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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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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-
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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.
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• 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.