India air pollution: Will Gujarat’s ‘cap and trade’ programme work?

Air pollution contributed to the deaths of at least 1.2 million Indians in 2017 – but a unique pilot scheme to combat air pollution in the western state of Gujarat could prove to be a model for the rest of the country. It spoke to experts to find out more about the world’s first ever such experiment.

The concentration of tiny particulate matter (known as PM2.5) in India is eight times the World Health Organization’s standard.

These particles are so tiny that they can enter deep into the lungs and make people susceptible to respiratory and cardiovascular diseases, making them extremely deadly.

Air pollution in India is caused by fumes from cooking on wood or dung indoors in villages, and a combination of traffic exhaust, soot and construction dust and factory emissions in the cities.

Now Gujarat has launched the world’s first “cap and trading” programme to curb particulate air pollution.

Put simply, the government sets a cap on emissions and allows factories to buy and sell permits to stay below the cap.

It is being launched in the dense, industrial city of Surat, where textile and dye factories are a major source of pollution. Since 2011, local pollution control authorities have been working on the impact of emissions trading in Surat, along with the University of Chicago and Harvard University.

How will this programme work?

The basic commodity in the emissions trading system is particulate matter, which is emitted by industries through their smoke stacks.

Under the emissions trading system, industries must hold a permit for each unit of particulate that they emit, and must comply with the prescribed standard of 150 milligrams per cubic metre of particulate matter released in the atmosphere.

Although industries can trade permits among themselves, the total quantity of these permits are fixed, so that air pollution standards are met.

For example, an industry that finds it inexpensive to decrease emissions is likely to over-comply with the standards – this would allow them to sell its excess permits to another industry that finds it more expensive to decrease emissions.

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Both industries benefit by reducing their total costs of compliance, while the total emissions are held constant.

Importantly, this trading system gives firms an incentive to find ways to reduce emissions because they are able to sell any extra reductions to other firms.

These incentives have been shown to prompt firms to innovate so that they find new and inexpensive ways to reduce their emissions.

This standard will be used to set the overall emissions from all the industries that are participating in the pilot programme.