along with in-
formation technology, which may be useful for availing potential CCI incentives.
The idea is provide an impetus for a technological shift not only in developing ap-
propriate technologies and demonstration projects or laboratory technology but in
their dissemination as well.
Facilitate networking and strengthening intermediaries for ensuring that more
SSIs gain directly from the available and potential support and opportunities. As
mentioned above, existing networks and local organizations may be strengthened and
specialized agencies established, such that they may play a proactive role in diffu-
sion of cleaner technology as well as in developing climate -specific activitie s in line
with the industry needs. Routing support through an association also enhances confi-
dence in the measures and thereby their success rates. These could provide targeted
training and also facilitate bundling and assist in developing and implementing en-
ergy efficiency and climate-relevant pr ojects in the SSIs. Entrepreneurs’ confidence
in these bodies is important, which can also provide an interactive platform for ex-
change of ideas as well as taking proactive steps in meeting their other needs (includ-
ing hiring consultants, technical help and negotiations).
However, it is also for the SSIs to learn and avail the opportunities that the climate-
change policies provide. As the saying goes “you can take the horse to the river, but
you cannot make it drin k”. The entrepreneurs’ motivation and mindsets play an im-
portant role by which they can organize themselves. One such community-driven in-
novative method is by organizing a GHG cooperative, which is a good option for the
SSIs to come together in a mutually beneficial way. For instance, if an SSI cluster
organizes itself as a cooperative to undertake an activity under a specific, particularly
market-based CCI; the cooperative can take care of the administrative aspects and
 215

develop the project and also market their GHG credits, whereas the SSIs individually
undertake climate-relevant activity and share the benefits amongst themselves.

[Link] Strengthen synergies between policies at different scales

In order for the CCI signals from the international policies to reach local levels, it is
important to mainstream global environmental goals into national SSI policies. In
addition, national considerations and aspirations have to be taken into account while
negotiating and implementing the global policy instruments. These need to be sup-
ported by political consensus at all levels as well as scientific knowledge. In addi-
tion, while the national SSI policy focuses on regulatory instruments, CCIs conce n-
trate more on economic incentives. Therefore, synergies between institutions are as
important as the institutions themselves. The international institutions, which operate
on ‘governance without a government’ basis and essentially through national poli-
cies, need to recognize these synergies at the local levels for them to be effective.
At the international level, the national policy objectives may be integrated into the
broader climate goals. The emphasis on ‘sustainable development’ benefits is a key,
but actually implementing the climate activities, which are in congruence with the
national objective, is also important. The international instruments may be used not
only to develop but also to facilitate new, or support the existing, national (and sec-
toral) programmes for SSI development that also contribute to GHG reduction ef-
forts. This may be either by direct intervention like financing a programme for tech-
nology dissemination in a particular cluster or by indirect intervention such as infra-
structural development (providing delivery mechanisms for access of cleaner fuels,
technology development for the SSI sector, e.g. under the cluster development pr o-
grammes) that impact the SSIs in cleaner technology diffusion.
At the national level, international policy instruments may be translated into national
and sectoral policy instrume nts. This has been missing till now. In addition, national
and sectoral programmes may be developed to reflect global environmental objec-
tives and the latter transmitted at the lower levels. Thereby, political willingness, SSI
acceptability as well as institutional linkages and policy guidance at various levels
need to be enhanced for catalysing CCI projects at the local levels such as SSI clus-
ters. The current scenario also calls for a greater interaction between different stake-
holders including financial organization, technical institutes, government depart-
ments, regulatory authorities and NGOs at various levels. Representation of SSIs in
relevant policy-making and review forums is especially needed to bring in greater
transparency and encourage cooperation. In addition, the coordination of all climate-
relevant policies has to be made more effective.
In order to strengthen the linkages between institutions and human actions at differ-
ent scales, there will have to be a convergence of interests, change in mindsets, as
well as initiatives taken to address the issues and for using climate change instru-
ments to address global problems as well as local sustainability needs.
216

10.4 In conclusion
Global environmental problems can be aggravated by large - as well as small-scale
human activities. Given the spread of SSI activities in the developing countries, ig-
noring them would lead to not addressing an important segment of the problem. The
study was therefore initiated with the objective of developing an understanding on
how the global climate change policy instruments can be effective at local levels.
Clearly, this involves a broader institutional approach than what is offered by (but
inclusive of) the standard environmental economics theory, which concentrates on
the cost-effectiveness of the CCIs.

10.4.1 Revisiting the research questions

The Research Framework and the set of five (overlapping) research questions have
been useful in addressing the central research question.
Research question 1: How do CCIs create incentives for diffusion of cleaner tech-
nologies in the small-scale sector in developing countries? How do the national poli-
cies address climate change in India? What are the policy implications of climate
change policies and policy instruments for the SSIs in India?
The climate change policies and policy instruments: provide significant incentives
for developing countries to undertake climate-relevant activities through opportuni-
ties for additional finance, technology, and capacity building. These are supple -
mented by increased opportunities for small projects under CCIs. As a signatory to
the FCCC, India is committed to incorporate climate change considerations in its de-
velopment policies and strategies. There are a number of issues related to the design
and implementation of the CCIs that influence their policy implications. India at pre-
sent is undertaking several initiatives under its economic and energy policies that are
also climate-relevant, such as increasing emphasis on energy efficiency and renew-
able energy. With significant GHG emissions, India offers a range of potential miti-
gation options, including those in the SSI sector. The policy scenario is generally
conducive for CCIs, as India is emerging as an important player at the international
negotiations and has in place the basic institutional framework for approval processes
for CCIs. The government is slowly shifting towards a more active role in terms of
CCIs, along with other actors such as industry associations, NGOs, civil societies,
and research organizations. However, much of the debate is on international policy
instruments, and there is no attempt yet to translate the incentives into domestic in-
struments.
Research question 2: Which national policies address the small-scale industrial sec-
tor in India? Wh at are the implications of the national policies for the diffusion of
cleaner technologies in the SSIs in India?
The national policies for SSIs in India include particularly the promotional or support
and the environmental policies. The former have for long provided SSIs with a pr o-
tective environment. Providing suitable conditions for growth created perverse incen-
tives for the units to remain small. Macro level liberalization and globalization poli-
 217

cies since 1990s are resulting in a shift in SSI policy towards promotion, which in
turn leads to increasing market opportunities and market competition (domestic and
external) for SSIs. The SSIs still enjoy, though reduced, preferential treatment in-
cluding credit benefits and marketing and technical support. These, as well as the
cluster development programme for SSIs, have positive implications for technologi-
cal change. Though several SSI units have benefited, there is a large number which
remain beyond the reach of the policy incentives. More than 85 per cent of the en-
ergy-intensive SSIs studied in this thesis fall under the latter category.
The emphasis of the environmental policy is on regulatory instruments (standards,
bans), supplemented by suasive and economic instruments (subsidies). It provides,
though limited, policy pressure to adopt cleaner technologies. Community pressure
and the judiciary have also been important players in the enforcement of environ-
mental policy specifications for the sector. It is observed that:
• Energy efficiency is still not a priority for the SSI policy, and the thrust is on end-
of-pipe solutions or fuel-switching,
• The focus is also limited to local pollution and not on global environment issues,
• Policy enforcement is generally been weak given the large number of SSIs and
constra ints of the regulatory bodies,
• There exists a gap between promotional and environmental objectives of the SSI
policy, though there are some support policies and programmes that may help
SSI comply with the environmental regulations; and
• SSI representation during the policy-setting process is limited.
Research question 3: What are the main drivers and barriers related to diffusion of
cleaner technologies in the small-scale industries in India?
The research shows that it is the interplay of contextual factors that impact the effec-
tiveness of policies at the local level and shape the technological paradigm for SSIs.
The major contextual factors include:
• Organizational: Though significant inter- and intra-cluster differences exist, in
general entrepreneurs ha ve low awareness, environmental consciousness, techni-
cal knowledge, and marketing and managerial skills. Many SSIs operate on an in-
formal basis, and there is limited systematic monitoring or certification.
• Economic (financial): Most SSIs have limited economic capabilities. Financial
support for cleaner technologies in particular is limited, and is associated with
procedural and transactions costs. Owing to limited awareness, hesitant attitude
and ‘hidden’ motivations, entrepreneurs prefer informal forms of credit. Only
few units manage to avail formal finance and government-driven ince ntives.
• Economic (market): Competition acts as a driver for improving competitiveness
or a barrier for change on account of uncertainty or fixed markets for some SSIs.
In addition, the local markets at present do not pay a premium on cleaner prod-
ucts and processes.
218

