3ie Funded Evaluation, DPW1.1067. A link to the completed study will appear here when available.
The study analyses whether market-based environmental regulation can cut pollution emissions at lower cost than traditional, command-and-control regulation.
India today has the highest levels of air pollution in the world. Of the 20 most polluted major cities in the world, 13 are in India, and high levels of air pollution are estimated to cost India’s citizens a collective 3 billion years of life expectancy. Therefore, bringing down air pollution will have enormous benefits for India’s citizens in terms of health and productivity.
The results of this study have the potential to identify a policy option to improve the wellbeing of Indian citizens and provide proof of concept for the viability of carbon trading should India pursue significant carbon mitigation policies
The impact evaluation will answer the following questions:
- Can market-based environmental regulation work be implemented successfully, in a fast-growing developing country?
- What are the benefits of market-based regulation in terms of greater compliance and lower pollution?
- What are the benefits of market-based regulation in terms of lower costs for regulated plants?
The intervention is a pilot emissions trading scheme for particulate matter air pollution in 350 highly polluting industries in the city of Surat in the Indian state ofGujarat. In practice, treatment industries will receive particulate matter load permits that they can choose to trade over the course of a regulatory compliance period. Actual emissions will be monitored through Continuous Emissions Monitoring Systems (CEMS) installed in all industry smokestacks. If industries have emitted in exceedance of the permits they hold at the end of any particular compliance period, they will be penalized by the environmental regulator, the Gujarat Pollution Control Board. The emissions trading scheme is scheduled to start in 2017, after the necessary notifications and rules have been instated.
Theory of change
The theory of change relies on the assumption that a cap-and-trade market will be more effective at reducing emissions than a command-and-control system because (a) cap-and-trade has reliable monitoring (b) the requirement to hold permits is transparent c) market-based systems have lower costs of compliance, making it easier to reduce emissions. It suggests that industries with marginal abatement costs below the market price of permits will choose to upgrade or purchase equipment, or to switch fuels in order to reduce their emissions load and sell excess permits. Industries with high marginal abatement costs, on the other hand, will choose to purchase permits. Thus, one should observe that compliance costs are lower in the cap-and-trade treatment group.
The direct beneficiaries of the intervention are the 350 participant industries. They were selected in collaboration with the Gujarat Pollution Control Board according to their location in a highly polluted industrial cluster, their high pollution potential, and their technical eligibility for CEMS installations. Residents of Surat will also benefit from the intervention, as reductions in ambient particulate matter pollution can improve health. The evaluation design is a randomised controlled trial at the level of the industrial plant. The main outcomes are plant pollution and abatement costs. The control group remains subject to status quo, command-and-control regulation, as the treatment group is brought under an emissions market.
Using primary data inputs from firm surveys an engineering economic model for costs of compliance for industries will also be developed. Using the CEMS data an emissions inventory for particulates and carbon dioxide to estimate the health and climate co-benefits of emissions reductions will also be assessed. This will build on the research team’s previous research on health benefits from reduced air pollution.