The Pollution Market: An Auction for Better Air Quality in West India
The droning hum of mechanized looms rings familiar in Surat, a textile hub in the western Indian state of Gujarat, where factories produce and dye millions of meters of fabric daily. These factories are the beating heart of the city’s economy—but they’re also clogging the air.
Command-and-control regulations, which force polluters to meet certain emissions targets, have largely failed to keep industry in check. A recent experiment in Surat, however, presents an alternative approach: tackling air pollution using market forces.
Starting in 2019, a team of international researchers partnered with Gujarat’s environmental regulators to launch an emissions trading scheme (ETS), essentially a market where particulate matter pollution is traded. This pollution consists of tiny particles called PM2.5 and PM10, which are emitted by sources such as vehicles and factories. When inhaled, particulate pollution can penetrate the lungs and enter the bloodstream, increasing the risk of cardiovascular and respiratory illnesses.
Rather than imposing fixed emission limits on each factory, the ETS program capped total pollution and allowed factories to buy and sell permits to emit, creating incentives to cut emissions more efficiently. In 2018, Surat’s industries contributed to more than half—56% or 77,540 tons—of the city’s airborne particulate matter.
“If you’re running a factory, pollution is just an annoying by-product and something you have to deal with,” says economist Michael Greenstone at the University of Chicago, one of the researchers involved in the project. “At the core of these markets is kind of a sleight of hand where pollution gets turned into money.”