World’s first particulate matter trading scheme in Gujarat cut pollution by up to 30%, finds study led by ex-Obama advisor

The Surat ETS is run by the Gujarat Pollution Control Board (GPCB) in collaboration with the Energy Policy Institute at the University of Chicago (EPIC), J-PAL, and industry associations. Surat was chosen for the pilot market as it is a highly industrialised city where industrial pollution contributes nearly a third of the ambient particulate matter, the study notes.

A cluster of industrial plants in Surat traded permits on a platform hosted by the National Commodities and Derivatives Exchange e-Markets Limited (NeML). Plants that failed to comply with emission caps or permit requirements were fined.

A randomised controlled trial (RCT), conducted between April 2019 and March 2021, studied 162 plants randomly assigned to participate in the emissions market and 156 that continued to follow existing particulate matter regulations. The study was conducted by researchers from EPIC, Yale University, and the University of Warwick.

It found that plants in the ETS reduced emissions significantly more than those under conventional regulation, and had permits to cover their emissions 99% of the time. These plants cut particulate matter emissions by 20–30%, while also lowering pollution control costs by 11%, thereby improving compliance. In contrast, plants outside the market failed to meet pollution norms for nearly a third of the study period.

“The market delivered a rare win-win-win by reducing pollution, decreasing abatement costs, and raising the government’s success at enforcing the law. And it did all this in a setting where there was great scepticism that pollution markets could work,” said study co-author Michael Greenstone, Milton Friedman Distinguished Service Professor in Economics at the University of Chicago.

The researchers tracked pollution reductions using a continuous online monitoring system installed before the market’s launch, along with trading and compliance records.

Prior to the rollout, mock trials were held to train participants in trading and compliance protocols. Initially, the emissions cap was set at 280 tons per month, based on estimates assuming plants operated at full capacity and emitted pollutants at the maximum concentration permitted under existing air quality rules. However, once the market began, the cap was revised downward—based on actual emissions data from continuous monitoring—to 170 tons per month, according to the study.

When asked about the reduction in particulate matter emissions in absolute terms, Dr Anant Sudarshan, a study co-author, said, “The reduction is about 20 percent. The total amount of particulate pollution emitted per hour was around 3.6 kg/hour, so that’s an absolute reduction of roughly 0.72 kg/hour.” Sudarshan is Associate Professor at the University of Warwick’s Department of Economics and Senior Fellow at EPIC.

The GPCB issued about 80% of the emissions cap in free permits, distributed in proportion to a plant’s emissions potential (e.g., boiler size), while the remaining 20% were auctioned weekly. Plants that failed to acquire sufficient permits to meet their caps were fined.