#7 - Dr. Kaushik Deb - The Power of Cap-and-Trade Markets in Emerging Economies: Evidence from India

Arvid Viaene: 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 markets. Because these markets give citizens less polluted air while making sure firms stay as competitive as possible and thus keep providing jobs. Now, we know these markets have worked really well in the EU and U.S. But there have been questions of whether they work in emerging economies. But as we will discuss today, the answer is a resounding yes.

With my amazing guest Kaushik Deb, we will discuss the world’s first particulate pollution market, which was created in India in Surat. 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 enthousiastic during parts of this interview, but that is because I find these developments so inspiring, and I am sure my 18-year old self would agree with that. With that said, let’s dive in.

Kaushik Deb 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 ETH Zurich and a master’s in economics from the Delhi School of Economics. So, Koship, welcome to the podcast.

Kaushik Deb: Thank you so very much for having me. I really am looking forward to this conversation.

Arvid Viaene: 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—both what has happened in the past and what’s coming in the future.

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. Krista Hasenkopf, where we discussed air pollution, but more from a global level. And we saw how air pollution is the number one global threat to human health. But air pollution in India can be especially bad.

So could you, to start off, talk about how severe air pollution is in India and what the impacts are on health?

Kaushik Deb: 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 inputs 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, that’s a really sizable number.

Arvid Viaene: Yeah.

Kaushik Deb: And over 65% of them are located in the Indo-Gangetic Plain, which is this area of about 2,000 kilometers between Punjab and West Bengal in India. So it is a really, a really important piece— a geographical piece— to kind of deal with. And our work that Christa 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 mortality in our world is so high.

In India, on 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. You would agree, right?

Arvid Viaene: Eight years is a lot to lose, unfortunately. Yeah.

Kaushik Deb: 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.

Arvid Viaene: So to tackle that, economists often prefer market-based approaches. Why do economists prefer those over, say, command-and-control regulations?

Kaushik Deb: 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.

Arvid Viaene: Yeah.

Kaushik Deb: 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 with 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 are air-quality problems in Delhi, shut down the activity that’s causing air problems. But if you do think through that, what an economist 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 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, delivering the right amount of economic services that we need.

Arvid Viaene: 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— the market for particulate pollution— which was the first one worldwide, in Surat.

Kaushik Deb: Yes.

Arvid Viaene: Could you maybe talk about what the results were there?

Kaushik Deb: So this is a market for particulate matter that’s been running for the last five years. It was— over five years now. This was launched in 2019. And in 2019, this was launched as a randomized control trial.

The idea being that all economists of my type— they come from school knowing that economics solves all problems in life. And then when you kind of start to work with policymakers and the real world, you realize the real world—

So this is an exercise— this is an experiment that started 2019 in Surat, which is what you are 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 we 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 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 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 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.

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%.

So very significant and a chunky reduction in particulate-matter emissions that came from this particular experiment. 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.

Arvid Viaene: Yeah.

Kaushik Deb: And the folks in 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 by 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 group— clamored to be included, to join the market.

And you would recall the Acid Rain Program from the U.S.

Arvid Viaene: Yes.

Kaushik Deb: I mean, that had a benefits-to-cost ratio of about 50-something to one.

Arvid Viaene: Okay.

Kaushik Deb: This city of 16 million— with this reduction in emissions, this improvement in compliance cost, this cost of whatever treatment plants, treatment systems that they needed to put in— this cost-benefit ratio is well over 200.

Arvid Viaene: Over 200, wow.

Kaushik Deb: 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.

So what this experiment really kind of does prove is that, classically, we always think that market-based solutions are so complex, so complicated— how do 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 ensure that, 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.

Arvid Viaene: There was so much in there. It’s like you say— there are six or seven questions I want to ask.

First of all, I think it’s like you say, the compliance went up to nearly 100% from, like, 64%, which is a really big success because that’s already— you know, there was no full compliance for a variety of reasons.

Then there was a lower cost to industry. Maybe my first question is, did the industry expect it would be lower cost, or did they have some premonition that some people could do it more efficiently? Or was there a lot of skepticism or hesitancy among companies? For example, in the EU ETS, companies always think it’s going to be this massive cost increase. Right? They’re worried about a massive cost increase in their competitiveness. So was there some sense that this would be the case?

Kaushik Deb: 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.

