A ground-breaking cap-and-trade programme to control industrial air pollution in Surat, Gujarat, has led to a significant 20–30% reduction in particulate matter emissions while lowering costs for factories and boosting regulatory compliance a new study has revealed.
Published in the May 2025 issue of The Quarterly Journal of Economics, the study evaluated the Surat Emissions Trading Scheme (ETS) the world’s first market-based initiative for trading in particulate matter emissions and India’s first pollution trading scheme of any kind.
Developed by the Gujarat Pollution Control Board (GPCB) in partnership with the Energy Policy Institute at the University of Chicago, the Surat ETS required 318 large coal-based industrial plants to install real-time emissions monitoring systems. Instead of traditional pollution checks, these plants were allocated tradable permits under an emissions cap set by the state regulator.
Rohini Pande, one of the study’s authors and an economist at Yale University says “Market-based regulation can succeed even in developing countries with limited state capacity, Surat’s experience proves that trading systems can outperform command-and-control rules.”
The study conducted between September 2019 and April 2021 by researchers from Yale the University of Chicago, and the University of Warwick, used a randomized controlled trial. Half the plants were enrolled in the trading scheme, while the rest followed conventional pollution controls. The results showed that participating factories not only reduced pollution by up to 30%, but also spent 11% less on abatement and achieved a 99% compliance rate, compared to 66% among non-participants.
Initially total emissions cap was set at 280 tonnes per month. But with real-time data showing it was too high, GPCB revised it to 170 tonnes over time, improving impact. Around 80% of permits were given for free, while the rest were auctioned weekly, encouraging firms to either reduce pollution or purchase extra permits.
The study concludes that the benefits of the market-based scheme outweighed its costs by a factor of at least 25.
Air pollution remains one of India’s deadliest public health challenges. With initiatives like this showing measurable results, experts suggest that expanding such programmes could help India meet its air quality and climate goals more efficiently.