Climate Economics with Arvid Viaene

#10 - Best of Air Pollution Episodes - Impact, China's War on Pollution and India's innovative cap-and-trade approach - ft. Dr. Hasenkopf, Dr. Debb and Dr. Trimarchi

• Arvid Viaene

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Air pollution isn’t just a climate co-benefit—it’s the number one threat to human health. In this best-of compilation, we revisit three standout conversations to trace the arc from global impacts to two of the world’s most important case studies: China and India. Both tackled air pollution, but one 

In this episode:

  • The global picture (Dr. Christa Hasenkopf, EPIC – UChicago): Why fine particulate matter (PM2.5) quietly shaves ~2 years off global life expectancy—and how microscopic particles damage organs far beyond the lungs. 
  • China’s “war on pollution” (Dr. Christa Hasenkopf & Prof. Lorenzo Trimarchi): From “beyond index” days in Beijing to a ~40% drop in pollution in ~10 years, powered by political will, strict enforcement, and transparent monitoring—plus how the US–China trade war unexpectedly loosened local environmental regulation. 
  • India’s market innovation (Dr. Kaushik Deb): Inside Gujarat’s groundbreaking particulate-matter cap-and-trade pilot: near-100% compliance vs. ~64% under command-and-control, 20–30% lower emissions, and 11–12% lower compliance costs—with expansion underway to SO₂, industrial effluents, and new state programs. 

Why it matters: China shows what rapid national action can achieve; India shows how markets + measurement deliver cleaner air at lower cost—an approach now scaling across states and sectors. 

Guests:
Dr. Christa Hasenkopf • Dr. Kaushik Deb(b) • Dr. Lorenzo Trimarchi.
Keywords: air pollution, PM2.5, life expectancy, China, India, cap-and-trade, environmental regulation, EPIC, J-PAL, SO₂, public health, climate co-benefits. 

For questions, comments or suggestions, you can contact me at arvid.viaene.ce@gmail.com

SPEAKER_02:

Hi and welcome to Climate Economics with me, your host, Arvid Fiana. It is wild, but this is already the 10th episode of this podcast. So, first of all, I want to thank you for listening. Because without you tuning in, there would be no podcast. And in the first nine episodes, we already had some amazing guests come on and talk. And I've observed that, broadly speaking, the topics were either focused on air pollution or climate change. So I will do two episodes now highlighting some of the best of my speakers so far. So with that said, today's focus is going to be on air pollution. And then the next episode, we will cover the speakers on climate change and its impacts. So why the focus on air pollution? Well, CO2 and air pollution are both driven by fossil fuel combustion. So progress on one often helps the other. But air pollution is more than just a climate co-benefit of reducing climate change. It is the number one threat to human health. So today we will cover the topic with three guests. And we will first start with a global overview, and then we will focus on China and India. Because in China, air pollution used to be very bad. But then there was an unexpected event in Beijing that led China to declare war on air pollution in 2013. So we'll cover that story, as well as the impacts that happened because of the Chinese US Trade War of 2018. And as we will see, China focused mostly on a command and control regulation. But after China, we will then switch to India, where there is some very groundbreaking work happening on cap and trade markets for air pollution, with some really, really good results. And this is really exciting because it's now rapidly expanding across India. So we're gonna end on that high note at the end of the episode. So let's dive in. So to start off, let's hear some global estimates of the impact of air pollution from Chris De Hasenkopf, director of the Clean Air Institute at the Energy Policy Institute of Chicago.

SPEAKER_03:

Yeah, globally we estimate with research we've done at Epic that currently people are losing about two years of life expectancy due to air pollution. And really just one specific type of air pollution, PM 2.5, which is essentially smoke. And that's more than HIVAIDS, malaria combined. And so it's actually estimated by the global burden of disease to have air pollution is estimated to have the largest uh impact in terms of mortality and morbidity combined on a negative impact on public health, which is uh, I think uh astounding. And then, you know, depending where you look across the world, uh it can be the number one uh driver of mortality, especially uh in countries in Asia and Africa. And then to your question of like how, essentially, uh I think we all know it doesn't feel good to breathe in pollution, and we know it doesn't feel good on our lungs, uh, and it can cause respiratory issues and long-term things like lung cancer. But something that's a little bit um harder to realize without actually having uh research is that essentially air pollution, uh especially PM 2.5 particles, these very tiny particles, they you breathe them in, they get throughout um your entire body, and all every single organ can be affected, but it can cause uh heart attacks, strokes, uh COPD, and really it exacerbates uh any other issue in your body as well.

