Climate Change

(with Michael Greenstone, Nick Ryan and Rohini Pande).Emerging economies like India face a dual challenge: Maintain strong economic growth while limiting the pollution generated by industrialization. Particulate air pollution, which is one of the greatest threats to human health globally, is a particularly severe threat in India where it currently reduces average life expectancy by nearly 2 years relative to what it would be if the country met its own guidelines for clean air.

To confront this challenge, India needs strong pollution policies that deliver a safe environment at an affordable cost for industry. Historically, however, the country’s environmental regulations have produced just the opposite. Blunt, inflexible regulations have proven costly for industry and difficult for the government to implement and enforce, resulting in poor compliance and dangerously polluted air.

Market-based environmental regulations have the potential to abate pollution at a low cost but are seldom used in developing countries, where pollution levels are the highest. This project involves the first randomized control trial of emissions trading anywhere in the world, in the form of a pilot project to use a cap-and-trade scheme to regulate industrial emissions in Surat, Gujarat. Eidence suggests the new market reduced air pollution from plants allowed to trade relative to those under the status-quo while also cutting compliance costs. Ongoing work is continuing evaluation of air pollution impacts and examining the effect of different market design decisions.