Gujarat has successfully tested the world’s first cap-and-trade market for particulate pollution- reducing emissions by up to 30% while increasing industrial profits and regulatory compliance, according to a new study published in The Quarterly Journal of Economics.
The study emphasised that this market-based approach, launched in Surat offers a viable, scalable mode for combating air pollution in low and middle income countries where the pollution is usually very high and state capacity is often low.
Market Model That Benefits All
“The market delivered a rare win-win-win by reducing pollution, decreasing abatement costs, and raising government’s success at enforcing the law. And, it did all this in a setting where there was great skepticism that pollution markets could work,” said study co-author Michael Greenstone, the Milton Friedman Distinguished Service Professor in Economics at the University of Chicago.
“This success of pollution markets is generating a great deal of interest from other governments that are trying to balance the goals of economic growth and environmental quality. In addition to our continuing collaboration with the Gujarat Pollution Control Board, we’re now working with other states in India and governments in other countries to scale-up the use of pollution markets,” added Greenstone.
Greenstone and his co-authors Rohini Pande and Nicholas Ryan, both of Yale University, and Anant Sudarshan of the University of Warwick, worked with Gujarat to launch and evaluate the market in the city of Surat.
The government mandated 317 large, coal-burning plants to install pollution monitors. From there, half the plants were randomly assigned to the market while the rest were kept under traditional regulations. The plants in the market were given a cap on the total amount of pollution they could emit. Those that easily met the cap traded permits with those who could not meet the cap, with both buyers and sellers benefiting.