• Technological: There is in general limited awareness and technological access

among the SSIs. There is little in -house R&D, and technical support remains lim-
ited due to few qualified technical experts, weak associations, limited training
and demonstration of cleaner technologies.
• Social: These include culture (entrepreneurial spirit), attitude of workers (as car-
riers of information or in resisting change) and other actors, bureaucracy (proc e-
dural delay, political motive), limited networking and involvement of younger
generation.
The case studies also illustrate instances where national policies have played an im-
portant role in cleaner technology diffusion to some extent. These cases show that
the environmental policy can be ‘diffusion forcing’ only if there is effective enforce-
ment, and the policy signals from the policy-making levels reach the local levels. Ju-
dicial intervention and civil society concerns play a critical role. However, there are
no off-the-shelf or blanket solutions in dealing with different SSIs. Transition to a
more sustainable paradigm for SSIs requires an integrated approach, under which in-
creased regulatory push, effective capacity building, adequate financial and techno-
logical support, possible market incentives and networking are facilitated. The ques-
tion is how can this be done? Theory lists various pathways or levers for change: pr i-
vate (at enterprise level), community (by networks) and institution-driven initiatives
which may include national policies and CCIs.
Research question 4: How can SSIs benefit from CCIs and contribute towards a re-
duction in greenhouse gas emissions? How can CCIs affect small-scale industries–
environment intera ction s?
In principle, the CCIs along with national policies can assist the SSIs in India. CCIs
could facilitate targeted capacity-building activities, a ddress the issue of putting a
premium on cleaner products and processes, support programmes for improving ba-
sic infrastructure and access to cleaner fuels, and also assist in developing the exis t-
ing initiatives for cleaner technologies diffusion in SSIs further. The SSIs also can
benefit from the CCIs and contribute towards GHG reduction. They fare strongly on
account of their national and local sustainability benefits, as well as on additionality.
SSIs constitute a sector where there is inactivity on its own in terms of pollution con-
trol and climate change, and needs an external impetus. The development of SSIs is
of national priority, especially because they will continue to provide economic and
livelihood opportunities to India’s significant proportions of population.
Research question 5: What lessons can be drawn from the Indian SSIs sector for the
design and implementation of policy instruments under the international climate
change negotiations?
The thesis argues that the CCI–SSI link exists; however, in the present paradigm this
is a ‘weak link ’. At the local SSI level there is low environmental consciousness and
a set of contextual barriers. At the national level, the SSIs are low in priority within
the national environmental and climate change policies. In terms of CCIs, at the na-
tional and international levels, the incentives are weak for SSIs due to uncertainties,
 219

transactions costs and market biases. The ‘CCI-signals’ regarding incentives offered
somehow do not reach the local levels and the potential of CCIs is restricted to the
higher levels, due to a lack of corresponding policies and instruments.
It has been thus suggested in this thesis that the existing ‘weak link’ can be strength-
ened by adequate policy responses to: (a) strengthen the incentives provided by the
climate change policies and policy instruments, (b) work on the contextual factors by
addressing the barriers and reinforcing the drivers, and (c) strengthen the synergies
between policies at international and national, including state, industry, local levels.
At the national level, the international policy instruments may be translated into na-
tional instruments, and programmes built to reflect global environmental objectives
as well. At the international levels, the national policy objectives may be integrated
into the broader climate goals, and instruments may be used to also support ongoing
programmes and organization related to activities in the SSI sector that lend them-
selves to the global GHG reduction efforts. The design of the CCIs for them to be ef-
fective cannot be analysed in isolation but the context in which these will be used
need to considered during their formulation and implementation stages

10.4.2 On a concluding note

At the theoretical level, the research has provided insights on the macro–micro link-
ages of a global environmental concern and a local-level human activity. A multi-
disciplinary ecological economics approach allowed examining the interplay of insti-
tutions, particularly the policies, at different levels; while the evolutionary approach
reiterated the need to look beyond just the human activity in itself while addressing
the diffusion of cleaner technology issues and also focus upon the broader contextual
environment around it (Section 2.4). The research framework provides the flexibility
of combing these two approaches, and dealing with the complexities of scale as well
as various stakeholders’ perspectives. The case study approach has been especially
important in understanding the practical experiences related to SSIs. The framework
highlights the synergies between various levels and the need for an effective trans-
mission of the intentions of the global policies to the micro-levels and vice versa. It
thus helps provide recommendations towards strengthening the currently weak CCI–
SSI link by adequate policy responses.
As a further field of study, investigations may be required to develop the modalities
and establish a workable system in trying to operationalize some of the recommenda-
tions of the research. While the framework provides a lot of flexibility in dealing
with multi-disciplinary perspectives, it has not really used concrete quantitative mod-
els or tools for the analysis. This was justified, since the focus was more to get a
broad range of perspectives and integrate them to identify the drivers and barriers for
the sector and then analyse their linkages with national and international climate
change policies. This emphasis was basically on policy research, and not to get in-
volved in the technical analysis, such as the cost–benefit assessments and financial
analysis, or the economics of technological options in addressing diffusion issues for
220

the sector. However, this is an area for further research, to use some of these tools in
order to theoretically substantiate the conclusions that have emerged out of the study.
At a practical level, it may be said that SSIs remain the engines of growth in India’s
economic development as in many other developing countries. The development of
SSIs is of national priority, especially since they will continue to provide economic
and livelihood opportunities to rising populations. As India grows along its develop-
ment path and sees itself as a developed country by the year 2020 (Abdul Kalam and
Rajan 1998), it needs, along with agriculture, a substantial role of the industrial and
the services sectors. Within this, the SSIs will have a crucial role. SSIs need to
emerge out of the protectionist regime, avail market opportunities (including fina n-
cial investments for the industrial and SSIs sectors) and efficiently compete in the
markets. A developed India cannot afford to build an industrial base that is polluting
and causes environmental degradation. SSIs too must see environmental instruments
not as a limitation and barrier to their development but as an opportunity to access
technology, finance and know -how. The role of climate change policies and policy
instruments lies herein that they are designed to provide access to technology, fi-
nance and capacity building. However, the climate change policies cannot achieve
these objectives only by supporting greenfield projects and targeting only a few sec-
tors while ignoring the SSIs, which also provide them a platform to implement cli-
mate change projects. The challenge for CCIs is not just to avoid emissions but also
to reduce emissions at source. Greenfield projects are a virtual trading of GHG bene-
fits, where the problem may not actually be solved but it may just be circumventing
the problem. SSIs provide an opportunity for reducing emissions by correcting ine f-
ficient practices, and at the same time providing sustainable development benefits.
SSIs fare strongly on two accounts, their sustainability benefits and on additionality.
They constitute a sector where not much is happening in terms of pollution control
and climate change, and needs an external impetus. However, SSIs tend to get ig-
nored. The developing countries have been unable to organize themselves or put
forth effective host-driven programmes, whereby their priorities get the importance
they deserve. The host priorities have to get reflected in the CCI projects, or at least
there has to be greater transparency to ensure that the broader objectives and princ i-
ples of the climate change polices and CCIs are kept in mind. Convergence of inter-
ests among different stakeholders is also needed to make the CCI–SSI link stronger.
A number of people point out that CCIs are not a ‘solution for everything’, and all
kinds of projects and sec tors cannot be included under these options. The idea how-
ever, is to use the CCIs for genuinely ‘additional’ projects in energy-relevant sectors
for betterment of the environment and achieving national sustainable development
benefits at the same time. This is where the CCI–SSI link becomes rele vant.
Possible policy responses as put forth in this thesis include four key propositions to
make the link stronger:
• Effective capacity-building and increasing the knowledge base of SSIs and vari-
ous stakeholders, and facilitate interaction between them. SSI representation may
 221

