The most prominent early landmark ETS was for sulphur dioxide from power plants in the United States in the US Acid Rain Program. That was an incredible success. It more or less ended acid rain as a problem – which it had been in the northeastern United States – by dramatically reducing sulfur dioxide emissions and therefore ambient particulate pollution. After that program, it’s been applied much more widely and prominently to carbon dioxide, for example in the European Union’s ETS Program or California’s AB-32 Program for trading the right to emit carbon.
The launch of the Punjab ETS for particulates on June 5 followed on positive results from Gujarat. Can you tell me about the Gujarat program?
Rohini Pande: A group of us, including our colleagues from the Energy Policy Institute at University of Chicago and the Jameel Poverty Action Lab, have been working with the Gujarat Pollution Control Board for over a decade now. Gujarat is a very industrial state, with high levels of pollution. We started by working with Board on how to get good information on pollution levels. We identified ways to improve reports put out by auditors. During the course of that study, it became clear that to get information at scale on a regular basis we would need to go beyond manual readings by inspectors or auditors. That brought us to the question of, is there a way that you can improve on individual, manual-based systems, especially in a state or a country with relatively low state capacity and less staff. So, the two parts came together: first, can you actually measure particulate matter in a continuous way? This led us to introduce continuous emission monitoring systems. And second, once you have this kind of continuous emissions monitoring system in place, can you leverage an emission trading system as a more efficient way of reducing emissions.
One interesting thing about our sample of industrial plants in Gujarat – and possibly about the Indian industrial context – is significant variability in the types of plants. You have small plants that lack the ability to install expensive cleaning equipment operating alongside very large state-of-the-art plants that can. As Nick said, for the cap-and-trade market to work, you need some people who want to sell permits – so people who can potentially reduce their emissions – and others who feel that they can't reduce their emissions and therefore need to buy permits. So, while developing countries may have limitations that make an emissions market more difficult, they also have this variation which might make an appealing tool to cut pollution.
What is your role as researchers in such a pilot program?
Ryan: In broad strokes, it has two parts. One is in design – to help identify rules and give advice on what would make a market work well, for example, about the frequency of trade, the monitoring of a missions, and what to do if emissions data is not reported.
Second is the evaluation part: to see if the program is working, to monitor how it's going, to measure how much has pollution declined, how much have abatement costs declined. There are a large number of plants in Surat, the city in Gujarat where our first experiment was based. We worked with a sample of about 350 plants and the evaluation design was a randomized controlled trial. Half of those plants remained on the traditional regulation based on setting limits and punishing businesses that exceed those limits. And the other half of the plants shifted on to the emissions trading system in which an overall limit was set on the emissions among that group and then they could trade, but only among themselves and not with this control group of firms. In principle, that would allow us to measure the sort of combined benefits of the cap-and-trade package together as compared to this other group of firms who are going on about their business in the traditional way of regulation.
What were the results?
Ryan: Early results show two main things. First, the monitoring regime works pretty well: a large fraction of plants – over 90% at a given time – are reporting data on pollution. That, in itself, is remarkable. Most of the legwork and setting up the market involved moving to this new monitoring regime with continuous emissions monitoring system – that is, installing devices in the chimneys of each factory that beamed pollution readings back to the regulator. And then the second aspect was pollution in the treatment group appears to have come down pretty sharply – by about 24% relative to that in the control group. That reduction has been sustained, although the market has been interrupted by India's Covid lockdowns and other troubles in the meantime.
What does it mean for India that Punjab is going to do this pilot?
Ryan: Oh, it's wonderful. The particulate matter problem is also very much present in Punjab, as in much of north India. Rohini has worked on this with respect to crop burning and other sources of emissions. But in many places, especially urban areas, industry remains a pretty large source of emissions. And so, this model is only going to make a dent in particulate emissions if it's scaled and taken up by many other states. Ideally, this would be a kind of generic toolkit that many different state regulators would adopt.