Climate Economics with Arvid Viaene
A research-focused podcast on the economics of climate change and air pollution. Episodes are released every two weeks on Tuesday at 6 am CET. Episodes will be either expert interviews or solo explorations of key issues. Hosted by Dr. Arvid Viaene, a climate economist with a PhD from the University of Chicago. He has done research on the impacts of climate change on agriculture and mortality. His research on climate-related mortality has been published in The Quarterly Journal of Economics, and he has advised the European Commission on the impacts of climate policy on firm competitiveness.
Climate Economics with Arvid Viaene
#7 - Dr. Kaushik Deb - The Power of Cap-and-Trade Markets in Emerging Economies: Evidence from India
Find the clean transcripts on my Substack: https://substack.com/@climateeconomicswitharvid
Could market forces be the key to solving one of the world's most pressing public health crises? The evidence from India's groundbreaking air pollution markets suggests a resounding yes.
Air pollution in India has reached catastrophic levels. With 74 of the world's 100 most polluted cities located there, the average Indian loses 3.5 years of life expectancy to dirty air. In Delhi, that number climbs to a staggering 8 years. As the country pursues ambitious economic growth targets, balancing development with environmental sustainability has become its central challenge.
In this enlightening conversation with Dr, Kaushik Deb, Executive Director of EPIC India at the University of Chicago, we explore how emissions trading systems are transforming environmental regulation in unexpected ways. The world's first particulate pollution market in Surat, Gujarat has produced remarkable results: nearly 100% compliance (versus 64% under traditional regulation), 20-30% lower emissions, and 11-12% cost savings for participating industries.
What makes these markets so effective? Modern technology enables continuous emissions monitoring rather than sporadic inspections. Industries that reduce pollution below standards can sell their excess permits, creating financial incentives for environmental stewardship. Perhaps most surprisingly, the market transforms traditionally adversarial relationships between regulators and industry into cooperative partnerships.
The success has sparked rapid expansion throughout India. While the initial market took nearly 15 years to implement, new markets are now being developed in just 18 months. Combined SO2 trading programs across multiple Indian states could soon constitute the world's largest cap-and-trade system. The upcoming Emissions Market Accelerator initiative aims to make these proven solutions available globally as "plug-and-play" systems deployable within months.
Listen to discover how market-based approaches are demonstrating that environmental protection and economic growth can go hand in hand—and how solutions pioneered in the Global South are challenging assumptions about environmental governance worldwide.
For questions, comments or suggestions, you can contact me at arvid.viaene.ce@gmail.com
I decided to study economics when I was 18 because I believed economics has the tools to help improve our world, and one of the most exciting applications is the development of clean air markets, because these markets give citizens less polluted air while making sure firms stay as competitive as possible and just keep providing jobs. Now we know these markets have worked extremely well in the European Union and United States, but there have been questions of whether these markets work in emerging economies. But, as we will discuss today, the answer is a resounding yes and with my amazing guest, kaashik Depp, we will discuss the world's first particulate pollution market, which was created in India, in Surat, and we will see that it created healthier air at lower abatement costs for firms and, even better, that other cities and provinces in India are starting to adopt the power of clean air markets. As a warning, I get very enthusiastic during parts of this interview, but that is because I find these developments so inspiring, and I'm sure my 18-year-old self would agree with that. With that said, let's dive in.
Speaker 1:Kaushik Depp is the executive director of Epic India at the University of Chicago. He is an applied economist with more than 25 years of experience. He has advised governments and companies on energy policy, markets and technology, and before EPIC, he led the India program at Columbia University's Center on Global Energy Policy and held leadership roles at BP, idfc, terry and the King Abdullah Petroleum Studies and Research Center. He holds a doctorate from the ETH Zurich and a master's in economics from the Delhi School of Economics. So, kashyap, welcome to the podcast.
Speaker 2:Thank you so very much for having me. I really am looking forward to this conversation.
