Abstract:-
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. We report the results of an experiment to test the efficacy of a new emissions market, for particulate matter, in the abatement of air pollution from industrial plants in an Indian city. We find that plants randomly assigned to participate in the market reduce pollution emissions by 20% to 30% relative to control plants that remain in the command-and-control status quo regime. This reduction in pollution was achieved without any added costs of plant abatement capital and at permit prices near low ex ante estimates of marginal abatement costs. While recognizing that the long-run impacts of these instruments may deviate from those observed in a pilot, these results suggest that market-based instruments could improve the effectiveness of environmental regulation in India.

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