be encouraged in different climate change forums, overall policy making and im-
plementation related to cleaner technologies in the country.
• Strengthen national and international policy incentives. In particular, highlight
sustainability and ‘additionality’ of SSI projects. This may be done by a ‘host-
driven’ emphasis or by providing a ‘sustainable development premium’ on pr o-
jects with clear additionality and high sustainable deve lopment benefits.
• Lower uncertainties, including those related to direction of the international re-
gime, national climate change policies, and CCI modalities. This may be done by
setting up agencies for developing SSI projects, helping in host–investor negotia-
tions; and introducing innovative methods like a tax for approving CCI projects
which may used for SSI promotion, providing a sectoral emphasis and a national
carbon fund with focus on sectoral or cluster-level baselines for SSI pr ojects.
• Reduce transactions costs at each level for SSIs and bringing in greater transpar-
ency in the process. This may be done by setting up a separate CCI for SSIs, or a
subset of the existing CCIs with lower transactions cost and streamlined proc e-
dures. Targeting the collective efficiency of SSI clusters may also reduce transac-
tions costs. Schemes could be developed to built on existing networks and asso-
ciations, and also develop new partnerships by strengthening nodal agencies.
While these provide the necessary conditions, they may not be sufficient in bringing
in sustainability in the sector via GHG-reducing CCI activities. In the case of climate
change, as the options to address the problem are embedded in specific human activi-
ties, their interaction with the national and local-level institutions and policies is
critical for their intentions to be transmitted at these levels and vice versa. It is also
critical in assessing that they have been meeting the environmental objectives and do
not get limited as tools for political and economic ends. This research is only one
such analysis, as an attempt to understanding the macro–micro linkages in a theoreti-
cal as well as practical context.
When the research was initiated, the attention given to SSIs or even small projects
within the climate change discussions and literature was very limited. As the study
progressed, the emphasis on small projects has increased significantly. However, the
involvement of SSIs still remains small. It is hoped that the recommendations pre-
sented in this thesis will encourage greater focus on the SSI sectors which have a di-
rect relevance for sustainable development, but may not attract the attention of many
international- level players involved in climate change activities.
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Summary

Over a decade of international climate change negotiations has led to the introduction
of climate change instruments (CCIs) that offer incentives for undertaking activities
climate-relevant and facilitating sustainable development at global and national le v-
els. The question is whether these instruments will have any impact on the small
scale industries (SSIs) which are significant contributors to both socio-economic
growth and greenhouse gas (GHG) emissions in developing countries. Given the
spread of SSI activities in the developing countries, leaving them out would lead to
not addressing an important segment of the climate change problem. It is in this re-
gard that this thesis examines the link between the CCIs and the SSIs. Beginning
with the proposition that the CCIs will not focus on SSIs, unless appropriate mea s-
ures are applied; the thesis has examined the role of CCIs in shaping SSI–
environment interaction.
The main objective is: To determine whether the climate change instruments can fa-
cilitate the diffusion of cleaner technologies in the small-scale industries in develop-
ing countries leading to sustainable development benefits, by examining the syner-
gies and conflicts between these instruments and national policies in India.
The central research question is: Under what circumstances can climate change in-
struments induce the small-scale industries sectors in developing countries to con-
tribute towards the global efforts for addressing climate change and at the same time
assist the process of sustainable development at the n ational level?
In order to address the central research question, the thesis uses theoretical perspec-
tives related to: (a) ecological economics for assessing the climate change policies
and instruments for diffusion of cleaner technologies at various levels, and (b) evolu-
tionary theory of technological change for providing insights into the complexity of
factors influencing cleaner technology diffusion in the SSIs. Thereby, the macro ap-
proach (with a foc us on policy implications) is reinforced by the feedback from con-
ditions and actions of actors at the micro level, and visa versa. The co-evolution of
the two approaches provide a better understanding of the issues in each in order to
acquire insights regarding their linkages (especially in terms of how micro level can
respond to marco level policies, and in turn how these policies may be built to have
the desired impact on the micro level).
The research framework has been developed to assist in analysing the role the inter-
national policy instruments may play in shaping SSI–environment interactions by fo-
cusing on the interplay between the policy implications and the contextual factors.
The methodology used is largely qualitative, including literature survey, primary in-
terviews and multiple case studies (involving primary survey and interviews). The
central research question is sub-divided into more focused research questions.
240

Research question 1: How do climate change instruments create incentives for diffu-
sion of cleaner technologies in the small-scale sector in developing countries? How
do the national policies address climate change in India? What are the policy impli-
cations of climate change policies and policy instruments for the small-scale indu s-
tries in India?
Research question 2: Which national policies address the small-scale industrial sec-
tor in India? What are the implications of the national policies for the diffusion of
cleaner technologies in the small-scale industries in India?
Research question 3: What are the main drivers and barriers related to diffusion of
cleaner technologies in the small-scale industries in India?
Research question 4: How can small-scale industries benefit from climate change in-
struments and contribute towards a reduction in greenhouse gas emissions? How
can climate change instruments affect small-scale industries–environment interac-
tions?
Research question 5: What lessons can be drawn from the Indian small-scale indus-
tries sector for the design and implementation of policy instruments under the inter-
national climate change negotiations?
The analysis of the institutional framework at international level focuses on the in-
struments developed in the climate change regime. The CCIs on the one hand pro-
mote public awareness of climate change issues and, on the other hand, provide addi-
tional opportunities for finance, technology and/or capacity-building for addressing
climate change (although focus has largely been on financing). India, with a signifi-
cant GHG mitigation potential, is a key host for these climate relevant and sustain-
able development initiatives. While the climate change policy incentives are signifi-
cant, they are also associated with uncertainties, transactions costs and market biases.
These issues are especially relevant for small-size and low-capital SSIs. SSIs are low
on the priority list in international and national climate change policies. The situation
is slowly evolving and there are indications of the diversification of CCI portfolios
with SSI projects being considered under GEF and CDM in India. However, these
are still only a few and are mainly for capacity-building. It thus appears that the top-
down approaches though relevant will remain constrained unless the associated is-
sues are resolved or a ddressed.
A follow -up analysis of national SSI policies in India reveals that although these
have been motivated by social and equity concerns, energy efficiency considerations
have played a minor role and there has been little integration between the diverse
policies focusing on this sector. Until the late 1980s, the SSIs were protected; but this
inadvertently implied that the sector also stagnated. Following the Bhopal gas trag-
edy, environmental reform was prioritised, but progress has been slow. Community
pressure and public interest litigation (PIL) combined with a proactive judiciary have
promoted the opportunities for enforcing environmental policies. In the current sce-
nario, two challenges emerge as especially relevant for the SSIs; one, with processes
of liberalization and globalization, the SSIs face the threat of increased competition,
 241

both from within and outside the country, and two, the regulations addressing at least
local pollution and their enforcement are projected to become stringent. In addition,
the increasing concerns for the global environment and relevant international policies
are likely to have direct or indirect implications for the SSIs. The SSIs, therefore,
will have to improve their processes and adopt cleaner technolo gies to be more com-
petitive. A transition of the SSI sector towards more sustainable developmental paths
is needed. Given the large number of these industries, and other national concerns,
government support available for technology upgrading in SSIs will be limited.
Hence, innovative strategies for the diffusion of cleaner tec hnologies are required if
the SSIs are to survive and grow in a sustainable manner.
The research focuses on three SSIs clusters in India, where national environmental
policies have brought about a change in terms of cleaner technology diffusion, and in
that sense, have been “diffusion forcing”. This not only helps to draw lessons for
drafting international environmental policies, but also to examine the barriers and
drivers that exists that may influence these policies (and thereby also address RQ 3).
The case study of the iron foundry cluster in Howrah shows that compliance with the
specified emission standard in the cluster with a niche market for low -grade castings
was limited, until the intervention of the Supreme Court. A judicial order issued by
the Court increased enforcement measures by local authorities, leading to almost all
units installing the required pollution control devices (PCDs) in order to comply with
the standard. It however did not lead to sustained enforcement. Many PCDs are ine f-
ficient, are not properly maintained, and operate only during inspections. The regula-
tory instrument was supplemented with a partial subsidy for PCDs. This led to a joint
initiative between a local industry associa tion, a technical institute and a financial in-
stitution for technology improvements in select small units.
The case study of the glass cluster in Firozabad reveals that Fuel switching in this
large cluster was triggered following the Supreme Court’s order to ban use of coal
and recommending a shift to natural gas in the Taj Trapezium Zone (TTZ), in re-
sponse to a Public Interest Litigation (PIL) for protection of the Taj Mahal. Stringent
enforcement measures by local authorities forced many glass units to switch to natu-
ral gas furnaces. Subsequently, however, financial benefits of natural gas led to more
units opting for the switch. The larger units with access to natural gas have started
subletting their space and infrastructure to units without natural gas access. However,
coal is still being used in the cluster. Technical support was also provided by setting
up a technical institute specifically for the industry; however, with little interaction
with entrepreneurs it has not really met the needs of the cluster and among local in-
dustries is called a white elephant.
The third case study of the brick cluster in Chandigarh shows that technology forcing
was encouraged through an emission standard, which included a ban on the conven-
tionally used technology. The enforcement of the standard was pushed following a
Supreme Court’s response to the PIL highlighting the adverse impacts of coal use in
the SSI. However, compliance by the cluster was achieved largely because technical
institutions provided the alternative technology as a consultancy package. This tech-
242