Speaker 1:Me too, because I'm very excited about today's conversation because we are discussing what I think might be one of the most important and revolutionary developments in environmental economics recently, and that is the development of the clean air markets in India regarding air pollution. So both already what has happened in the past and what's coming in the future, so I'm very excited to discuss that today. Coming in the future, so I'm very excited to discuss that today. And to start off, I should mention for the listeners that I already did an episode with Dr Christa Hasenkamp where we discussed air pollution, but more from a global level, and we saw how, like air pollution is the number one global threat to human health. But air pollution in India can be especially bad. So could you maybe, to start off, talk about how severe air pollution is in India and what the impacts are on health?
Speaker 2:This is really kind of front and center in terms of what India as a country is dealing with in terms of its growth and development. India aspires to be a developed country in the next three decades. That involves a very significant increase in industrial activity, but that increase in industrial activity also has consequent imports on increasing fossil fuel consumption and energy consumption in general. How to kind of deal with that, as well as environmental sustainability, is really India's central challenge today. According to the 2024 World Air Quality Report, 74 of the world's 100 most polluted cities and towns are in India. That's, I mean, thatab and West Bengal in India.
Speaker 2:So a really really important piece, a geographical piece to kind of deal with, and our work that Krista leads at the University of Chicago has kind of led to some very, very dramatic results. I mean Krista did point out that air quality is the most important case or the most important reason why immortality in our world is so high. In India, on an average, we are losing about three and a half years of our lives every year because of air quality. The city of Delhi, where I work, this costs me nearly eight years of my life. Now, eight years of my life is a pretty chunky piece.
Speaker 1:Eight years is a lot to lose, unfortunately.
Speaker 2:And this is something that we kind of need to solve for urgently and immediately, because our growth aspirations are also very urgent and immediate, yeah.
Speaker 1:So, to tackle that economists often prefer market-based approaches, why do economists prefer those over, say, command and control regulations?
Speaker 2:Let's take a step back, right. I mean, let's not think about this just from an economist's point of view, but let's think of this as a societal problem. Now, if there is a problem, what would ordinarily happen is that you would expect government or policymakers to kind of have to respond to that problem. Anything that might be air quality is one in this case, health might be another one and the classic response to any of these issues, any of these problems, is shut it down. So if there is war in Ukraine, shut it down. If there is air quality problems in Delhi, shut down the activity that's causing air problem. Shut down the activity that's causing a problem.
Speaker 2:But if you did think through that, what an economist's terms. What that means is that the price of that particular activity or that particular pollutant or that particular externality is infinity. And that's not the case, right? We have, in some sense, an optimal level of economic activity that delivers an optimal level of prosperity and externality. That we need to get to, and that's where the use of market-based instruments pricing, markets, taxes are relevant, because, as economists, what we are trying to do is make sure that the system runs in its, the economic system runs in its most efficient and optimal fashion and is not a binary choice between on and off activity happening or not happening. We want an optimal level of economic activity that delivers the right amount of energy consumption and the right amount of pollution on delivering the right amount of economic services that we need.
Speaker 1:Exactly. I like that description a lot, and then maybe we could just jump into the air pollution market. I think we can get to the story a little bit later, but I think just starting off with the results is very revealing. So there was this air pollution market, that, the market for particulate pollution, which was the first one worldwide in Surat. Yes, could you maybe talk about what the results were there?
Speaker 2:So this is an exercise. This is an experiment that started in 2019 in Surat, as you were talking about, where we set up this market and then carried out an evaluation of what this market would do through a randomized control trial. Economists of my type we kind of come to the real world from school knowing that economics solves all the problems and then realize that that's not quite the case. The real world is a very special case and everything needs to be designed and delivered in a particular manner so that it can actually be implemented. That's where this entire exercise came into being In Surat. A vast majority of the pollution problem comes from the textile industry that's there. Surat is very well known for diamonds and jewelry and textiles. These are the two principal industries there. For the textile industry, we created a cap and trade scheme. That was to be. That was to be exercised over about 350 odd industrial units in that one town, but knowing that this is a new solution and this is something that's never been tried anywhere in the world. So the world's first particulate matter market, ladies and gentlemen, was launched and delivered in India and has been functioning for the last five years, as I said, to make sure that we were actually designing a solution that's actually real and delivers answers and reduces pollution. We divided this industrial cluster into two groups, so the control group stayed within the existing command and control regime while the treatment group was put under a cap-and-trade scheme. And some of these results are so remarkable that you would kind of want me to bring out the quarterly Journal of Economics publication that Michael and his colleagues published earlier this year. You would kind of want me to re-verify all of those numbers. The biggest result I think the biggest result that the regulator was most interested in, is that the level of compliance in the market, in the command and control group the level of compliance was about 64%, which is really what the regulator wanted to solve for, because in the market the level of compliance was almost 100%. There was just one compliance period in which two industrial units did not meet their emission targets and for the regulator that kind of pretty much solves the entire problem right, you are able to achieve 100% compliance to an environmental standard that you want to achieve.
