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Comparing the cost effectiveness of market-based policy instruments versus regulation: the case of emission trading in an integrated steel plant in India

Published online by Cambridge University Press:  19 January 2004

RITA PANDEY  and
GEETESH BHARDWAJ
RITA PANDEY
Affiliation:
National Institute of Public Finance and Policy, 18/2, Satsang Vihar Marg, Special Institutional Area, New Delhi, 110 061 India. Email: rita@nipfp.org.in
GEETESH BHARDWAJ
Affiliation:
Rutgers, The State University of New Jersey, USA.
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Abstract

Cost-effective policies allow for minimizing the compliance costs associated with reaching a desired environmental quality target. In this paper a conceptual model has been developed to examine the compliance costs under an intra-plant emission trading system for a non-uniformly mixed assimilative pollutant. The model incorporates the number of emission sources, the concentration of pollutants emitted at each source, the marginal cost of abatement for each source, the transfer coefficient that relates emission at each source with the impact on ambient air quality, and the desired ambient air quality target. The model is applied to an integrated steel plant in India. Results of this study demonstrate that emission trading is more cost effective than the existing regulatory system. Further, intra-plant trades would result in significant savings to the steel plant while securing an improvement in ambient air quality in the studied geographical area.

Type
Research Article
Information
Environment and Development Economics , Volume 9 , Issue 1 , February 2004 , pp. 107 - 122
Copyright
© 2004 Cambridge University Press

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Footnotes

We thank Katrin Millock, Kanchan Chopra and Jeffrey Vincent for their valuable comments and suggestions on earlier version of this paper. We also thank to participants at the Second International Conference on Environment and Development, The Royal Swedish Academy of Sciences, Stockholm, 6–8 September 2000, where this paper was presented. The paper has benefited greatly from the comments made by the editor, Charles Perrings, and three anonymous referees.