SPEAKER_02:

So now let's zoom in on India, where air pollution can be extremely bad. Let's hear from Kashik Depp, executive director of the Energy Policy Institute of Chicago in India.

SPEAKER_00:

According to the 2024 World Air Quality Report, 74 of the world's 100 most polluted cities and towns are in India. 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. And this is this is something that we kind of need to solve for urgently and immediately because our growth aspirations are also very urgent and immediate.

SPEAKER_02:

Note that China had similar severe problems with air pollution, because China had been mostly focused on growth in the 1990s and 2000s. However, a pivotal shift occurred in 2013, after which Chinese pollution went down drastically. And one of the key moments was when the US Embassy in Beijing started measuring and sharing air pollution levels. Let's hear the story from Krista.

SPEAKER_03:

What happened in the Beijing case in particular was uh whoever at the State Department had programmed um the information that goes went out to Twitter at the time on an automatic basis. They never expected the air pollution to get above a certain level, so they kind of had a jokey tag for the pollution levels when it got above this apocalyptic level, what it was called in the media. Um it was like beyond index, and um I had uh had a very inflammatory phrase to associated with it. And that made headlines, and I think that really got people's attention.

SPEAKER_02:

So this event, together with some other ones, led to China declaring a war on air pollution in 2014 and leading to a lot of government decisions related to reducing air pollution. And so the results were quite striking because there was a huge reduction in air pollution. Let's hear from Krista.

SPEAKER_03:

It's been stunning, about 40% uh reduction in the past 10-ish years, which when we compare that to, say, for example, um the US's progression, that's been much, much faster and shows what can can happen. In terms of how they did it, uh to me, I mean, it's a perfect example of uh air pollution. We know how, like technically, we all do know how to solve the issue. It comes down to social and political will. So uh at that moment in 2013, there was um, you know, an up uh uproar, I guess, of of political and social will. Um, and it it resulted in that, that uh uh declaring war on air pollution. It also meant this meant that they the government put forward a lot of um resources monetarily uh to do it and also political will to enforce policies that uh were quite strict. So uh moving certain industries outside of cities or placing them strategically where they're not necessarily um you know downwind of the of the city and a population. Um it meant uh closing down certain coal uh burning uh factories. Um it meant pretty stringent policies that they then had enforcement mechanisms to um you know uh see through. Uh and and it also meant a huge expansion of their monitoring to make sure this was like what was what they were doing actually working. Uh it also meant with that monitoring, the data was more open and so people could actually see what was what was happening.

SPEAKER_02:

Now, in my episode with Professor Lorenzo Trimarchi, we went into more detail to how China implemented incentives for local political leaders to hit the environmental targets. Let's hear from Lorenzo.

SPEAKER_01:

Fundamentally, they have these uh public of the public officials, they are more like corporate executives, uh, with the with a performance contract, and they all compete in a tournament under which they will be selected uh for a higher level of uh power uh for promotion based on some uh performance indicator established by the hierarchy. That can be the central hierarchy, it can be just a higher political hierarchy and geographical level, but it's really top-down. And uh in the in the 90s, the priority for the Chinese Communist uh party was economic growth, as we know. So the Chinese Communist Party was very focused on growth. Then in the 2000s, I mean starting again really from 2008, uh we all remember uh with the Beijing Olympic Games, the pressure that uh Chinese citizens were made on current to fight pollution, and in the 2010 year, we had this war on pollution declared by the Chinese government, and then environmental standards became more and more important for promotion.

SPEAKER_02:

So, while the pollution reductions were a success, in episode 9 with him, we also discussed the United States-China trade war and the negative impact that had on Chinese policy and air pollution.

SPEAKER_01:

And this preliminary evidence surprising was pointing at the trade world triggering uh uh an increase in pollution in China. What is it surprising? Because as a trade economist, we tend to think about tariffs as mainly as a negative uh income shock, especially for developing countries. So we expect, okay, China is a country uh heavily specialized in manufacturing. If we give a large trade shock, we expect China to reduce income and therefore to decrease pollution. And that's the prior my co-author said at the beginning.

SPEAKER_02:

But that is not what Lorenzo and his co-authors observed. Instead, they dig deeper and they found that the trade war had an impact on policy.

SPEAKER_01:

Uh, we started uh to investigate if the trade war had any effect on environmental regulation, and the answer is yes. This is the most robust part of our paper. So environmental uh regulation seems to be affected by the trade war in a way that uh the trade war induced an easing in environmental regulation for China. So this is the first uh big results, but a negative show in trade policy seems to have a negative effect on environmental regulation.