So Surat was just the textile cluster; Maharashtra is going to cover the electricity, steel, cement, pet-chem, pharmaceutical, refining sectors. So— really much more diverse, and huge— I mean, really huge, huge industrial units.

Arvid Viaene: That is a big range.

Kaushik Deb: And as it happens, every time you take a new solution— a policy regulation— to any industrial group, there is an inherent resistance to saying that, hey, we’d like to 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 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, became so central to having folks in industry come on board in the market. For example, there are industrial units who are using natural gas.

So now SO₂ 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 one very big economic argument of how we brought industry on board.

But the second part is slightly more nuanced and something that you 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 would 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 creating a mechanism where you are able to meet that standard without having to be completely shut down.

Arvid Viaene: Yeah.

Kaushik Deb: So the folks in industry— the way they 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.

Arvid Viaene: Yeah.

Kaushik Deb: But now the market has created an opportunity where we are together coming up with a cooperative solution which meets the regulator’s objectives as well as allows me to operate in an environmentally much more benign environment. So classically, we always think of markets as being competition and an adversarial outcome.

But now you have to start thinking of markets in this situation as something that 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.

Arvid Viaene: Yeah, it almost sounds like— the way you describe it— otherwise there’s this audit: “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 and environmental teams are talking to each other like, how can we make money off of this?

Like, “Oh, what can we do?” It just changes the dynamic of the discussion versus dread. People like to make money in companies, so it’s using that for coming up with better solutions.

Kaushik Deb: I mean, we are kind of creating a commodity, right? We have essentially commoditized this— the entire thing that economists love to do: that if only we had a carbon price, this entire thing would have been solved.

Well, we are creating a mechanism where you are finding a price for a pollutant.

Arvid Viaene: Exactly. And then— one thing we briefly… So one thing I think is also interesting 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 what the plans are going forward. Because being the first, there are naturally a lot of things that can go wrong or have to be taken care of. Could you speak about that?

Kaushik Deb: So Gujarat was an exercise that Michael Greenstone and his colleagues started way back in 2008–09. And if I add up every year that went into getting Gujarat up and running, I can 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 ranged from finding the right legal language for the regulation to identifying which emission-monitoring devices will meet these standards, their installation and calibration protocols, vendors who’d 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 do 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 come and start mock trading, learning how the platform works, and everyone getting used to the fact that there is 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 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 over the last 15 years.

Fifteen 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— a 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 share with this.

Arvid Viaene: Well, first of all, I would say this— this to me sounds amazing. Like, if you took my economist’s training — like, when I was young, this— you know, when you were 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 the proven results, and you’re now doing it in other provinces.

Because I think 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 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 this development?

Kaushik Deb: So there’s— I mean, so this growth and this expansion that’s happening is both intensive and extensive. And let me draw that distinction. Once this experiment in Surat took off and delivered 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— markets— industrial effluents for them for two central effluent treatment plants. So water pollution is being dealt with 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. But having seen that success, Maharashtra— the neighboring state— the SO₂ market that I talked about is well underway to use this as a tool and a solution to deal with their industrial-emissions problems as well.

We’ve just signed a memorandum of understanding with another neighboring state of Gujarat, Rajasthan, to set up an SO₂ market for them. This was signed at the last World Environment Day earlier this year.

And initial conversations with some other states in India are also happening. But if I were to put all of these three states together— if this was one big SO₂ trading program— this would be probably the world’s largest cap-and-trade scheme, much bigger than the EU ETS 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 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 a move away from climate regulation and climate management, especially using economic instruments.

But I think once 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, the U.S.,

Arvid Viaene: Yeah.

Kaushik Deb: But what we are doing is showing that this is a tool that’s much more widely applicable in the developing world.

Arvid Viaene: Exactly. Because when I read it, it seemed like there was a lot of— if we go back in time, like 10–15 years— a lot of maybe skepticism that this would work. So why do you think those skepticisms didn’t pan out? Or why did it work, in some sense? Why did it better than expected?

Kaushik Deb: So part of the reason is just ideology. I mean, this idea that 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 did try and do that, this experiment showed that they work, and now it can be used and deployed a lot more extensively.

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 involved the inspector from the Pollution Control Board going to an 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 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 U.S.— there is a limit to how much capacity and how many people you can deploy to do this.

