Research to reduce particulate air pollution and test emissions markets

Air pollution is a risk factor for many of the leading causes of death worldwide, particularly in quickly industrializing countries like India. Policies that reduce air pollution can have significant benefits on health, productivity, and overall welfare – particularly for the poor – while potentially giving the global community a path to reduce carbon emissions and meet targets to slow climate change.

Using real-time, continuous monitoring of point-source emissions, we found factories that participated in a new emissions trading market in Gujarat, India, reduced pollution compared to those outside the system.

For more than a decade, a policy-research team has been making progress toward these goals. The collaboration includes researchers from Inclusion Economics at Yale University, the Energy Policy Institute at the University of Chicago (EPIC), the Abdul Latif Jameel Poverty Action Lab - South Asia (J-PAL SA), as well as environmental regulators from Gujarat, one of India’s most industrialized states. The team’s central objective is to test whether regulation innovations can curb pollution at low cost to both government and industry. First, the researchers experimented with altering the incentives faced by government employees responsible for auditing factories; then they developed, tested, and deployed new technology to directly measure factory emissions. Then, in 2019, with design and evaluation support from the research team, Gujarat’s government launched the world’s first emissions trading system (ETS) for particulate matter – the soot and other industrial emissions that pose major health risks in highly polluted developing economies.

By testing solutions at scale, the projects in this ongoing research program have shaped views on what is possible in environmental policy for low- and middle-income countries. The research on auditor incentives has helped improve the quality of Gujarat’s regulatory information, and preliminary findings showed reduced emissions from its factories. Moreover, the promising results from the Gujarat ETS led the state of Punjab to launch its own market in June 2021, and may be used by India’s Central Pollution Control Board to guide national environmental policy. The research has produced seven publications and working papers and dozens of articles in the media.

Related Publications

The Value of Regulatory Discretion: Estimates from Environmental Inspections in India

High pollution persists in many developing countries despite strict environmental rules. In collaboration with an Indian environmental regulator, authors Green, Duflo, Pande and Ryan increased the frequency of environmental inspections of factories and randomized their application – and found only a slight increase in compliance. Counterfactual simulations show that discretion in targeting helps enforcement: inspections that the regulator assigns cause three times more abatement than would the same number of randomly assigned inspections.

The solvable challenge of air pollution in India

More than 660 million Indians breathe air that fails India’s National Ambient Air Quality Standards. Authors Greenstone, Harish, Pande, and Sudarshan draw lessons from a review of empirical evidence as well as data from Delhi’s program to ration driving and industrial emissions in Gujarat and Maharashtra. They make the case that market-based policy instruments may solve several problems with existing regulation in India, and have the potential to reduce air pollution and cut compliance costs at the same time.

Lower Pollution, Longer Lives: Life Expectancy Gains if India Reduced Particulate Matter Pollution

Using a combination of ground-level measurements and satellite data, authors Greenstone, Nilekani, Pande, Ryan, Sudarshan, and Sugathan estimate that reducing pollution in these areas of India that exceed the National Ambient Air Quality Standard for fine particulate pollution would increase life expectancy for these Indians by 3.2 years on average. They outline directions for environmental policy to start achieving these gains.

Truth Telling by Third Party Auditors and the Response of Polluting Firms: Experimental Evidence from India

In many regulated markets, private, third-party auditors are chosen and paid by the firms that they audit, potentially creating a conflict of interest. Authors Duflo, Greenstone, Pande, and Ryan collaborated with the pollution regulator in an Indian state on a two-year experiment to curb conflicts between third-party auditors and the firms they audit. They find that reformed incentives for third-party auditors can improve their reporting and make regulation more effective.

What Does Reputation Buy? Differentiation in a Market for Third-party Auditors

In the Indian state of Gujarat, authors Duflo, Greenstone, Pande, and Ryan study differences in the quality of environmental auditors. They find a substantial range of auditor quality, and give suggestive evidence that plants demand reputable auditors as a signal to insulate themselves against regulatory action.

Improving Human Health Through a Market-Friendly Emissions Scheme

The goal of environmental regulation is to protect human health and livelihoods from environmental harms. This paper discusses how a market-friendly scheme can reduce particulate emissions from stationary sources and contribute to the improvement of human health. Authors Greenstone, Krishnan, Pande, Ryan, and Sudarshan suggest that Indian regulators may adopt market-friendly regulation in a pilot form, in order to scientifically measure the effect of this regulatory tool on environmental and economic outcomes in the Indian context.

Towards an Emissions Trading Scheme for Air Pollutants in India

This Concept Note reflects on the experience of existing emissions trading programs, such as the U.S. Acid Rain program. Authors Duflo, Greenstone, Pande, and Ryan explore the lessons for implementation of a potential Trading Pilot Scheme in India.