Indian industries trade polluted air with each other in health fix

• World's first air pollution trading scheme yields results
• Experts caution against over-reliance on market solutions
• Developing nations lack capacity to cut air pollution

NEW DELHI - Using a carbon market-like tool to control air pollution can help developing countries such as India where the standard approach of limiting the emissions with policy making is falling short, a new study has found.

Air pollution is one of the most pressing health issues in India, where the country's 1.4 billion people breathe air exceeding the World Health Organisation's guidelines for particulate matter (PM).

Those are particles finer than human hair that can cause severe health issues such as respiratory infections and even lung cancer.

This pollution costs the average Indian resident 3.5 years of life expectancy.

Industry is one of the major sources of air pollution in the country, and policymakers have struggled to deal with it by taking the standard approach of creating and enforcing laws around emission limits.

In fact, national PM 2.5 - particulate matter 30 times finer than human hair - concentrations in India increased by 11.6% over the last two decades.

To find an alternative, economists from the University of Chicago and Yale University in the United States and the University of Warwick in England collaborated with the Gujarat Pollution Control Board in West India to pilot a one-of-its-kind emission trading scheme (ETS) to control air pollution.

The pilot has run since 2019, and results published in the May issue of The Quarterly Journal of Economics show that the ETS reduced emissions by 20% to 30% in coal-burning plants that participated with nearly 100% legal compliance compared with those using a standard policy approach.

The ETS pilot delivered "a rare win-win-win" by reducing pollution, decreasing abatement costs and raising government's success at enforcing the air pollution control law, said Michael Greenstone, Milton Friedman Distinguished Service Professor in Economics at the University of Chicago, one of the architects of the pilot.

"And it did all this in a setting where there was great scepticism that pollution markets could work," he said.

However, such market tools should only be used to control air pollution in industries where a change in fuel like coal to gas or a change in technology to better filtration systems, for instance, fails to cut pollution, said independent experts.

The ETS should not become a version of the "polluter pays" principle in which industries emit pollution as usual and simply pay small fines, cautioned Swagata Dey, an expert on air pollution control policies with the Center for Study of Science, Technology and Policy (CSTEP), an Indian think tank.

"Rather, such schemes should be used only for industries wherein process optimisation and change in fuel usage are difficult to achieve in the short term," she said.

The pilot

Touted as the world's first market-based scheme to control air pollution in an industrial cluster, the ETS piloted with 317 large coal-burning plants, one of major sources of air pollution in Surat, Gujarat.

About 162 plants were brought into the market, while the remaining plants were kept under the existing standard pollution control regulations and spot-checked by the pollution control board to ensure they met the emission limit.

The plants in the market were brought into a cap-and-trade system in which a limit is set on the total allowed PM emissions and is lowered periodically. Plants receive permits to emit a certain amount of pollution, and a plant that can easily reduce its pollution with a technology or fuel change can then trade these permits with the ones that find it harder to cut pollution.

Plants under the Surat ETS not only cut their overall pollution, but they held enough permits to cover their legal compliance 99% of the time, while the plants outside of the ETS met their pollution limit at most 66% of the time.

And it cost plants under ETS 11% less to cut emissions compared with the plants under the command-and-control regulations, the study said.

Challenges

The Surat ETS is partly based on one of the largest such programs in history, the U.S. sulfur dioxide emissions trading scheme - to deal with acid rain - that slashed pollution by 40% between 1980 and 2003.

Based in part on the U.S. example, successful trading markets have been adopted for a variety of pollutants in Canada and Europe.

Yet low-income countries have so far not followed these examples.

That is due to countries lacking monitoring and regulatory capacity, said Pallavi Pant, an air quality scientist and the head of Global Initiatives at the Health Effects Institute, a U.S.-based non-profit.

"The relevant departments or ministries (in developing countries) may often lack financial and technical capacity, or even the personnel to effectively implement solutions," Pant said.

The Surat ETS pilot offers an interesting model that can help generate better data and tracking mechanisms for particular pollution sources, Pant said.

However, it remains to be seen how easily and quickly such a system can be scaled up, especially considering the capacity gaps at state pollution control boards in India and the lack of data and technology, she said.

(Reporting by Bhasker Tripathi; Editing by Ellen Wulfhorst.)