nology was approved by the local authorities and helped SSIs in getting the required
licenses. It could not however improve operational practices in the units despite in-
creasing the awareness and technical levels of the entrepreneurs.
A comparative analysis of the case studies shows that there has been very little tech-
nological change in the SSIs over a long period of time. One of the reasons has been
the perverse incentive created by the national policy characterized by regulatory in-
struments focusing on end-of-pipe solutions and a protective approach due to social
and political motivations. The other has been the SSIs’ own limited technological ca-
pabilities (production, innovative and investment capabilities) coupled with social
(attitudes and culture) and techno-economic (including lack of market demand and
access to technology and finances) deterrents. It is the interplay of contextual factors
that impact the effectiveness of policies at the local level and shape the technological
paradigm for SSIs. Initiatives to change the status quo have been successful only in
some cases where the push has come from external sources; more often the piece-
meal approaches benefit only a select few. A transition to a new and sustainable
paradigm therefore requires an integrated approach, under which increased regula-
tory push, effective capacity building, adequate financial and technological support,
possible market incentives and networking are facilitated.
Theory lists various pathways or levers for change, including private (SSI-unit level),
community (networks, associations) and policy-driven initiatives. Owing to the pre-
vailing contextual factors, it is difficult to envisage that the SSIs themselves would
undertake concerted efforts for cleaner technology diffusion. Though networks and
associations have proactively or collaboratively brought a change in some cases, they
usually do not really focus on cleaner technologies diffusion. The national policy
provides but limited incentives for cleaner technologies. In addition, the CCIs pro-
vide incentives for cleaner technologies by offering opportunities for capacity build-
ing and increased access to additional funding, technologies and market avenues.
Mapping SSI needs with the CCI objectives indicates that, in principle, the CCIs can
assist in the transition as can the national policies. The question is: Can CCIs help the
SSIs, and whether SSIs can make use of the CCIs and in turn contribute to GHG re-
duction efforts?
In principle, the CCIs along with national policies can assist the SSIs in India. CCIs
could facilitate targeted capacity-building activities, a ddress the issue of putting a
premium on cleaner products and processes, support programmes for improving ba-
sic infrastructure and access to cleaner fuels, and also assist in developing the exis t-
ing initiatives for cleaner technologies diffusion in SSIs further. SSIs fare strongly on
account of their national and local sustainability benefits, as well as on additionality,
w herein the SSIs constitute a sector where there is inactivity on its own in terms of
pollution control and climate change, and needs an external impetus. The develop-
ment of SSIs is of national priority, especially because they will continue to provide
economic and livelihood opportunities to India’s significant proportions of popula-
tion. Even though the GHG contribution of the SSIs is not as prominent as the large -
scale industries, their large numbers and degree of energy inefficiency are a matter of
 243

concern from environmental and developmental perspectives (the energy-saving po-

tential in case study SSIs was found to be more than 50 per cent). Diffusion of select
cleaner technologies ranging of options from simple modification in operating prac-
tices to modern tec hnologies can bring down energy consumption and thereby GHG
emissions from the sector, along with other economic (increase competitiveness),
environmental (reduce pollution) and social benefits (better working conditions), and
also help meet the environmental norms..
However, there are some counterarguments as well. At present, there are only a few
cases of SSI-relevant activities undertaken. These are mainly geared towards capac-
ity building rather than actual implementation of cleaner technologies in the SSI
units. In international and national debates and discussions related to climate change,
there is representation from the Indian industry, but within that the SSIs are practi-
cally absent. At the local SSI level there is low environmental consciousness and a
set of contextual barriers. At the national level, the SSIs are low in priority within the
national environmental and climate change policies. In terms of CCIs, at the national
and international levels, the incentives are weak for SSIs due to uncertain ties, trans-
actions costs and market biases. Based on these, the research concludes that the CCI–
SSI link clearly exists; however, in the present paradigm this is a ‘weak link ’. The
‘CCI-signals’ regarding incentives offered somehow do not reach the local levels and
the potential of CCIs is restricted to the higher levels due to a lack of corresponding
policies and instruments.
It has been suggested that the existing ‘weak link’ can be strengthened by adequate
policy responses to: (a) strengthen the incentives provided by the climate change
policies and policy instruments, (b) work on the contextual factors by addressing the
barriers and reinforcing the drivers, and (c) strengthen the synergies between policies
at international and national, including state , industry, local levels. At the national
level, the international policy instruments may be translated into national instr u-
ments, and programmes built to reflect global environmental objectives as well. At
the international levels, the national policy objectives may be integrated into the
broader climate goals, and instruments may be used to also support ongoing pr o-
grammes and organization related to activities in the SSI sector that lend themselves
to the global GHG reduction efforts. Possible policy responses as put forth in this
thesis include four propositions:
• Effective capacity building and increasing the knowledge base of SSIs and
various stakeholders, and facilitating interaction between them. SSI representa-
tion may be encouraged in the different climate change fora for overall policy
making and implementation related to cleaner technologies in the country.
• Strengthen policy incentives – in particular, highlight sustainability and ‘addi-
tionality’ of SSIs projects. This may be done by a ‘host-driven’ emphasis or pr o-
viding a ‘ sustainable development premium’ on projects and products with clear
additionality and high sustainable development benefits.
244

• Lower policy uncertainties, including those related to the international regime,

national climate change policies and CCI modalities. This may be done by setting
agencies for developing SSI projects; helping in host–investor negotiations; and
introducing innovative methods like a tax for approving CCI projects which may
used for SSI promotion, providing a sectoral emphasis and a national carbon fund
with focus on sectoral or cluster-level baselines for SSI pr ojects.
• Reduce transactions costs at each level for SSIs and bringing in greater trans-
parency in the process. This may be done by setting up a separate CCI for SSIs,
or a sub-set of the existing CCIs with lower transactions costs and streamlined
procedures. Targeting the collective efficiency of SSI clusters may also reduce
transactions costs. Schemes could be developed to build on existing networks and
associations, and also develop new partnerships by strengthe ning nodal agencies.
While these provide the necessary conditions, they may not be sufficient in bringing
in sustainability in the sector via GHG-reducing CCI activities. In the case of climate
change, as the options to address the problem are embedded in specific human activ i-
ties, their interaction with the national and local- level institutions and policies is
critical for their intentions to be transmitted at these levels and vice versa. It is also
critical in assessing that they have been meeting the environmental objectives and do
not get limited as tools for political and economic ends. This research is only one
such analysis, as an attempt to understanding the macro–micro linkages in a theoreti-
cal as well as practical context. It takes a broader approach than what is offered by,
but inclusive of, the standard environmental theory in order to provide a holistic as-
sessment of the linkages between international institutions and local actions.
 245