Speaker 2:What do the local people want? They want improvement in air quality. What do the local people want? They want improvement in air quality and for every compliance period, the emission performance of the treatment group, the folks who are there in the market. Their emissions were lower by about 20 to 30 percent, so very significant and a chunky reduction in particulate matter emissions that came from this particular experiment.
Speaker 2:Now, how do we bring industry on board? You and I know this right. Markets are an efficient tool. The whole point of efficiency is to reduce costs, to improve efficiency, and the folks at the market were able to meet their targets at a cost which was almost 11 to 12% lower than the folks who were there in the command and control regime. So there is a very clear incentive for industry to be in the market, which kind of is also evidence from the fact that once these results came out, all of those folks who were not there in the market, who were in the command and control uh control group, clamor to you know be included to join the market. And you'd recall the acid rain program from the us, I mean that had a benefits to cost ratio of about 50, something is to one, this city of 16 million. With this reduction in emissions, this improvement in compliance cost, this uh uh cost of whatever treatment plants, treatment systems that they needed to kind of put in, this cost-benefit ratio is well over 200. So it's.
Speaker 2:I mean you can imagine the impact that this is having. And all of this took place without a single new dollar or rupee being spent by the Pollution Control Board. So no increase in regulatory capacity experiment really kind of does prove. Is that classically what we always think? That you know market-based solutions are so complex, so complicated. How do you know regulatory environments with limited regulatory capacity deliver these really complicated solutions? What this market, what this experiment proves is that these are the right tools to be used with limited regulatory capacity and these are the right tools that kind of ensure that with limited regulatory capacity, you can achieve the kind of emission performance that you want with lower costs.
Speaker 1:And lower costs, if you kind of think this through, are essentially an opportunity for industry to grow. There was so much in there, like you say. It's like there are six or seven questions I want to ask, I think. First of all, I think it's like you say, the compliance went up to nearly 100% from like 66, which is a really big success, because that's already, like you know, there was no full compliance for a variety of reasons. Then there was a lower cost to industry. Did the industry kind of maybe? My first question is did the industry kind of expect it would be lower costs or did they have some premonition that some people could do it more efficiently? Or was there like a lot of skepticism or hesitancy among companies? Because, for example, in the UETS it's like companies always think it's going to be this massive cost increase. They're worried about a massive cost increase in their competitiveness. So was there some sense that this would be the case?
Speaker 2:So, to continue the story, we are now helping the state of Maharashtra, a bordering state in Gujarat, to set up a statewide SO2 market, and this is going to be like covering. So Surat was just the textile cluster, maharashtra is going to be electricity, steel, cement, pet, cam, pharmaceutical refining. Electricity, steel, cement, pet, chem, pharmaceutical refining.
Speaker 2:So really much more diverse and huge I mean really huge, huge industrial units. And, as it happens, every time you kind of take a new solution, a policy regulation, to any industrial group, there is an inherent resistance to saying that, hey, we'd like to kind of try this out. And for very obvious reasons, right, they think that this would lead to an increase in their costs of regulation. And who, in their right mind, when you are a profit maximizing private sector business, would want to do that? So what we did is we got the environmental compliance folks in the company to start speaking to the finance folks in the company, and the finance folks were the ones who kind of realized that if we can improve our environmental performance to a point where we are much below the regulated standard, that gives me something that allows for a new revenue stream. I can now monetize my improved environmental performance. So this is literally the textbook case of being able to monetize an externality. So it's not an external cost anymore or it's not an external benefit anymore. It's actually internalized in the profit and loss accounts of the company. And this conversation, once facilitated, becomes, became kind of so central to having folks in industry come on board.
