The Indian state of Gujarat launched the country’s first emissions trading system on July 15, 2019, in the form of a large-scale pilot programme in the city of Surat. In the clean air market, the government sets a cap on emissions and allows industries to buy and sell permits to stay below the cap. This cap-and-trade approach is expected to drastically reduce air pollution at a low cost to both government and industry.
“With this program, we are kicking off a new era of cleaner production, while lowering industry compliance costs and rewarding plants that cut pollution in low-cost ways. We believe using this market-based system will prove that rapid economic growth, ease of doing business, and breathing clean air can all be achieved at the same time.”
Dr. Rajiv Kumar Gupta IAS, Chairman, Gujarat Pollution Control Board
Trading officially began on September 16, 2019. A total of 156 industries are participating. Trading within the clean air market occurs every day, and the auctioning of permits occurs each week. During each of the one-month compliance periods, an average of 80,000 transactions have occurred. Permit holdings within the Surat Clean Air Market are calculated based on CEMS data, and the cap on emissions has become more stringent over even this short timeline—steadily decreasing from 280 tonnes per month to 170 tonnes per month—making it half the estimated pollution prior to the launch of the market. Plants have met the pollution cap every month, indicating that the environmental goals are being met, while industry output is higher than it was in the year before the market was in place.
An engineering economic model based on a detailed survey of industries suggests the possibility of significant benefits. The market has the potential to reduce particulate pollution emissions by about 29 percent. At the same time, this system delivers greater flexibility and will cost plants less than current regulations, which focus on mandating the installation of specific pollution abatement equipment and staying within fixed pollution limits. Because a large majority of permits are initially allocated for free, plants able to sell permits actually make money from the program. All told, the model predicts that the majority of industries will see their profits increase.
The Gujarat Pollution Control Board is carrying out the emissions trading program with the help of a team of researchers, including Michael Greenstone and Anant Sudarshan from the Energy Policy Institute at the University of Chicago (EPIC), Rohini Pande and Nicholas Ryan from the Economic Growth Center at Yale University, and others from The Abdul Latif Jameel Poverty Action Lab (J-PAL). The researchers are evaluating the program’s benefits and costs, relative to the status quo, using a randomized controlled trial—the first of its kind for an emissions market anywhere in the world.