Samenvatting

De nu meer dan tien jaren van internationale onderhandelingen op het gebied van
klimaatverandering die achter ons liggen, hebben geleid tot de introductie van
klimaatveranderingsgerichte beleidsinstrumenten (CCIs) die het ontplooien van
klimaatrelevante activiteiten stimuleren en duurzame ontwikkeling op wereld en
nationaal niveau vergemakkelijken. De vraag is of deze instrumenten effect zullen
hebben op de kleinschalige industriële bedrijven (SSIs) die significant bijdragen aan
zowel socio-economische groei als aan de uitstoot van broeikasgassen in
ontwikkelingslanden. Gegeven de ruime verspreiding van activiteiten van SSIs in
ontwikkelingslanden, zou het niet in beschouwing nemen hiervan leiden tot het
veronachtzamen van een belangrijk segment van het probleem van de
klimaatverandering. Vanuit deze gedachte wordt in dit proefschrift de verbinding
bestudeerd tussen CCIs en SSIs, te beginnen met de stelling dat de CCIs zich niet
richten op SSIs tenzij passende maatregelen worden toegepast. In het proefschrift
wordt de betekenis van CCIs bestudeerd als onderdeel van de interactie tussen SSIs
en het milieu.
Het voornaamste onderzoekdoelis: te bepalen of de instrumenten voor
klimaatverandering de verspreiding van schone technologieën in de kleinschalige
industrieën in ontwikkelingslanden kunnen vergemakkelijken, daarmee leidend tot
voo rdelen in termen van duurzame ontwikkeling, door het bestuderen van synergieën
en conflicten tussen deze instrumenten en nationale beleidsmaatregelen in India.
De centrale onderzoekvraag is: onder welke omstandigheden kunnen instrumenten
voor klimaatverandering de sector van de kleinschalige industrie in
ontwikkelingslanden bewegen bij te dragen aan de wereldwijde inspanningen om
klimaatverandering aan te pakken en tegelijkertijd bij te dragen tot het proces van
duurzame ontwikkeling op nationaal niveau?
Om de centrale onderzoekvraag aan te pakken, worden theoretische perspectieven
gebruikt gerelateerd aan: (a) ecologisch- economische theorie ter vaststelling van het
beleid ten aanzien van klimaatverandering en instrumenten voor verspreiding van
schone technologieën op verschillende niveaus, en (b) evolutionaire theorie van
technologische verandering om inzicht te verschaffen in de complexiteit van factoren
die de verspreiding van schone technologie in SSIs beïnvloeden. Aldus wordt de
macrobenadering (met een nadruk op beleidsimplicaties) versterkt door de
terugkoppeling van condities en acties van actoren op het microniveau en
omgekeerd. De co-evolutie van beide benaderingen verschaft een beter begrip van de
ontwikkelingen in iedere benadering afzonderlijk en verschaft inzicht betreffende
hun verbindingen (vooral in termen van hoe het microniveau kan reageren op beleid
op macroniveau, en op zijn beurt hoe dit beleid ontworpen kan worden om de
gewenste uitwerking op het microniveau te bewerkstelligen).
246

Voor dit onderzoek is een conceptueel raamwerk ontwikkeld ten behoeve van de
analyse van de rol die de internationale beleidsinstrumenten zouden kunnen spelen in
het beïnvloeden van de interacties tussen SSIs en het milieu, door zich te richten op
de interactie tussen de beleid simplicaties en een reeks van ‘contextuele’ factoren. De
gebruikte methodologie is in hoge mate kwalitatief en omvat literatuuronderzoek,
primaire interviews en een aantal ‘case’-beschrijvingen (inclusief primair onderzoek
en interviews). De centrale onderzoekvraag is onderve rdeeld in meerdere, duidelijk
toegesneden onderzoekvragen.
Onderzoekvraag 1: Hoe verschaffen instrumenten voor klimaatverandering prikkels
ter verspreiding van schonere technologieën in de kleinschalige sector in
ontwikkelingslanden? Hoe houdt het nationale beleid in India zich bezig met
klimaa tverandering? Wat zijn de beleidsimplicaties van klimaatbeleid en
klimaatbeleidsinstrumente n voor de kleinschalige industrieën in India?
Onderzoekvraag 2: Welk nationaal beleid richt zich op de kleinschalige industriële
sector in India? Wat zijn de implicaties van het nationale beleid voor het verspreiden
van schonere technologieën in de kleinschalige industrieën in India?
Onderzoekvraag 3: Wat zijn de voornaamste drijfveren en hindernissen gerelateerd
aan verspreiding van schonere technologieën in de kleinschalige industrieën in
India?
Onderzoekvraag 4: Hoe kunnen kleinschalige industrieën baat hebben bij
instrumenten voor klimaatverandering en bijdragen aan reductie van de
broeikasgasemissies? Hoe kunnen instrumenten voor klimaatverandering de
interacties tussen kleinschalige industrieën en milieu beïnvloeden?
Onderzoekvraag 5: Welke les kan getrokken worden uit de Indiase sector van
kleinschalige industrieën voor het ontwerpen en implementeren van
beleidsinstrumenten zoals vastgelegd in de internationale
klimaatveranderingsonderhandelingen (het Kyoto Protocol)?
De analyse van het institutionele raamwerk op internationaal niveau richt zich op de
instrumenten die zich ontwikkeld hebben onder het regime van klimaatverandering.
De CCIs bevorderen de publieke bewustwording van zaken die met
klimaatverandering te maken hebben en verschaffen aanvullende gelegenheden voor
de financiering van technologie en/of capaciteitsontwikkeling om klimaatverandering
aan te pa kken (waarbij de nadruk op financiering ligt). India, met een significant
potentieel voor broeikasgas mitigatie, bekleedt een sleutelpositie bij deze
klimaatrelevante en duurzame ontwikkelingsinitiatieven. Terwijl de prikkels van
beleid voor klimaatverandering significant zijn, worden ze ook geassocieerd met
onzekerheden, transactiekosten en markt-ambivalenties. Deze zaken zijn met name
relevant voor kleinschalige SSIs met een klein werkkapitaal. SSIs staan laag op de
prioriteitenlijst in internationaal en nationaal beleid op het gebied van
klimaatverandering. Deze situatie ontwikkeld zich langzaam en er zijn aanwijzingen
dat, onder auspiciën van de GEF en het CDM in India, de verscheidenheid in CCIs
voor SSI-projecten toeneemt. Dit zijn er echter nog maar een paar en dan
 247

voornamelijk voor `capacity-building'. Het lijkt er op dat de `top-down'

benaderingen, hoewel relevant, aan beperkingen onderhevig blijven, tenzij de
daarmee samenhangende zaken opgelost zijn of aangepakt worden.
Een vervolg-analyse van het nationale SSI-beleid in India laat zien dat dit is
ingegeven door zorgen betreffende sociale (on)gelijkheid; overwegingen inzake
energie efficiëntie hebben een kleinere rol gespeeld en er is weinig integratie tussen
de diverse vormen van beleid die zich op SSIs richten. Tot ver in de jaren 1980
werden de SSIs beschermd, maar dit bracht onopzettelijk met zich mee dat de sector
ook stagneerde. Na de Bhopal tragedie kreeg milieuhervorming prioriteit, maar de
vooruitgang ging langzaam. Druk vanuit de gemeenschap en processen voor tkomend
uit publieke belangstelling (‘public interest litigation’ - PIL) gecombineerd met een
pro-actieve rechterlijke macht hebben de mogelijkheden bevorderd om milieubeleid
te implementeren. In de huidige situatie komen twee uitdagingen naar voren die met
name relevant zijn voor SSIs; een met elementen van liberalisering en globalisering
waarin de SSIs geconfronteerd worden met de dreiging van toenemende competitie,
zowel van binnen als van buiten het land, en als tweede meer stringente regelgeving
die in ieder geval plaatselijke vervuiling effectief aanpakt. Daarenboven heeft de
toenemende bezorgdheid voor het wereldmilie u en daarbij behorend internationaal
beleid waarschijnlijk directe en indirecte implicaties voor de SSIs. De SSIs moeten
daarom hun processen verbeteren en schonere technologieën overnemen om
competatiever te zijn. Een overgang van de SSI-sector naar meer duurzame
ontwikkelingspaden is nodig. Gegeven de grote aantallen van deze industrieën en
ook wegens andere nationale belangen, zal de overheidssteun beschikbaar voor
technologische verbetering in de SSIs beperkt zijn. Vandaar dat innovatieve
strategieën voor de verspreiding van schone technologieën benodigd zijn om de
kleinschalige industrieën te laten overleven en groeien op een duurzame wijze.
Het hier samengevatte onderzoek richt zich op drie clusters van SSI in India, waar
nationaal milieubeleid verandering teweeg heeft gebracht in termen van de
verspreiding van schonere technologie, en in die zin `verspreiding afdwingend ' zijn.
Dit helpt bij het lering trekken ten behoeve van het opstellen van internationaal
milieubeleid en ook bij de bestudering van belemmeringen en aanjagers die dit beleid
zouden kunnen beïnvloeden. Zo wordt ook de derde onderzoeksvraag benaderd.
De case study van de metaalgieterij cluster in Howrah laat zien dat naleving van de
gespecificeerde emissienorm in het cluster beperkt was totdat een gerechtelijk bevel,
uitgevaardigd door de Hoge Raad van India, leidde tot versterkte krachtige
uitvoe ring door locale autoriteiten en tot het door bijna alle eenheden installeren van
de vereiste installaties voor beperking van emissies . Het le idde echter niet tot
duurzame krachtige uitvoering. Veel emissiebeperkende installaties zijn inefficiënt,
niet goed onderhouden en werken slechts gedurende de inspecties.
De case study van het glas cluster in Firozabad laat zien dat het overstappen op
andere brandstof in de cluster uitgelokt was door een uitspraak van de Hoge Raad om
het gebruik van kolen te verbieden en de overstap op aardgas aan te bevelen, in
antwoord op een proces voortkomend uit een PIL gericht op de bescherming van de
248