The cap-and-trade scheme that we’ve created and executed uses 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 24/7 basis. We use a data protocol that allows us to take an average of 15 minutes and use that as a measure of whether they’re meeting the standard or not.

But this has been transformative. This is the reason why any Pollution Control Board, or any emissions 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 their entire jurisdiction.

The second part of this is that in today’s day and age, having all of these networked 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 pretty much in a matter of weeks, and we can have a trading scheme run seamlessly on a continuous basis. This day, during 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.

Arvid Viaene: 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, you know, they get along. So are there some reasons you see— if I had an award, I would give it to Gujarat for the work they’ve done with the environmental— with the clean-air market. Is there something specific that triggered their openness or willingness to experiment with this natural market, or what led to collaboration?

Kaushik Deb: 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 as the basis of starting this discussion in Gujarat.

I think there were conversations that 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 jumped on the bandwagon.

Having said that, I think this has now made such a compelling case that 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 having elsewhere in the country and the rest of the world.

But I think what’s very, very important— and that’s central to my mission at EPIC— is 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 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 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 of those environmental regulators and those industrial units, without this necessarily being the current idiosyncratic process we have right now of doing this on a case-by-case basis.

Arvid Viaene: I think that’s a really great goal— exactly to have that offer ready, in the sense that people don’t necessarily need to listen to a podcast or news article, but it’s on everybody’s mind that this is naturally something you’d want to explore.

Kaushik Deb: And that’s— that’s the Emissions Market Accelerator that we will launch at New York Climate Week in September.

Arvid Viaene: I think I might just have to come to that just to see it at the next—

Kaushik Deb: I’d love to have you.

Arvid Viaene: This— I don’t know, this seems like the most exciting— anyway, you can see my passion for carbon markets. But I mean, I don’t have to tell you, probably. So—

Kaushik Deb: No, I mean, it’s completely infectious, and I know exactly why.

Arvid Viaene: It’s— the more— because I can even say, like, I did my PhD in 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 markets— theoretically they minimize the cost. It’s also conceptual.

Because I think the other point is there hasn’t— like, the scale and the results are just so conclusive that you’re like, oh, this is what we kind of thought would happen even in a market like this, but showing it so— so nicely.

So I think we’ve covered a lot, so maybe two last questions. And you can choose how you want to order them. First, 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. 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 the reasons that the academics were successfully supporting those developments?

Kaushik Deb: You see, because these are not traditional, classical academics sitting in ivory towers, 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 in complete reflection of what the environmental regulators need.

This is not a purely academic exercise, but a real-world exercise, and having our teams— 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 an SO₂ market instead of a PM market in Maharashtra is the fact that SO₂ travels. PM as a pollutant is heavier and 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 kinds of lessons, one has to make sure, are central in the design and redesign and the execution of the market.

The part that I think is also very, very important is that you have to make this entire process consultative and transparent. So you make sure that industrial partners, industry associations, the pollution regulators are all talking to each other and are not necessarily speaking at cross-purposes. 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— 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 norms or not, as the environmental regulator? As a financial regulator, is there any kind of financial irregularity that’s happening? Is there anyone who’s holding these permits or not?

So all of these stakeholders have to be able to have full visibility and transparency in the way the market operates. And you have to do this at every step of the market design and execution.

Arvid Viaene: Got it. 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 asked you— that’s still worthwhile mentioning?

Kaushik Deb: I think the most important part in terms of developing and executing something like this is that you 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 put in place a cap-and-trade scheme because monitoring and verification and monitoring compliance aren’t possible with the 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 imagine that there will be enough emission-monitoring capacity that you can build to carry out a cap-and-trade scheme. But if you have a cap-and-trade scheme, it 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 start designing the market.

The second part is also to think about the fact that we’ve come to a point— which we briefly talked about earlier as well— you 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 based on experiences from limited regulatory capacity. And that, I think, is central to how we should think about markets going forward.

Arvid Viaene: And that’s also a very exciting way to conclude— exactly that they’re now available and hopefully implementable in three months going forward.

Kaushik Deb: Inshallah.

Arvid Viaene: So thank you very much for coming on. I really enjoyed this, and thanks for taking the time.

Kaushik Deb: Thank you. Thank you for having me. And this was a really nice and interesting conversation. I look forward to more of these.

Arvid Viaene: Thank you.