Speaker 2:In the market. For example, there are industrial units who are using natural gas, so no SO2 emissions emissions. Why would they join the market? Well, because they have no so2 emissions and because they made the switch from coal to natural gas. They are now in a position to monetize the cost that they had to bear to make this switch and this becomes a clear incentive for them to be part of the market. That's kind of one very big economic argument of how we brought the industry on board.
Speaker 2:But the second part is slightly more nuanced and something that you kind of realize only when you're seeing the market in operation and how environmental regulation is actually happening. There is a compliance standard, the concentration based compliance standard that's there under the command and control regime. If you do not meet that standard, you get a show cause notice and, depending on your response to the show cause notice, you are either told to shut down operations or do something to meet that standard. If you do not meet that standard effectively, what will happen is that you'll be told to shut down and then you have to go through a variety of bureaucratic and regulatory processes to get back approvals to restart. So effectively the cost is infinity. But in this case we are kind of creating a mechanism where you are able to meet that standard without having to be completely shut down.
Speaker 2:So the folks in industry the way they kind of describe it is that in the previous command and control regime my relationship as industry with the regulator, with the pollution control board, was essentially adversarial. But now the market has created an opportunity where we are together coming up with a cooperative solution which meets the regulators' objectives as well as allows me to operate at an environmentally much more benign environment. So classically we always think of markets as being kind of competition and an adversarial outcome. But now you have to kind of start thinking of markets in this situation as something that kind of is leading to a nice cooperative outcome that satisfies the objectives of all players, the regulator as well as industry, and that, I think, is something that we don't traditionally learn in microeconomics 101.
Speaker 1:Yeah, it almost sounds like the way you describe it Exactly. Otherwise, there's this audit. You know you were polluting too much. Now you have to be worried. You're already anxious. Do you have to shut down? There's the whole bureaucratic process your company gets shut down versus there's a market and finance. Environmental teams are talking to each other like how can we make money off of this, of this? It just changes the dynamic of the discussion versus this dread, versus you know people like to make money in companies. It's like you know, using them for coming up with better solutions.
Speaker 2:I mean we are kind of creating a commodity right. We've essentially kind of commoditized this so that this entire thing that economists love to do that if only we had a carbon price, this entire thing would have been solved.
Speaker 1:Well, we are kind of creating a mechanism where you're finding a price for a polluted so one thing I think it's also interesting to to learn, which we briefly discussed before starting the recording, is how long it took the province of Gujarat to start this one and then like what the plans are going forward, because it's being the first. There's naturally a lot of things that can go wrong or have to be taken care of, so could you speak about that?
Speaker 2:so Gujarat was a exercise that Michael and his colleagues started way back in 2008-9 and if I kind of add up every year that kind of went into getting Gujarat up and running, I can kind of easily think that this was an exercise that took about 10 to 15 years. And this exercise took that long because this had never been done before and every problem as it came up had to be solved. And this kind of ranged from finding the right legal language for the regulation to identify which are the emission monitoring devices that will meet these standards, their installation and calibration protocols, vendors who would make this available, who would be the auditors for this, who would set up the trading platform, the data quality control and quality assurance protocols everything that came in there. But having done all of that, we are hoping that the second market that we are going to set up now in the state of Maharashtra in India is something that we are able to kind of do it in a period of a year and a half or so. We started this exercise last October and my ambition is that we have this market up and running by the end of this year. In fact, what we are trying to do is over the next few weeks actually try and find ways of doing a soft launch of the market where we are able to set up the platform and have industries kind of come and start mock trading, learning how the platform works and everyone kind of getting used to the fact that there is a new commodity in the market.
Speaker 2:A new commodity in the market so from 15 years to 18 months is quite a steep improvement and that's the kind of learning curve that's kind of central to my ambition at EPIC. We talked about this briefly earlier. This is the kind of improvement in solar energy generation costs or wind energy generation costs that we've seen in the last 15 years. 15 years back, solar used to cost a whole bunch of dollars per megawatt and now it's down to a few cents. That's the learning curve that I'm attempting to replicate in the design and deployment of these markets and over time, my ambition is that we have this as a plug-and-play solution available for jurisdictions around the world where essentially, it's a matter of a few months instead of a few years in terms of designing and implementing a new market. We are in the process of launching this as a formal initiative, joint initiative of J-PAL and EPIC during the New York Climate Week and we've christened this as the Emissions Market Accelerator. So fresh off the block, first one in the press that you get to say this Wow.