Taj Mahal. Stringente uitvoering van maatregelen door locale autoriteiten dwong
menige glasfabriek over te stappen op aardgasovens. Vervolgens brachten de
financiële voordelen van het gebruik van aardgas meer eenheden ertoe die overstap
te maken. Echter, kolen worden nog steeds gebruikt in het cluster. Ook werd
technische ondersteuning geboden in de vorm van het opzetten van een technisch
instituut voor de bedrijfstak; door de geringe interactie met ondernemers heeft dit
niet voldaan aan de behoeften van de cluster.
De case study van de baksteencluster in Chandigarh laat zien dat het afdwingen van
technologische vernieuwing aangemoedigd werd door een emissienorm die
uitbanning inhield van de conventionele technologie. De aanmoediging van de norm
werd kracht bijgezet door een uitspraak van de Hoge Raad in antwoord op een PIL
die de nadelige invloeden van het gebruik van kolen in deze SSI naar voren bracht.
Echter, nakoming werd voornamelijk bereikt doordat technische instituten de
alternatieve technologie aanboden als pakket. Deze technologie was geaccordeerd
door lokale autoriteiten en hielp de SSIs in het verkrijgen van de benodigde
vergunningen. Toch konden de operationele praktijken in de eenheden niet
voldoende verbeterd worden, ondanks de bewustwording onder de ondernemers.
Een vergelijkende analyse van de case studies laat zien dat er gedurende een lange
periode weinig technologische verandering binnen de SSIs heeft plaatsgevonden.
Een van de redenen is gelegen in de tegengestelde prikkels gecreëerd door het
nationale beleid, gekenmerkt door regulerende instrumenten gericht op `end-of-pipe'
oplossingen en een beschermende benadering vanwege sociaal- politieke motivaties.
De andere reden was de eigen beperkte technologische vaardigheden van de SSIs
(productie, vermogen tot innoveren en investeren), gekoppeld aan sociale (houding
en cultuur) en technisch-economische ontmoediging (inclusief gebrek aan vraag uit
de markt en toegang tot technologie en financiën). Het is het samenspel van
contextuele factoren dat de effectiviteit van beleid op locaal niveau beïnvloedt en de
technologische context vormt voor SSIs. Initiatieven om de status quo te veranderen
zijn slechts in enkele gevallen succesvol geweest, daar waar de druk kwam van
externe bronnen; vaker had de gevolgde stap-voor-stap benadering slechts voordeel
voor een selectief groepje bedrijven. Een overgang naar een nieuw en duurzaam
paradigma vereist daarom een geïntegreerde benadering, waarin verhoogde
regulerende druk, effectieve capaciteitsopbouw, adequate financiële en
technologische ondersteuning, mogelijke marktprikkels en netwerken worden
bevorderd.
De theorie biedt verschillende paden of handvatten voor verandering, inclusief
private (per SSI-eenheid), gemeenschaps- (netwerken, verenigingen) en
beleidsgedreven initiatieven. Ten gevolge van de heersende contextuele factoren is
het moeilijk voor te stellen dat de kleinschalige industrieën zelf gezamenlijke
pogingen zullen ondernemen voor verspreiding van schonere technologie. Alhoewel
netwerken en verenigingen pro-actief of samenwerkend in sommige gevallen een
verandering tot stand hebben gebracht, richten ze zich meestal niet op verspreiding
van schonere technologieën. Het nationale beleid verschaft slechts beperkte prikkels
 249

voor schonere technologieën. Daarbij verschaffen de CCIs prikkels voor schonere

technologieën door het aanbieden van mogelijkheden voor opbouw van
capaciteitsontwikkeling en toenemende toegang tot aanvullende fondsen,
technologieën en markten. Het in kaart brengen van relaties tussen de behoeften van
SSI met de doelstellingen van CCIs geeft aan dat de CCIs in principe bij kunnen
dragen in de transitie, net als het nationale beleid. De vraag is, of CCIs de SSIs
kunnen helpen en of de SSIs gebruik kunnen maken van de instrumenten voor CCIs
en zo op hun beurt bijdragen aan de pogingen tot reductie van broeikasgasemissies.
In principe kunnen de CCIs samen met nationaal beleid SSI in India ondersteunenen.
CCIs kunnen doelgerichte capaciteitsopbouw vergemakkelijken, een premie zetten
op schonere producten en processen, programma's ondersteunen om de basis
infrastructuur te verbeteren en toegang te verschaffen tot schonere brandstoffen en
ook bijdragen in het ontwikkelen van de bestaande initiatieven voor het verder
verspreiden van schonere technologieën in SSIs. SSIs profiteren sterk van nationale
en lokale duurzaamheidsvoordelen, evenals van additionele financiële impulsen,
waar de sector op eigen kracht alleen inactief zou blijven in termen van beheersing
van vervuiling en klimaatverandering. De ontwikkeling van SSIs is een nationale
prioriteit, vooral omdat ze blijvend economische en bestaansmogelijkheden bieden
aan een belangrijk deel van de Indiase bevolking. Zelfs wanneer het aandeel van
SSIs in broeikasgasemissies niet zo duidelijk is als dat van de grootschalige
industrieën, zijn hun grote aantallen en hun energie -inefficiëntie vanuit milieu- en
ontwikkelingspe rspectieven een zaak van zorg (de mogelijkheid tot energiebesparing
gevonden in de case studie was meer dan 50%). Verspreiding van bepaalde schonere
technologieën, van eenvoudige veranderingen in operationele praktijken tot moderne
technologieën die energieconsumptie en daardoor broeikasgasemissies van de sector
verlagen, samen met baten van economische aard (concurrentieverhoging), of
milieukundige (verontreiniging reduceren) en sociale (betere werkomstandigheden),
helpen mee te voldoen aan de milieunormen.
Er zijn echter ook tegenargumenten. Momenteel zijn er slechts een paar voorbeelden
van relevante activiteiten op het gebied van SSIs onde rnomen. Deze richten zich
voornamelijk op capaciteitsopbouw en minder op werkelijke implementatie van
schonere technologieën in de SSI-eenheden. In internationale en nationale debatten
en discussies over klimaatverandering is vertegenwoordiging vanuit de Indiase
industrie, maar daarbinnen zijn de SSIs praktisch afwezig. Op lokaal kleinschalig
industrieniveau is weinig milieubewustzijn en bestaat een reeks van samenhangende
hindernissen. Op nationaal niveau, hebben de SSIs weinig prioriteit binnen het
milieu- en klimaatbeleid. Bekeken vanuit het oogpunt van de CCIs zijn de prikkels,
op nationaal en internationaal niveau, zwak voor kleinschalige industrieën vanwege
onzekerheden, transactiekosten en markteffecten. Hierop baserend, wordt in het
onderzoek geconcludeerd dat de relatie tussen CCIs en SSIs duidelijk bestaat; echter,
in het huidige voorbeeld is dit een `zwakke relatie'. De `CCI-signalen' in termen van
aangeboden prikkels bereiken de locale niveaus op de een of andere manier niet, en
het potentieel van CCIs is voorbehouden voor de hogere niveaus van bedrijvigheid,
door een gebrek aan adequate beleidsmaatregelen en instrumenten.
250

