[NEW DELHI] A world-first market for trading in hazardous particulate matter emissions, piloted in India, lowered industrial pollution and reduced costs, say researchers who now want to replicate it in other low- and middle-income countries.

The researchers published the findings of their so-called “cap-and-trade” programme in the May edition of The Quarterly Journal of Economics, describing how emissions of PM2.5 – particular matter measuring less than 2.5 microns that can be inhaled into the lungs – were tracked in real-time at more than 300 large coal-burning plants.

According to Rohini Pande, professor at the Economic Growth Center at Yale University and an author of the study, the trial in India’s industrial hub of Surat reduced particulate emissions by 20 to 30 per cent, with participating plants complying fully with environmental regulations.

Of the 318 coal-fired plants studied, 62 were randomly assigned to participate in the trading market and were given a cap on the total particulate pollution they could release.

Those that did not exceed the cap could trade their surplus with other plants that failed to meet their caps, creating a financial incentive to reduce emissions.

Meanwhile the rest of the plants served as a control group and were left to follow existing command-and-control regulations, which rely on sanctions such as fines to act as a deterrent.

Cap-and-trade systems set a limit on total emissions and allow companies to buy and sell emission permits in a market. They differ from carbon offset systems, which require companies or individuals to invest in projects that reduce or remove emissions as compensation.

Cap-and-trade systems are regulated by governments, which set the emissions limits , while carbon offset schemes are usually voluntary.

It cost plants in the Surat trading scheme 11 per cent less to lower emissions compared to those under command-and-control regulations, according to the study. But the real cost savings were based on improved mortality rates from reduced pollution.

A cost-benefit analysis that combined pollution, investments in equipment and a range of assumptions on avoided mortality showed that the market system improved on costs by at least 25 times, the study said.

Particulate pollution is a serious problem in India. IQ Air, the Swiss air quality company, reported in March that 11 of the world’s 20 cities most polluted with PM 2.5 were located in the country.

The Gujarat programme is the world’s first particulate emissions market and India’s first market for any kind of pollutant. It was developed as a pilot by the Gujarat Pollution Control Board, in collaboration with the Energy Policy Institute at the University of Chicago. The board set an overall cap on total particulates that could be emitted collectively over a set compliance period.

“[The study] provided 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,” said Pande.

Karthik Ganesan, fellow at the Council on Energy, Environment and Water, New Delhi, said the theory behind the study holds good, but there is a need for “extensive training of staff and investments”.

“It may be years before the cap-and-trade system begins to make an appreciable difference in India,” Ganesan said.

The Gujarat state government is now implementing a second emission trading system for particulate pollution in the industrial hub of Ahmedabad while neighbouring Maharashtra state is developing a market for sulphur dioxide emissions.

Michael Greenstone, economics professor at the University of Chicago and a co-author of the study, says that the success in Surat is generating interest from other governments trying to balance economic growth and environmental quality.

“We are now working with other states in India and governments in other countries to scale up the use of pollution markets,” he said.

For its part, the national government is moving ahead with an offset mechanism for the Indian Carbon Market and has identified renewable energy, green hydrogen production, industrial energy efficiency, landfill methane recovery and mangrove afforestation as areas for climate-friendly projects that can generate carbon credits.

India’s environment ministry has also launched a carbon credit trading scheme for highly-polluting industries such as aluminium smelting and cement manufacturing, to make them comply with the country’s greenhouse gas emission intensity targets.

This piece was produced by SciDev.Net’s Asia & Pacific desk.