Designing Environmental Regulation

A suite of studies – the first of their kind in developing countries – test whether regulation innovations can curb pollution at a low cost to both government and industry.

Governments around the world struggle to balance the goals of environmental quality and economic growth – goals that are at odds because the enforcement of pollution standards typically raises the costs of productive activities that pollute. This opposition is greatest in emerging economies like India and China, where unprecedented industrial expansion has resulted in the highest pollution concentrations ever recorded. EPoD is working with regulators in India to test whether the opposition can be softened by innovations that allow industries to feed reliable information straight to regulators. New technologies can do this, as can environmental auditors, so long as they are capable and their incentives are aligned with the public interest. Market-based regulations show promise as well, like an emissions trading system, or ETS, in which the government sets a cap on the permitted pollution level and allows industries to bid against each other for the right to emit a percentage of that total. An ETS surpassed expectations in curbing acid rain in the US at low cost to the government and without putting a drag on economic growth. But all of these methods are untested in developing countries. Can policy innovations that worked in the West work in contexts with weak governance? Are there economically and politically feasible ways to get more reliable information to regulators while helping industry to manage costs?

Policy Engagements

Improving the incentive structure for environmental auditors

Working with the Pollution Control Board of Gujarat, India, we conducted a large-scale experiment to test whether making environmental auditors financially independent from the firms they audit could the accuracy of their reports. Auditors in the treatment group were 80% more likely to give an accurate report, and plants in the treatment reduced their pollution emissions in response.

Policy Partner: Gujarat Pollution Control Board
Researchers: Rohini Pande, Esther Duflo, Michael Greenstone and Nicholas Ryan
Research Partner: J-PAL and Harvard’s Sustainability Science Program (SSP)
Funding: The International Initiative for Impact Evaluation (3ie), the International Growth Centre (IGC) and the National Science Foundation

Developing new emissions monitoring tools

We have worked with the central regulator in India to develop and pilot a Continuous Emissions Monitoring System, or CEMS, that will feed information directly from smokestacks to regulators and the public in real time. The project innovates by developing both the device and software interface for a frugal technology highly scalable to other countries and industries.

Policy Partner: Gujarat Pollution Control Board
Researchers: Rohini Pande, Esther Duflo, Michael Greenstone and Nicholas Ryan
Research Partner: J-PAL and Harvard’s Sustainability Science Program (SSP)
Funding: The International Initiative for Impact Evaluation (3ie), the International Growth Centre (IGC) and the National Science Foundation

Using behavioral 'nudges' to decrease electricity consumption

An EPoD research fellow conducted an experiment to determine whether interventions that influence choice without limiting options or imposing steep incentives – “nudges” – could decrease energy consumption of middle-class Delhi residents. He found that peer comparisons delivered with energy bills decreased consumption, but the effect disappeared at higher price points and in combination with other incentives.

Policy Partner: Institute for Financial Management and Research (IFMR)
Researchers:  Anant Sudarshan
Research Partner & Funding:  Harvard’s Sustainability Science Program (SSP)