Er is gesuggereerd dat de bestaande `zwakke relatie' versterkt kan worden door

adequate beleidsantwoorden in de vorm van : (a) versterken van de prikkel
aangeleverd door de klimaatbeleidsmaatregelen en beleidsinstrumenten, (b)
verbeteren van de contextuele factoren door de hindernissen aan te pakken en de
aandrijvende factoren te versterken, en (c) versterken van de synergie tussen
beleidsmaatregelen op internationale, nationale (inclusief staat, industrie) en locale
niveaus. Op nationaal niveau, mogen de internationale beleidsinstrumenten vertaald
worden in nationale instrume nten en mogen programma's opgesteld worden om
wereldwijde milieudoelen in overweging te nemen. Op internationaal niveau, kunnen
nationale beleidsdoelen geïntegreerd worden in bredere klimaatdoelen en
instrumenten kunnen ook gebruikt worden om activiteiten in lopende programma's
en organisaties te ondersteunen in de SSI-sector die zich inzetten voor
broeikasgasreductie. Denkbare beleidsantwoorden zoals naar voren gebracht in dit
proefschrift, omvatten vier stellingen:
• Effectieve capaciteitsopbouw en verhogen van de kennisbasis van SSIs en
verschillende belanghebbenden, en het vergemakkelijken van de interactie tussen
hen. Participatie van SSIs in de verschillende fora voor klimaatverandering kan
worden bevorderd ten behoeve van het maken van algemeen beleid voor
schonere technologieën en uitvoering daarvan in het land.
• Versterk beleidsprikkels – breng met name duurzaamheid en ‘additionaliteit’
van SSI projecten naar voren. Dit kan via het leggen van de nadruk op ‘host-
driven’. Een andere mogelijkheid is het verstrekken van een ‘premie op
duurzame ontwikkeling ’ voor projecten en pr oducten met duidelijk
“additionaliteit” en hoge score op duurzame ontwikkeling.
• Verklein beleidsonzekerheden, inclusief de onzekerheden die gerelateerd zijn
aan het internatonale regime, het nationaal klimaatbeleid en CCI modaliteiten.
Dit kan bereikt worden door het opzetten van vertegenwoordigingen
(agentschappen) voor het ontwikkelen van SSI-projecten; hulp bij
onderha ndelingen over investeringen; en het introduceren van innovatieve
methoden zoals een belasting op het goe dkeuren van CCI projecten die gebruikt
worden voor SSI promotie, daarmee nadruk leggend op de sector en op een
nationaal koolstoffonds gericht op SSI projecten op sectoraal of clusterniveau.
• Verlaag transactiekosten voor SSIs op elk niveau en maak het hele proces
transparanter. Dit kan door het opzetten van een apart CCI voor SSIs, of door het
opzetten van een deel-CCI met lagere transactiekosten en gestroomlijnde
procedures. Versterking van de collectieve efficiëntie van SSI clusters kan ook de
transactiekosten verlagen. Procedures en trajecten kunnen worden ontwikkeld
door bestaande netwerken en sectorale belangenverenigingen verder te
ontwikkelen en tevens nieuwe verbanden te ontwikkelen door het versterken van
netwerkorganisaties.
Hoewel deze beleidsmaatregelen de noodzakelijke voorwaarden scheppen, is het
mogelijk dat ze onvoldoende zijn om duurzaamheid en broeikasemissiereductie
 251

stevig te verankeren in de sectoren. In geval van klimaatverandering, waarbij de

opties om het probleem te benaderen sterk zijn ingebed in specifiek menselijke
activiteiten, is de interactie met de instituten en het beleid op nationaal en locaal
niveau bepalend voor het succes in het overbrengen van intenties tussen de sector en
beleid en vice versa. Het is ook van groot belang dat de door de sector gehaalde
milieudoelen gezamenlijk worden vastgesteld en dat de rol van de sector niet beperkt
wordt tot die van werktuig voor politieke en economische doeleinden. Dit onderzoek
is een van de analyses waarbij een poging wordt gedaan de macro-micro
verbindingen te begr ijpen, zowel vanuit een theoretische als vanuit een praktische
context. Uiteindelijk is een bredere benadering nodig dan wordt geboden door de
standaard milieutheorie, hoewel wel noodzakelijk om mee te beginnen, om een
holistisch inzicht te krijgen in de verbindingen tussen internatio nale instituten en
locale acties.
Annexure 1: SSI case studies – technical details ∗

I.1 Iron foundry industry

I.1.1 Production process

The production process in the foundry units involves five major steps for production
of iron castings. These include:
a. Pattern making : Making a replica of the desired casting.
b. Mould preparation: Preparing a mould into which the molten metal will be
poured to create the casting.
c. Furnace charge preparation, melting and pouring : The proper mix of metal is
prepared and melted in the furnace at very high temperatures. The molten metal
is then poured into the moulds manually or by machines.
d. Cooling, quenching and sand handling: The metal is allowed to cool and solidify
as the casting and removed from the mould, while the mould materials are recov-
ered for reuse.
e. Fettling, finishing and cleaning: The excess material is removed from the casting,
and finished to polish and protect the surfaces.

Raw materials:
Main fuel: CUPOLA Pig iron/scrap
melting furnace - stone
+lime
Coke
+ ferro manganese
Air

Castings

CO2 emissions Local pollutants

Dispatch

Fig. A: Melting process in a conventional cupola

I.1.2 Furnace technologies

The main technology for melting of metal in the foundries in Howrah and in India is
the (coke/coal based) cupola. The cupola is the oldest and dominant technology in

∗
The details are complied based on the relevant references as mentioned in the text above.
254

the world as well. It involves feeding the charge (raw materials) and fuel in alternate
la yers into the cylinder of the cupola (figure A). Combustion occurs in the presence
of air entering through its tuyeres. This prepares the molten metal, while giving rise
to residue and pollutants such as SPM, SO 2, CO, and CO 2.
The various technologies (for melting) for iron foundries in India are listed below.
a. Single Blast Cupola (SBC) or the conventional cupola : Coke -based. The SBC is
the oldest technology for production of castings. The cost of the cupola varies ac-
cording to size and design. The approximate capital cost of a SBC of 5 ton per
hour capacity is approximately Rs 0.4–0.6 million.
b. Divided Blast Cupola (DBC): Coke-based. The DBC has been modified from
SBC to include tuyeres in two rows to enable better combustion of fuel and there-
fore improved efficiency. A properly designed DBC can result in significant in-
crease in efficiency as compared to the SBC. The approximate capital cost of a
DBC of 5 ton per hour capacity is approximately Rs 0.45–0.65 million. However,
with better design and installation of PCDs, the cost increases.
c. Induction Furnace (IF): Electricity-based. The energy consumption for an IF va r-
ies according to the capacity of the furnace and raw materials used. It may be be-
tween 550–2000 kWh/ton (TERI 2001). However, in a typical system it may be
around 650–750 kWh/ton. It does not lead to any emissions of local pollutants,
but in undertaking a life-cycle analysis (including generation of electricity) it
may not be that environment friendly if grid-based electricity from coal- based
power plants is being utilized. The approximate capital cost of an IF of 1 ton ca-
pacity is approximately Rs 1–1.2 million.
d. Rotary Furnace (RF): Natural gas, diesel or oil based. Can provide continuous
castings, and also improves thermal efficiency, reduces melting time and in-
creases metal-pouring temperature. It reduces the emissions resulting in local pol-
lution. These furnaces however are difficult to control. The approximate capital
cost of a SBC of 100 ton per month capacity is approximately Rs 1.1 million.
e. Coke-less Cupola (CC): Natural gas, LDO or LPG based. The CC is further
modified from the DBC. In this system, the use of coke is replaced by fuel that is
comparatively cleaner or environment friendly. It is the most recently developed
technology, and is still very expensive. The National Metallurgical Laboratory
(NML) in India has been actively involved in trying to develop this technology
for Indian conditions, especially for Agra. Initial results have shown that the en-
ergy consumption is almost 40 per cent less than the conventional cupola. The
melting efficiency is claimed to be at least 1.4 times more, and theoretically the
CO 2 emissions will be reduced to just one-third of a coke-fired cupola (depend-
ing on the material charge). However, the initial cost of CC is high (even though
the operating costs come down drastically). The approximate capital cost of a CC
of 350 ton per month capacity is approximately Rs 6.5–7 million.
f. Duplexing – such that the primary melting is done in a coke based cupola, and is
the n transferred to an RF or an IF.
 255

