Economic Survey Advocates Market-Based Solution to Tackle India's Air Pollution Crisis
As policymakers across India grapple with the persistent challenge of reducing hazardous air pollution in urban centers, the Economic Survey presented in Parliament on Thursday has put forward a novel market-based approach. The document specifically questions whether a Pollution Trading Scheme, commonly known as a cap-and-trade system, could serve as an effective instrument to address this critical environmental issue.
Learning from Global Success and Local Pilots
The survey draws attention to the first-of-its-kind globally implemented particulate matter emissions trading market in Surat, Gujarat. Launched as a pilot initiative in 2019, this scheme encompassed 317 industrial plants and has demonstrated significant potential. It highlights the widespread and successful application of such models in the United States and the European Union, where pollution markets have effectively translated sound economic principles into actionable environmental policies.
Consequently, the Economic Survey strongly advocates for the adoption of similar mechanisms in developing nations, including India, where progress in this domain has thus far been limited. The core premise is to leverage market forces to incentivize emission reductions in a cost-effective manner.
How the Pollution Trading Market Operates
The fundamental operation of a pollution trading market is based on a straightforward yet powerful model:
- The government establishes a total cap or limit on permissible emissions of specific pollutants.
- Companies are allocated or can purchase emission permits corresponding to this cap.
- If a company reduces its emissions below its allocated limit, it can sell its surplus permits to other firms.
- Conversely, companies that exceed their limits must buy additional permits from the market.
This system creates a financial incentive for industries to adopt cleaner technologies and innovate to lower their emissions, as doing so can generate revenue through the sale of excess permits. It is designed to achieve environmental goals at a lower overall economic cost compared to traditional command-and-control regulations.
Surat's Pioneering Emissions Trading Scheme
Surat's Emissions Trading Scheme (ETS) was collaboratively developed by the Gujarat Pollution Control Board (GPCB) and the Energy Policy Institute at the University of Chicago. A cornerstone of this initiative was the mandatory installation of Continuous Emissions Monitoring Systems (CEMS) across participating plants. This technology enables real-time, accurate tracking of particulate matter emissions, ensuring transparency and reliability in the trading process.
The results have been compelling. A study published in The Quarterly Journal of Economics revealed that industrial plants participating in Surat's emissions market achieved a 20-30% reduction in particulate emissions compared to facilities operating under conventional regulatory frameworks.
Economic and Environmental Benefits Validated
Referencing this study, the Economic Survey notes that the market functioned efficiently, with active trading of permits and near-universal compliance among participants. Importantly, the findings indicate that for a given level of emissions, the market mechanism reduced abatement costs by 11–14%.
The survey concludes, "This suggests that when supported by credible monitoring infrastructure, pollution markets can deliver significant emissions reductions at lower compliance costs even in lower-capacity settings." This statement underscores the potential applicability of such schemes across various Indian cities facing severe air quality challenges, provided robust monitoring systems are in place.
The proposal marks a significant shift towards integrating economic instruments with environmental governance, offering a promising pathway to cleaner air while balancing industrial growth and regulatory efficiency.