Speaker 1:Awesome. Thank you very much. I'll have to bring it out as best as I can then. Well, first of all, I would say this to me sounds amazing, like if you took my economists, like when I was young, this you know when you're in school. They're like this is what economics can do if you do it right and you've brought it from 15 years to one and a half with like the proven results, and like you're now doing it in other provinces, because I think that the fact that there was this natural experiment that conclusively showed this can work and provide a lot of benefits for everybody. I got the sense reading about this. There's this excitement to join, or like there's this growing interest to join and apply these markets. I don't know if that's correct or not, or how would you see the development.
Speaker 2:So this growth and this expansion that's happening is both intensive and extensive, and let me kind of draw that distinction Once this experiment in Surat took off and did deliver these results. Now the default of the Gujarat Pollution Control Board for every pollution problem is markets. So we are in the process of designing ETS schemes for industrial effluents for them for two central effluent treatment plants. So water pollution is being dealt with in terms of using these markets. They want to explore the use of markets for SO2 as well and we have a memorandum of understanding with them to think and start developing a carbon market for that state as well. So there is a lot of diffusion of the idea that markets can solve environmental problems across the board within that one state.
Speaker 2:But having seen that success, maharashtra the neighboring state, the SO2 market that I talked about is going to well underway to use this as a tool and this as a solution to deal with their industrial problem, industrial emissions problems as well. We've just signed a memorandum of understanding with another neighboring state of Gujarat, rajasthan, to set up a SO2 market for them. This was gonna sign at the last World Environment Day earlier this year and initial conversation with some other states in India also happening. But if I was to kind of put all of these three states together, if this was kind of one big SO2 trading program, this would be probably the world's largest cap and trade scheme, much bigger than the EU ETS and just in terms of population this would really be a hugely important and successful result.
Speaker 2:And, seeing this, now there are conversations that we are having with numerous other countries and numerous other geographies and jurisdictions around the world on trying to use cap and trade schemes as solutions to deal with all sorts of environmental problems, including carbon markets. There has been a trend recently, I would say a slightly aggressive trend, in the sense of kind of a move away from climate regulation and climate management, especially using economic instruments. But I think once kind of some of these experiments and some of these markets become a lot more viable and grow, it will become a much more widespread tool. At this point, everyone in our community, in the environmental community, kind of thinks that cap and trade schemes are sophisticated and useful only in very developed jurisdictions like Europe and in a pre-current administration world US. But what we are doing is showing that this is a tool that's much more widely applicable in the developing world.
Speaker 1:Exactly Because when I read it it seemed like there was a lot of you know, if we go back in time like 10, 15 years a lot of, maybe skepticism that this would work. Why didn't do you think those skepticisms like didn't pan out?
Speaker 2:So part of that reason is just ideology. I mean this idea that you know, markets are such a sophisticated policy tool that folks in the developing world aren't smart enough to be able to use such a sophisticated tool. And that was almost like a tautology. Markets didn't work in the developing world because they hadn't been tried. And once you kind of did try and do that, this experiment showed that they work and now it can be used and deployed a lot more extensively, employed a lot more extensively.
Speaker 2:The second part of the story, and that I think is also very important to acknowledge, is that we've had significant changes and improvements in technology over the last 15 years. Back in the day, the command and control regime essentially involves inspector from the pollution control board going to industrial unit, climbing the pollution stack, the emission stack, taking a measurement in a thimble or some device, taking that little vial back to a lab, measuring what that vial delivers and seeing whether that particular plant and that particular emission stack is meeting the standard or not. When you have 340 or 350 industrial units in this one small geography, how many times in a year can you do that and you kind of get these results? Maybe once in a year, maybe twice in a year, maybe once in two years. Even in the most sophisticated geographies and the most well-resourced countries in Europe and the US, there is a limit to how much capacity and how many people you can deploy to do this.
Speaker 2:The cap-and-trade scheme that we've created and have executed use continuous emissions monitoring devices that sit in these stacks and are network linked to a central server that sits in the pollution control board, so the pollution control board is able to get the emissions performance data from each of these stacks on a 24 seven basis.
