Yale researchers offer new economic perspectives on climate mitigation, adaptation & negotiations

Can pollution markets work in developing countries? Experimental evidence from India

In a study published in The Quarterly Journal of Economics on April 15, 2025, Rohini Pande and Nicholas Ryan of the Yale Economic Growth Center and Yale Inclusion Economics and coauthors examined a cap-and-trade market specifically for particulate pollution. Collaborating with regulators, they piloted the world’s first such market in Surat, a large Indian city, requiring industrial plants to install pollution monitors and trade emissions permits. The pilot led to emission reductions by 20% to 30% and showed that emissions reductions and regulation enforcement can be cost-effective, reducing abatement costs by 11% for participating plants. The success of this pilot market has led similar programs to expand across India, demonstrating the global potential of market-based pollution controls. In an EGC Voices in Development podcast episode, Ryan also emphasized the unique role that development economics plays in environmental policy, due to the attention it pays to empirical data and the costs and benefits to different stakeholders. 

• Read the YaleNews story
• Read front-page coverage in The Indian Express

Could carbon offset programs produce unintended consequences?

Research by Nicholas Ryan, who leads EGC's Climate, Energy and Growth initiative, provides compelling evidence that one of the world’s cornerstone carbon offset programs, the UN’s Clean Development Mechanism (CDM), may have increased emissions rather than reducing them. Drawing on firm-level data from Chinese manufacturing – the largest source of CDM offsets – Ryan found a 49% increase in emissions from participating firms due to self-selection into the program by high-growth firms (35%) and because offset programs themselves boost growth and therefore emissions (14%). Besides an estimated global welfare loss of $65 billion, this finding has serious implications for global climate policy and countries’ own offset systems going forward.

Why are the rich failing the poor on climate change?

In a Poynter Lecture at Yale co-hosted by EGC and Yale Inclusion Economics, New York Times reporter Max Bearak asked, Why are the rich failing the poor on climate change? Bearak discussed his reporting on how wealthy nations and the world's most powerful companies have fallen short of financial commitments and the narrative of making “trade-offs” between climate change and development are failing poorer countries in climate politics and policy. Joined in a panel discussion by Nick Ryan and Sunil Amrith, Director of the MacMillan Center, Bearak emphasized the importance of considering the timescale of energy transitions as an important benchmark for developing sustainable solutions.

How can we shift our framing of the climate crisis?

In a Development Dialogue podcast, New York Times reporter Max Bearak, EGC affiliate Jessica Seddon, and Anant Sudarshan of the University of Warwick challenged the common “blame and reparations” framing of the climate crisis. Instead, the podcast guests emphasized the shared interest of all countries, including India and China, in mitigating climate change due to its profound local impacts. Rethinking economic systems, particularly in how large financial institutions value nature and risk, can also accelerate climate progress.

Addressing the Climate Inequality Crisis

In her keynote address at Yale’s 2023 Climate, Environment, and Economic Growth Conference, Esther Duflo – the Abdul Latif Jameel Professor of Poverty Alleviation and Development Economics at MIT and a 2019 recipient of the Nobel Prize in Economics – highlighted the scale and urgency of the need to respond to this crisis, and discussed a possible way forward to address these gaping inequalities: a mechanism to raise funds to support low-income countries and communities, potentially funded by a minimum global corporate tax and global wealth taxes.

What financing strategies could drive meaningful progress in climate adaptation?

In preparation for COP 29, dubbed the “Finance COP,” Rohini Pande and MIT Sloan professors Namrata Kala and Catherine Wolfram discussed how innovative financing strategies such as voluntary carbon markets, carbon pricing, and smaller, targeted agreements involving key emitters, which could drive meaningful progress outside the constraints of the annual COP negotiations.

How can we address last-mile challenges in climate adaptation?

A large effort is underway to build global capacity for early warnings on disasters like floods and fires that are increasing in frequency and intensity as a result of climate change. However, general initiatives like the UN’s “Early Warnings for All” are not enough to protect individuals against riverine floods — which can be abrupt and hyperlocal in their effects. Addressing these concerns, Google.org created a machine learning forecasting system that can predict river floods. In work supported by Yale Inclusion Economics, Rohini Pande and Maulik Jagnani of Tufts University built an early warning system for riverine floods that overcomes these last-mile challenges. The system pairs Google’s cutting-edge forecasting and android-based alerting system with monetarily incentivized grassroots volunteers trained in community outreach activities. As a result, Bihari communities who received the study treatment were 50% more likely to receive alerts before water reached their area; and also 57% more likely to report receiving highly accurate flood alerts. Studies like these reflect the importance of addressing last-mile communication challenges and designing intervention projects to directly reach local communities.

Empowering entrepreneurs to adopt climate adaptation technology for drinking water

In coastal regions of Bangladesh, a country often described as “the ground zero of climate change,” EGC affiliate Mushfiq Mobarak and coauthor Islamul Haque found an urgent need for secure drinking water solutions. While researching the economic effects of sea level rise and increased groundwater salinity on agricultural practices, the researchers discovered that the rise in groundwater salinity has also created a pressing drinking water shortage. In response, the team switched their research focus and began collaborating with BRAC, the world's largest non-governmental development organization, to help entrepreneurs launch water treatment businesses using reverse osmosis to filter groundwater. Now, they are scaling the project up and measuring impact, pointing out that finding sustainable solutions to Bangladesh’s water crisis today could benefit those who will be affected by rising sea levels in the future.

How can we address the problem of “leakage” through trade?

EGC affiliate Sam Kortum and coauthor David Weisbach proposed a strategy to combat “leakage,” which occurs when firms respond to a country’s carbon taxes by relocating to another country, or when consumers in another country respond to the lower energy price by consuming more. Through a model of unilateral, optimal carbon tax policies, the researchers found that a combination of demand-side and supply-side taxes on energy imports and exports can achieve reduced global emissions at a lower cost to domestic economies. This solution can be relatively easily implemented by individual states because there are relatively few carbon “extractors” in the economy. Even if only a few key actors such as the US, EU, and China were to enact these optimal taxation policies, the researchers argue that this solution could still lower carbon emissions while reducing leakage.

Quantifying new costs to climate change

EGC affiliate Mushfiq Mobarak and coauthors explored how rising pollution and migration are connected: using multiple data sources and measurement techniques, the research team revealed a consistent pattern in which workers choose to migrate away from polluted cities in China. The modeling allowed them to identify and quantify a new type of economic cost imposed by pollution: by forcing workers to move away from cities where they would otherwise be more productive, pollution undermines aggregate macroeconomic productivity. This spatial misallocation is compounded by lost productivity complements between higher- and lower-skilled workers: when higher-skilled workers leave polluted cities, their lower-skilled counterparts see declines in productivity as well. Strikingly, this new channel of productivity loss is estimated to be as large as the previously documented direct health effects of pollution, meaning that the cost of pollution is actually twice as expensive as previously thought.

Compiled by Peter Zhang