SPEAKER_02:

Now let's switch from China to India. Now in India, a centralized command and control approach for air pollution is harder because provinces have more control. However, because these provinces have more independent operational freedom, they are also free to experiment with policy solutions. And the ultimate solution economists think of is cap and trade. That is a system whereby you set a cap on emissions and then let firms trade these permits among each other. And the idea is that you get the most cost-effective reductions because firms for whom it is cheaper to reduce will do so and sell those permits in the market. And that is what the province of Gujarat implemented. And the results were impressive. Let's hear this from Kashik.

SPEAKER_00:

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 that was to be uh exercised over about 350 odd industrial units in the 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 uh 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. The biggest result, I think the biggest result that uh the regulator was most interested in is that the level of compliance in the market. In the command and control uh group, the level of compliance was about 64%, which is 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 uh targets. And for the regulator, that kind of pretty much solves this entire problem, right? You are able to achieve a hundred percent compliance to an environmental standard that you want achieved. What do the local people want? They want an improvement in air quality. And for every compliance period, the emission performance of the treatment group, the folks who were 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_02:

So this worked really well, but how did they bring industry on board with this emission trading scheme? Let's jump back in.

SPEAKER_00:

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 uh 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 evidenced from the fact that once these results came out, all of those folks who were not there in the market, who are 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, uh treatment uh systems that they needed to kind of put in, this cost-benefit ratio is well over 200. So it's 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.

SPEAKER_02:

So we've discussed the results, but what is this main takeaway of this experiment in Surat?

SPEAKER_00:

So, what this 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 uh with limited regulatory capacity you can achieve the kind of emission performance that you want with lower costs, and lower costs, if you kind of think this through, are essentially an opportunity for industry to grow.

SPEAKER_02:

Kashik is also implementing this vision because setting up a new cap and trade market takes a lot of effort and learning by doing, but now they are taking the lessons from Surat and using it to implement it faster in other states.

SPEAKER_00:

So Gujarat was an 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 range from finding the right legal language for the regulation to identify which are the emission monitoring devices that will meet these standards, the their installation and calibration protocols, vendors would make this available, who would be the auditors for this, who'd 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. So from 15 years to 18 months is quite a steep improvement, and that's the kind of learning curve that's kind of uh central to my ambition at Epic. Uh we talked about this briefly earlier. This is the kind of improvement in uh solar energy generation costs or wind energy generation costs that we've seen in over the last 15 years. Uh, 15 years back, solar used to cost a whole bunch of dollars per megawatt, and now it's down to a few cents. Um, that's the learning curve that I'm attempting to replicate in the design and deployment of these markets. And uh over time, my ambition is that we have this as a plug-in-place 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. Uh, we are in the process of launching this as a formal initiative, joint initiative of uh JPAL and Epic uh during the New York Climate Week, and we've christened this as the Emissions Market Accelerator.

SPEAKER_02:

At the time of this episode, the Emissions Market Accelerator has now been launched, and I encourage you to check it out. But the story does not end there. There is also a mindset shift. Let's end on the following exciting developments that are taking place.

SPEAKER_00:

So there's I mean so this 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 effluence for them for uh two uh 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 uh SO2 as well, and uh 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 um diffusion of the idea that markets can solve environmental problems across the board within that one state. But having seen that success, Maharashtra, the neighboring state, the SO2 market that I talked about, is kind of well underway to use this as a tool and this as a solution to deal with their industrial problems, industrial uh emissions problems as well. We've just signed a memorandum of understanding with another neighboring state of Gujarat, uh Rajasthan, to set up a SO2 market for them. This was kind of signed 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, uh 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. 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 uh cap and trade schemes as solutions to deal with all sorts of environmental problems, including carbon markets. There has been a trend recently, uh I would say a slightly regressive trend in the sense of kind of uh a move away from uh climate regulation and climate management, especially using economic instruments. But I think once kind of uh some of these experiments and some of these markets become a lot more viable and grow, it'll 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 uh in a pre-current administration world, US. But what we are uh doing is showing that this is a tool that's much more widely applicable in the developing world.

SPEAKER_02:

This is the end of the episode. I'd like to thank you for listening all the way to the end. And if you have any advice on how to improve the podcast or advice on future guests or episodes or ideas, please let me know. I'd love to hear from you. Thanks so much. Have a great day.