Speaker 2:We use a data protocol that allows us to kind of take an average of 15 minutes and use that as a measure of whether the measure of they're meeting the standard or not. Any pollution control board or any emission regulator, any environmental regulator, would be interested in a scheme like this because it gives them 100% visibility in terms of the emissions performance for all of their entire jurisdiction. The second part of this is that in today's day and age, having all of these network to a central server that sits in the pollution control board or the environmental regulator can now be very easily linked and we can have these trading platforms developed like pretty much in a matter of weeks that we can have a trading scheme run seamlessly on a continuous basis. This day of this day and age of big data, machine learning allows us to carry out a lot of this analysis on such a split second basis that these markets are really really much more efficient today than they would have been back in the day when trades in the stock market used to happen on paper.
Speaker 1:On a personal level, I admire Gujarat because I feel like they've been the main driver of this that has allowed this natural experiment to take place, and then, once other people see the success, then they get along. So if I had an, an award, I would give it to gujarat, so it's like for for the work they've they've done with, with with the environmental, with the clean air market. So is there something specific that triggered their openness or willingness to experiment with this natural market or like led to collaboration? So just why is the genesis in Gujarat, to some extent, of these markets?
Speaker 2:So a large part of that has to do with coincidence, the fact that there were existing relationships that Michael and his colleagues were able to leverage and use those as the basis of starting this discussion in Gujarat. I think there were conversations that are happening, and were happening even then, with a number of other states, and Gujarat's first mover advantage simply was that they were much more cognizant and wanted to get this pollution problem under control as soon as possible. And when they heard that we could give them data on a 24-7 basis that they would own, that they would generate and they would be able to use to whatever objective that they wanted to, they were, I think, the ones that first kind of jumped on the bandwagon. I think this has kind of now made such a compelling case that many, many other states and other jurisdictions outside of India are keen and very, very conscious of using a policy tool such as this, which is why all of these expansion conversations that we are kind of having elsewhere in the country and the rest of the world, country and rest of the world.
Speaker 2:But I think what's very, very important and that's kind of central to my mission at epic is we don't I don't want this to be something that depends on individual relationships or ad hoc conversations, or that someone reads about this in a newspaper or listens to your podcast and finds that this is a policy solution that they would want to explore and gets in touch and we kind of try and see whether this works. In a perfect world, an ideal solution, we would want this to be something that we are able to kind of offer as a technical assistance service to every jurisdiction in the world and then be able to carry out at least some assessment to see whether this is the kind of solution that works best for them, whether this is an appropriate solution for them, and be able to develop and design these markets so that they serve the best interests for those environmental regulators and those industrial units and those industrial units, without kind of this necessarily being this current idiosyncratic process, which we have right now, of doing this on a case-by-case basis.
Speaker 1:I think that's a really great goal, exactly to have exactly that offer ready, that in a sense that people don't necessarily need to listen to a pod gallery or news article, but it's just like on everybody's mind that this is naturally something you'd want to explore and that's that's.
Speaker 2:That's the emissions market accelerator that we will launch at New York climate week in September.
Speaker 1:I think I might just have to come to that just to see it. I'd love to have you. I don't know, this seems like the most exciting. Anyway, you could see my passion for carbon markets. I mean, I don't have to tell you probably.
Speaker 2:No, I mean, it's completely infectious, and I know exactly why.
Speaker 1:So it's the more because I can can even say, like I did my phd economics, I've worked with michael and I read this article and I was amazed because it's like you say often you hear about all markets. You know, theoretically they, they minimize the cost. It's also conceptual because I think the other point is there, what hasn't like the scale and the results, like it's just so conclusive that you're like, oh, this is what we kind of thought would happen, even in the market like this, but like showing it so, so, so nicely. So I think we've covered a lot. Maybe two last questions is based on what you've seen or your experiences what were the key factors in successfully kind of the cooperation between academic research or the economists at the university and the policymakers, because sometimes, like you say, there is a divide and or sometimes you've got the consultancies who jump in, but this really seems like the collaboration between academics and the pollution board. So what do you see as like the reasons that the academics were successfully supporting those developments?
