RESEARCH SUMMARY

In the coming years, India must meet the twin challenges of achieving rapid economic growth and cleaning up the environment. To do so, India needs environmental regulation that is highly effective while imposing minimal costs on industry. Unlike existing command-and-control regulations that impose high costs, provide no flexibility, and are enforced by costly and time-consuming criminal penalties, Emissions Trading Schemes (ETS) provide a transformative alternative with a track record of success around the world.

An ETS, or “cap-and-trade” system, caps the amount of pollution allowed from regulated industries and allots permits to plants. Plants that can inexpensively cut pollution can then make money by selling their permits to other factories. In this way, the system uses the power and flexibility of markets to deliver the win-win-win of simultaneously (i) reducing total cost
of regulation, (ii) increasing firm profits, and (iii) protecting citizens from air pollution.

The Gujarat Pollution Control Board launched India’s first ETS—and, the world’s first cap-and-trade market in particulate pollution—on July 15, 2019, in the form of a large-scale pilot programme in Surat, Gujarat. The Surat ETS began with two months of mock-trading to allow for intensive stakeholder capacity building before coming into full force on September 15, 2019, with the design of a sophisticated trading platform in partnership with the National Commodities and Derivatives Exchange. This groundbreaking step by the state of Gujarat represents the realization of an idea that was first conceptualized by the Ministry of Environment, Forests, and Climate Change (MoEFCC) in 2012 together with the state boards of Gujarat, Maharashtra, and Tamil Nadu. The GPCB has partnered with researchers from top academic institutions across the world to develop ETS rules and evaluate the benefits and costs.

Based on survey results from each of the 158 plants that are participating in the pilot, this report is an initial evaluation of the benefits and costs of the ETS. We will provide periodic updates throughout the course of the pilot, and will fully evaluate the programme at its conclusion, in coordination with the Gujarat Pollution Control Board. This report provides results from our preliminary analysis and describes four ways in which the Surat ETS will be superior to existing regulation.