Transparent Environmental Regulation and Industrial Performance

This project tests whether greater knowledge of pollution data, for regulators and for the public, can make regulation more effective in the Indian energy sector.

Growth in India has brought about a disastrous decline in environmental quality, so that the country now has some of the dirtiest air in the world. Analysis of air pollution shows that 660 million people in India live in areas exceeding national ambient air quality standards, and that, if all areas were brought into compliance, there would be an average 3 years increase in life expectancy. Can environmental regulation realize these gains? Despite stringent environmental laws, regulatory compliance in the industrial sector remains low. This project tests whether better information, for regulators and for the public, can make regulation more effective.

Two kinds of information on pollution: information for the regulator, and for the public, will be tested. The regulator currently collects information about plant pollution from relatively infrequent (up to once in a year or once in two years) visits to plants. This annual visit leaves a woefully incomplete snapshot of plant emissions and casts doubts on the reliability of the information collected, if plants can anticipate the visit. The researchers will experimentally improve this information by connecting a subset of plants to the regulator using continuous emissions monitoring systems (CEMS). The regulator may then take action more reliably against violating plants, and plants may be chastened to compliance. For the public, the researchers will test whether publicly disclosing information on pollution leads to lower emissions and better plant compliance. Public disclosure may pressure the most polluting firms to clean up their act. The researchers have split the original cross-cutting design with two treatments into two experiments, to test these hypotheses separately in two different Indian states. This change will enable stronger tests, with larger samples and better regulatory backing, for both experiments.

This project will provide a unique opportunity to implement and quantify the impact of such a regulatory regime, which would be of interest to national environmental regulators. The Maharashtra Board has significantly increased its effort to validate sampling data and to test the proposed rating scheme before public release. This emphasis recognizes that the regulator believes plants will care a great deal about their performance being disclosed, and that the pilot intervention may well be the basis of permanent policy change if found successful.