Can Pollution Markets Work in Developing Countries? Experimental Evidence from India

Michael Greenstone, Rohini Pande, Anant Sudarshan and Nicholas Ryan
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Rohini Pande: Department of Economics, Yale University
Anant Sudarshan: University of Warwick
Nicholas Ryan: Department of Economics, Yale University

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: Market-based environmental regulations are seldom used in developing countries, where pollution is the highest but state capacity is often low. We experimentally evaluate a new particulate matter emissions the first in the world, covering industrial plants in a large Indian city. There are three main findings. First, the market functioned well: permit trade was active and plants obtained permits to meet their compliance obligations almost perfectly. Second, treatment plants, randomly assigned to the emissions market, reduced pollution emissions by 20% to 30%, relative to control plants. Third, the market, holding emissions constant, reduces abatement costs by 11% to 14%. These cost estimates are based on a model that estimates heterogeneous plant marginal abatement costs from plant bids for emissions permits. More broadly, we find that emissions can be reduced at small increases in abatement costs. The pollution market therefore has health benefits that exceed costs by at least twenty-five times.

Date: 2023
New Economics Papers: this item is included in nep-ene, nep-env, nep-exp and nep-res
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Persistent link: https://EconPapers.repec.org/RePEc:wrk:warwec:1453

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