How Surat Became the World’s First City to Trade Particulate Pollution — and Win!
The city of Surat in Gujarat, India, has been a hub of industrial activity for decades, but with it came a significant increase in air pollution. To combat this issue, the Gujarat Pollution Control Board (GPCB) launched the Surat Emission Trading Scheme (ETS) in 2019, a pioneering market-based approach to reduce particulate matter emissions. The scheme allows industries to buy and sell permits for emissions, providing a financial incentive for them to reduce their pollution levels.How the Scheme WorksThe Surat ETS is a cap-and-trade system, where industries are allocated a certain number of permits based on their emissions potential. Those that stay within their limits can sell their unused permits to others that exceed their limits. This approach has been used in Europe for greenhouse gases and in China for carbon emissions, but the Surat ETS is the world's first-ever market for trading in particulate matter emissions. A recent study published in The Quarterly Journal of Economics found that the plants participating in the ETS reduced particulate matter emissions by 20-30% while lowering pollution control costs by 11%. The study, conducted by researchers from the University of Chicago, Yale University, and the University of Warwick, used a randomized controlled trial (RCT) to evaluate the effectiveness of the scheme. The results showed that plants in the ETS had permits to cover their emissions 99% of the time, compared to plants outside the market, which failed to meet pollution norms for nearly a third of the study period.The BenefitsAccording to Michael Greenstone, study co-author and Milton Friedman Distinguished Service Professor in Economics at the University of Chicago, “The market delivered a rare win-win-win by reducing pollution, decreasing abatement costs, and raising the government's success at enforcing the law.” The success of the Surat ETS has far-reaching implications for environmental policy in India and beyond. The scheme has already been expanded to include plants originally left out of the pilot experiment, and a second market has been launched in Ahmedabad, Gujarat's largest city and a major industrial hub. The research team is working with other Indian states to develop statewide markets for sulfur dioxide emissions and providing strategic advice to several other Indian state governments.Rohini Pande, study co-author and Professor of Economics at Yale University, notes, “The exciting part of the emissions trading scheme that we did for particulate matter is that it provides a proof of concept that even in a setting with lower state capacity, a compliance market can work, and often will outperform the command-and-control approach.”Key Takeaways- The Surat Emission Trading Scheme (ETS) has reduced particulate matter emissions by 20-30% among participating industries.- The scheme has lowered pollution control costs by 11% for participating industries.- The ETS has improved compliance, with plants holding enough permits to cover their emissions 99% of the time.- The success of the Surat ETS has implications for environmental policy in India and beyond.The Surat ETS is a groundbreaking initiative that has shown that market-based approaches can be effective in reducing pollution while promoting economic growth. As the world grapples with the challenges of climate change and environmental degradation, innovative solutions like the Surat ETS can provide valuable lessons for policymakers and industries alike.
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