More than half a billion citizens breathe air that exceeds India’s air quality standards. And yet, maintaining strong economic growth while limiting the pollution generated by industrialization is a challenge India must navigate. Market-based instruments, such as emissions trading schemes, provide a possible solution that could meet the dual challenge of economic growth and environmental safety. The state of Gujurat took that giant leap in 2019. In June last year, Chief Minister of Gujarat, Shri Vijay Rupani launched the world’s first emission trading scheme (ETS) for particulate pollution in Surat. Being implemented by the Gujarat Pollution Control Board (GPCB), the program authorizes the government to set up a cap on emissions and in return allows factories to buy and sell permits as per the fixed limits to meet air pollution standards without hampering robust economic growth.

Stressing how ETS intends to lower the costs of reducing particulate emissions, and increase average industry profits as well as every industry’s profits relative to status quo regulations, Energy Policy Institute at the University of Chicago (EPIC) South Asia Director Anant Sudarshan adds, “Trading schemes would reduce the expenses that manufacturing units would incur for reducing pollution, as well as make it very difficult for them to violate regulations. Both these factors would help ensure compliance and thereby reduction of pollution.”

Dr. Sudarshan along with other researchers from EPIC, Economic Growth Center at Yale University, and The Abdul Latif Jameel Poverty Action Lab have been closely working with GPCB over the last several years in design and delivery of this program.

Most manufacturing units in the industrial cluster of Surat fall under 17 highly polluting categories, perhaps, the most important reason why the GPCB selected Surat for rolling out the scheme in phase 1  in 2013. For the next four years, the Continuous Emission Monitoring System (CEMS) was installed and calibrated for monitoring and regulating industrial pollution. In 2017, a CEMS website and mobile app were launched to streamline the process, eventually leading to the launch of the pilot program in June 2019.

Can the cap-and-trade program solve India’s air pollution problem that emerges out of non-compliance by industries and at the same time reinvent environmental regulations? Initial encouraging results of the program have a story to tell. There has been a sustained increase in emission data availability with Surat having 98 percent data availability at ETS plants. Moreover, industries enrolled have produced lower emissions in comparison to those not participating over a period. As a result, the market oversight board has reduced the compliance cap in each period.  Even detailed engineering-economic models have suggested that the market would reduce pollution and increase the profits of all market participants.

EPIC Director Michael Greenstone, who has also been deeply involved in the program over the last several years adds, “Particulate air pollution is shortening lives in India, so if the pilot is successful, there is a terrific opportunity for a win-win by scaling up emissions trading to reduce industries’ compliance costs and to improve air quality which would ultimately improve people’s health.”