In this project we aim to design and evaluate a pilot cap-and-trade program for industrial wastewater at a large treatment plant near Surat, Gujarat. In contrast to traditional command-and-control forms of environmental regulation, market-based instruments like wastewater trading can allow flexibility, reduce costs of compliance, and avoid a tradeoff between environmental quality and economic growth.

We are collaborating with the Gujarat Pollution Control Board (GPCB) to design a wastewater trading program for this particular context with the best chance of success. Upon implementation, we will experimentally evaluate the program, testing a central question in the design of cap-and-trade policy design: Does the policy’s efficiency depend on the initial allocation of the permits? This project will be among the first uses of market-based instruments for environmental regulation in a developing economy, and it will yield some of the first-ever experimental evidence on cap-and-trade program design.