As the main product is low value castings, the cupola – properly designed and with
an appropriate PCD – is the most economical technology for Howrah. However,
temperature control is difficult and diversification to higher and other (S.G./ductile)
castings may not be possible (however, a technical consultant did claim achieving
these in properly designed DBC). For higher temperatures, and temperature (and
therefore quality) control, and production of higher-grade castings such as ductile or
S.G. iron, other technologies are more appropriate. However, CC and IF are more vi-
able for larger production and are expensive. The RF may be economically viable for
smaller units. However, temperature control is difficult in an RF. The operational
costs of the IF are also high if based on grid electricity. An important option is du-
plexing which can help in quality improvement and diversification of the products
(producing high-grade gray iron castings as well as others – S.G./ductile castings),
with production costs lower than while undertaking the whole process in a single RF
or IF. In many other countries, foundries that adopted the IF in the 1980s appear to
be switching over to duplexing of DBC and IF, as it can be more economical and en-
vironment friendly compared to only using an IF.
As mentioned before, the main technology in the Howrah cluster is the cupola. Dif-
fusion of other technologies such as RF, IF has been very limited across the units.
There is no CC in the cluster as of now (although one foundry has planned to set it
up). The performance of the cupolas depends on the combination of the design – the
melting zone area, blast volume and pressure, and the maintenance of the cupola. By
improving the design of the cupolas, significant reduction in the use of energy and
thereby emissions of gases can be achieved.

I.2 Glass industry

I.2.1 Production process

The process of manufacturing of glass products in the glass units may be divided into
five major processes:
a. Batch making
b. Melting
c. Shaping and forming
d. Annealing
e. Finishing
The most common type of glass produced in Firozabad is the soda lime.

I.2.2 Furnace technologies

There are three main types of furnaces used in Firozabad:
a. Melting furnace or sakai bhatti
256

i. Tank furnace: These furnaces are usually re generative and used for large ca-
pacities. These can handle single-colour jobs.
ii. Direct and indirect fired pot furnaces
i. Locally made circular pots/open pots: These furnaces contain 6–12
pots each (in other countries, the furnaces may have up to 30 pots as
well), use direct firing, and are used for producing mainly bangles and
also glass items of different colours.
ii. Monkey mouth Japanese pots/closed pots: This is similar to the closed
pot, however the mouth is closed so that the glass does not come in
contact with other material. It is particularly used for making glass
items.
b. Bangle making (including slab reheating) furnace or belan bhatti: This furnace is
found in bangle -making units and is used specifically for making glass spirals to
be later converted as bangles. These may be manual or automated.
c. Muffle furnace or pakai bhatti: The furnace is used for baking, strengthening and
finishing of the semi-finished glass bangles and products.

I.3 Brick industry

I.3.1 Production process

The process of making bricks in t he brick units may be divided into four main stages:
a. Clay preparation or winning: Suitable clay is excavated that is used to make
bricks and is mixed with water after removal of stones and bigger particles (us u-
ally done manually). If necessary carbonaceous materials (e.g. coal dust, agricul-
tural wastes, industrial wastes) may be added to the clay.
b. Moulding of bricks: The clay is shaped or moulded as ‘green ’ bricks. This is usu-
ally done manually with the help of wooden or metallic moulds, or in some cases
using extrusion machines (used only in a few units in I ndia).
c. Drying: The green bricks are dried to remove moisture, usually naturally under
the sun.
d. Firing: The green bricks are fired in a kiln at a temperature anywhere between
600 and 1000oC in order to make them strong.

I.3.2 Kiln technologies

The main types of brick kilns (for firing bricks) in India are detailed below. The
choice of technology generally depends on factors such as scale of production, soil
and fuel availability, market conditions and skills available. Therefore, the technol-
ogy used in zone 1 (Indo-Gangetic) and zone 2 brick-producing regions in India are
quite different from each other.
 257

a. Intermittent kilns or clamps: are generally used in zone 2 when the volume of
production is small – ranging from 5,000 to 2,00,000 bricks per firing. The main
fuels range from coal, firewood, agricultural residues and dung cakes. In these
kilns, the fire is allowed to die out after each firing and the kiln is emptied, re-
filled and a new fire started for each load of bricks. Thus, most of the heat con-
tained in the hot flue gases and fired bricks is lost to the surroundings. Therefore,
these kilns have low energy efficiency as most of the heat contained in the flue
gases, fired bricks and kiln structure remains unutilized. However, they remain
popular due to almost ‘zero’ costs of kiln construction and flexibility in terms of
production volume and use of a variety of fuels.
i. Clamps: Mainly open clamps are structured geometrical stacks of green
bricks. The bricks are fired in situ using renewable fuels like wood, bio-
mass and cowdung. Clamps are largely energy intensive, responsible for
poor quality, and highly pollu ting.
ii. Scove clamp: Tunnels are built at the base of the kiln to fire wooden logs
and the outer surface of the setting is plastered with mud (i.e. ‘scoved’).
iii. Scotch clamp: Tunnels and outer walls are permanently built with bricks.
b. Continuous kilns: are generally used in zone 1 where the volume of production is
bigger – more than 15,000 bricks a day. These kilns are superior to intermittent
kilns in terms of both the energy efficiency and quality of bricks produced. In
these kilns, the fire is always kept alive and bricks are pre-heated, fired and
cooled simultaneously in different parts of the kiln. Heat in the flue gas is utilized
for pre-heating the green bricks while heat in fired bricks is used for pre-heating
the air for combustion. Thus, the continuous kilns are generally more efficient
than intermittent ones. Although they form a share of 65 per cent of the total
number of brick manufacturing units in India, they account for only 26 per cent
of the brick production. Large -scale savings are possible, about 30–50 per cent,
by the replacement of intermittent kilns by continuous kilns.
i. Bull’s Trench Kiln (BTK): are of two types.
i. BTK with moving metallic chimney is the most popular continuous
kiln in India.
ii. BTK with fixed masonry chimney is a more efficient version and is
fast replacing moving chimney BTK due to regulatory pressure. Fixed
chimney BTKs contribute for about 73 per cent of the total brick pro-
duction.
ii. Other kilns are Hoffman and High Draught Kilns. However, the share of
Hoffman and HD kilns is not significant (0.6 per cent). HD kilns have
been developed by the Central Building Research Institute (CBRI) in In-
dia.
iii. Vertical Shaft Brick Kiln (VSBK): The VSBK has been recently intro-
duced in India, based on the design originally developed and being used
258

in China. It is more efficient and exhibits safer working conditions (and

less pollution). However, it is more suitable for small and medium-
capacity brick production (and therefore more so in zone 2). At present,
there are about 27 VSBKs in operation in India (in Madhya Pradesh, Ma-
harashtra, Orissa, Uttar Pradesh, Karnataka and Tamil Nadu).
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Annexure 2: Survey questionnaires

Ph.D. study on "Climate Chan ge policy instruments for diffusion of cleaner

technologies in SSI in India"
Preliminary questions

1. What is the status of the industrial cluster – in general and vis-à-vis other clusters in
the country, especially in terms of :

§ Number of units
§ Value added and employment
§ Technological status
§ Energy consumption
§ Working conditions and pollution levels
§ Quality certification

2. How can the units in this cluster be classified?

3. What are the kinds of technologies and fuels used in this cluster?

4. Which units in your classification are the most energy intensive?

5. Is there a potential for technological up-gradation for energy efficiency improve-

ment?

6. Which technology would be more appropriate or efficient in the current situation?

7. What are the main reasons due to which this technology not being employed? What
are the barriers to adoption of more efficient technologies in the region?

8. What are the current policies for adoption of cleaner any energy efficient technolo-
gies in the cluster? What are the financial options available for the entrepreneurs?

9. Have these policies have been effective in meeting their objective? Why/why not?

10. What are the additional steps needed for diffusion of efficient technology? What are
the ways for providing accessible technical advice to the entrepreneurs?

11. Do you think the small-scale units face a disadvantage compared to the other sectors
in attracting funds and technical advice? If yes, how?

12. What in your view is the future of this industry?