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

This article evaluates the world's first market-based regulation for particulate-matter (PM) emissions, implemented experimentally in Surat, Gujarat, India, in collaboration with the Gujarat Pollution Control Board (GPCB). The emissions market, covering 318 large coal-burning industrial plants, replaced the traditional command-and-control regime with a cap-and-trade system supported by continuous emissions monitoring systems (CEMS). The study finds that the market functioned effectively, achieving 99% compliance compared to 66% under prior regulation, reducing PM emissions by 20%–30%, and lowering variable abatement costs by approximately 11% at constant emissions. A benefit-cost analysis indicates that the mortality benefits from pollution reductions exceed the market's costs by at least 25 times. These results suggest that market-based environmental regulation can be successfully implemented in low-income, low-state-capacity settings, offering substantial public health and economic gains without requiring new capital investments in abatement technology.