India Launches First Particulate Matter Emissions Market in Surat

India already has in place the world's first ever particulate matter (PM2.5) emissions trading system, which is operating in Surat, Gujarat. The pilot industrial air pollution management programme saw emissions decreased by as much as 30 per cent and illustrated much lower compliance cost than with conventional regulatory approach. The model is being considered for rollout in other parts of India and across low- and middle-income countries.

The emissions trading system, following a cap-and-trade system, tracked real-time emissions from more than 300 industrial coal-burning facilities. Of these, 62 plants were randomly sampled to have the trading mechanism applied, which put a cap on their PM2.5 emissions and permitted them to sell unused emission allowances. The other plants conformed to the traditional command-and-control regulatory framework.

The Yale University and University of Chicago researchers, authors of the paper released in The Quarterly Journal of Economics in May 2025, discovered that the trading system not only worked environmentally but also made money. Plants employing the trading system lowered emissions by 20–30 per cent and paid 11 per cent fewer compliance costs than plants employing standard regulation.

Particulate matter (PM2.5), being capable of penetrating deep into human lungs, is a severe health threat. Cost-benefit analysis included in the study reported that market-based approach provided benefits at least 25 times greater than the cost incurred by it, both in pollution reduction and avoided health impact.

Gujarat Pollution Control Board collaborated with the Energy Policy Institute at the University of Chicago to develop and implement the system. Its success is influencing other Indian states. Ahmedabad is applying a similar scheme, and Maharashtra is creating a market for sulphur dioxide emissions trading.

The Surat pilot not only proves the efficacy of emissions trading in a poor economy with limited regulatory capacity but also promises others to follow suit. Cap-and-trade differs from voluntary carbon offsetting programs in having legally enforceable targets on emissions and allowing regulated trading among emitters to meet those targets.

India's national government also initiated a national system of carbon credit trading for difficult-to-abate industries such as aluminium and cement. It is part of a larger plan to achieve national targets of greenhouse gas intensity and support climate-aligned initiatives like renewable energy, green hydrogen, and reforestation.

Experts warn that although the idea has worked in Surat, broader application will mean investment in monitoring stations and plant and regulatory training. But the pilot is strong evidence that market-based solutions can perform better than command-and-control regimes, even in less institutionally advanced countries.

Scientists from the Surat study are now collaborating with other nations interested in using emissions trading to reduce air pollution and promote industrial growth. The experience of Surat demonstrates that emissions trading is an inexpensive and replicable tool for managing particulate air pollution in fast-industrializing areas.

Source: SciDev.Net, June 23, 2025. First published on SciDev.Net.