Speaker 2:You see, because these are not traditional classical academics sitting in ivory tires in an Ivy-lined New England School. These are academics who are embedded and delivering solutions with the regulators. So my operating model is that we don't write reports and papers. We do do that, but that's not the only thing that we do. Our teams are embedded with the regulators. Our teams are embedded with the environmental regulators, sit in their offices, design and implement these solutions in partnership with them, with their officers, with their inspectors, so that whatever is done is done in complete reflection of what the environmental regulators need.
Speaker 2:This is not a purely academic exercise but a real-world exercise, and having our teams kind of our researchers sit with the regulators is fairly central to delivering these solutions. And what that also does is gives me, as a researcher, the opportunity to learn from what the real world asks for and make course corrections and changes whenever I need to. So, for instance, a big reason for doing a SO2 market instead of a PM market in Maharashtra is the fact that SO2 travels PM, as a pollutant, is heavier and kind of sticks to a limited geographical area, but SO2 can travel over very vast distances and is a precursor to PM. So, in terms of impact. Regulating SO2 may perhaps have a much larger influence than just regulating PM. So these kind of lessons one has to kind of make sure are central in the design and the redesign and the execution of the market.
Speaker 2:The part that I think is also very, very important is that you have to make this entire process consultative and transparent.
Speaker 2:So you have to kind of make sure that industrial partners, industry associations, the pollution regulators are all kind of talking to each other and are not necessarily speaking at cross purposes.
Speaker 2:So this conversation starts at the very outset with a stakeholder meeting where everyone is introduced to this idea and then gradually, as the market design happens, you can have at each step, learn more about what each of these stakeholders need and are able to provide those answers to them. So, for instance, how will the market work? What kind of a trading platform do I need to set up at my company's portal? How will I be able to see whether all the industrial units are meeting their? How will I be able to see whether all the industrial units are meeting their norms or not? As the environmental regulator, as a financial regulator, is there any kind of financial irregularity that's kind of happening? Is there anyone who's kind of hoarding these permits or not. So all of these stakeholders have to kind of be able to have full visibility and transparency in the way the market operates, and you have to kind of do this at every step of the market, design and execution.
Speaker 1:Okay, thanks for that, and maybe then, as a final question, is there any topic you still would like to discuss that we haven't touched, or is there a question you wish I'd had asked you, or that's something you're like? This is still worthwhile mentioning.
Speaker 2:I think the most important part is in terms of developing and executing something like this, is that you kind of walk into the room recognizing that you have to think this through and see whether this is an appropriate solution. So markets are an excellent solution for a certain type of emissions profile, for a certain type of industrial profile. Markets are not a solution for all sorts of environmental sustainability issues. So, for instance, in a congested urban area where a large part of the emissions are coming from the transportation sector, you don't kind of put in place a cap and trade scheme because it's, I mean, monitoring and verification and compliance isn't possible with non-stationary pollutant sources. Equally, if you have a very large industrial cluster but that industrial cluster consists of very, very small manufacturing units, it's hard to kind of imagine that there will be enough of emission monitoring capacity that you can build to be able to carry out a cap-and-trade scheme. But if you have a cap and trade scheme, it kind of caters to emissions from industrial units which are stationary, where you can install these devices. So you have to answer all of these necessary conditions before you kind of start designing the market.
Speaker 2:The second part is also to kind of think about the fact that we've come to a point which we kind of briefly kind of talked about earlier as well. You kind of come to a point where we recognize that all of these so-called sophisticated regulatory mechanisms that work in the developed world are now viable and available to the developing world, based on a global south experience that can now be replicated in other global south geographies. It's not something that necessarily requires a translation between the oecd and the non-oecd or the developed or the developing world, and is is kind of based on experiences from limited regulatory capacity, and that, I think, is central to how we should kind of think about markets going forward.
Speaker 1:And that's also a very exciting way to conclude exactly that they're now available and hopefully implementable in three months for going forward. So yeah, exactly, so thank you very much for going forward. Inshallah, yeah, exactly, so thank you very much for coming on. I really enjoyed this, and thanks for taking the time.
Speaker 2:Thank you. Thank you for having me, and this was a really nice and interesting conversation. I look forward to more of these, thank you.