Reducing Particulate Pollution, Maintaining Profitability Through the Power of Markets
As a pioneering effort to confront the twin problems of cleaning the air while facilitating robust economic growth, India launched the world’s first market for particulate pollution in Surat, Gujarat, in collaboration with University of Chicago scholars and co-authors. After a decade of the scholars collaborating with the Gujarat Pollution Control Board (GPCB) to build the institutions to support an emissions market—monitoring infrastructure to measure pollution on a continuous basis, new market regulations and a platform to enable trade—the program launched in 2019. Since it’s launch, the market has spurred the reduction of particulate emissions by 20 to 30 percent, and cost plants less to reduce these emissions. Weighing the costs to industry and the benefits from improved mortality by reducing pollution, the research team found that the benefits of the market exceed the costs by at least twenty-five times. This reflects the high mortality costs of air pollution and the low costs of abatement in the market.
The Surat market experiment showed that it does not need to cost a lot to reduce emissions. The problem places like India face are that the cost of monitoring and enforcing regulations has traditionally been high, resulting in non-compliance. But under the market, both the efficiency of the trading platform and the higher level of compliance allowed regulators to reach their environmental goals, while lowering abatement costs for plants.
“Countries around the world are trying to find the right balance between the need for inexpensive and reliable energy and environmental quality. Gujarat is a leader in using evidence to find ways to make the trade-off less sharp. Their award-winning approach of developing new ideas, testing them in the most rigorous ways, and then using the results to shape policy is a global model. They are now turning to CO2 and the results seem destined to benefit Gujarat, as well as other Indian states and other countries.”
Michael Greenstone, the Milton Friedman Distinguished Service Professor in Economics, University of Chicago
Because of the success of the market, the GPCB expanded it to include those plants originally left out. It also launched a second market in the city of Ahmedabad—Gujarat’s largest city and a major industrial hub—and is exploring expanding the market to additional industry clusters and pollutants. Meanwhile, the Maharashtra Pollution Control Board (MPCB) has started to develop a statewide market for sulfur dioxide emissions. The UChicago collaborators and their colleagues are advising the MPCB, along with several other states, on how to use environmental markets. Gujarat also announced plans to launch a carbon market in the state. The market would be the first of its kind among emerging economies, outside of China. It is set to be twice the size of the Regional Greenhouse Gas Initiative, a carbon market run by a collection of 10 states in the U.S. northeast and mid-Atlantic.