Yale economists Rohini Pande, Nicholas Ryan, Michael Greenstone, and Anant Sudarshan evaluated the world’s first particulate matter emissions trading market in a ground-breaking study published in the Quarterly Journal of Economics. The pilot study, which was carried out in Surat, a city in the 15 million-person Indian state of Gujarat, examined whether a cap-and-trade system might lower pollution more successfully and economically than traditional laws, and the large-scale Indian study finds market-based pollution policy cuts emissions effectively.

The Gujarat government mandated the installation of real-time pollution monitoring at 317 extensive industrial facilities that used coal. The emissions market, which limited total particulate matter emissions and allowed facilities to sell permits according to their requirements, had around half of these enrolled. Permits for plants that could cut emissions more readily were sold to companies with more difficulty complying.

The findings demonstrated that, in comparison to individuals outside the system, market participants decreased particle emissions by 20–30%. Furthermore, compared to conventional command-and-control laws, these facilities’ average pollution reduction costs were 11% lower. The market functioned efficiently, with plants obtaining adequate licenses 99% of the time, whereas non-participating industries only complied with regulations 66% of the time.

Cost-Effective Policy with Far-Reaching Health and Climate Potential

One of the most deadly types of air pollution is particulate matter. It penetrates the circulation and lungs and increases the risk of respiratory and cardiovascular disorders. Many individuals in India are subjected to air pollution levels ten times greater than those advised by the World Health Organization. According to earlier studies by the same team, India’s average life expectancy might increase by five years if pollution levels were reduced to WHO norms.

To comprehend the Surat market’s wider ramifications, the researchers performed a cost-benefit analysis, considering fixed market establishment expenses. They discovered that the advantages, primarily reduced mortality and enhanced health, were at least 25 times greater than the disadvantages. This substantial return supports market-based pollution measures in low- and middle-income nations.

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Scaling Up Across India and Beyond

After the Surat experiment proved successful, Gujarat opened a second emissions market in Ahmedabad, the state’s largest city and a central industrial hub. It extended the market to other industrial units. Plans are also underway to investigate market-based regulation in additional Indian cities and for other pollutants.

In the meantime, the team is collaborating with India’s federal government to create a national carbon market. It advises the state to create a demand for sulfur dioxide. According to the experts, this might serve as a model for other low-income countries looking to achieve their environmental and climatic goals at a reasonable cost, further supporting the large-scale Indian study finds market-based pollution policy cuts emissions effectively.

The Yale Economic Growth Centre has published a thorough synopsis of the results.

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