With policymakers struggling to reduce air pollution in many cities, the Economic Survey, tabled in Parliament on Thursday, suggested adopting a market-based solution wondering whether an option of ‘Pollution Trading Scheme’ (cap-and-trade) can work as a tool to deal with the critical issue. It referred to the success of the first-of -its-kind globally implemented particulate matter (PM) – a key air pollutant – emissions trading market in Surat, Gujarat where the scheme covered 317 industrial plants. It was launched in the city as a pilot in 2019.

Noting working of such a model widely in the US and the EU where the pollution markets (cap-and-trade) have been used for translating sound economic theory into effective environmental policy, the survey pitched for its adoption in developing countries, including India, where its progress has been limited. The pollution trading market works on a model of capping total emissions and allowing companies to buy/sell emission permits under a system of limit on pollutants set by the government. The companies can sell their extra permits if they reduce emissions below their fixed limit. It’s a kind of mechanism to encourage them to opt for cleaner technology for reducing emission below the fixed cap. Surat’s emissions trading scheme (ETS) was developed by the Gujarat Pollution Control Board (GPCB), in collaboration with the Energy Policy Institute at the University of Chicago. It led to mandatory installation of Continuous Emissions Monitoring Systems (CEMS), allowing real-time tracking of particulate matter emissions. A study, published in The Quarterly Journal of Economics, showed that the plants participating in the Surat’s emissions market scheme reduced particulate emissions by 20-30% compared to plants regulated under the status quo regime.