Forty-nine of the top 50 countries with the most polluted air are located in the Global South. Yet, many of these countries haven’t had the tools to address their environmental burden without compromising economic growth. Some, including India, have relied on command-and-control style regulatory approaches that are costly and difficult to enforce. EPIC Director Michael Greenstone, the Milton Friedman Professor in Economics, and his co-authors Rohini Pande and Nicholas Ryan, both of Yale University, and Anant Sudarshan of the University of Warwick, worked with the Indian state of Gujarat to test a new approach. They launched the world’s first particulate pollution market in the city of Surat. Through this market approach, regulators set a cap on total emissions across industrial plants, issue permits, and enable firms to buy and sell these permits.
The pilot was conducted as an experiment so half the plants were in the market, and half continued the command-and-control regulations. Facilities outside of the market following command-and-control rules didn’t comply with the rules about a third of the time. With the market’s more flexible approach, only 1 percent of facilities didn’t comply. In other words, they held enough permits to cover their emissions 99 percent of the time.Those facilities in the market were also emitting 20 to 30 percent less pollution than those in the command-and-control group. And, it cost the facilities in the market 11 percent less to comply, increasing their profits. EPIC has since launched the Emissions Market Accelerator to work with governments globally to scale up this approach.