India is in a state of “air crisis” unprecedented in the history of the country. Thermal power plants, which are a major source of particulate matter and SOX and NOX emissions, have traditionally been monitored for air pollution via a command and control approach. However recent intervention by the Supreme Court of India on matters related to non-compliance with emissions standards by thermal power plants shows insufficient urgency in action even though air quality is one of the key contributors to poor public health as well as lower economic prosperity.

Evidence from both India and elsewhere indicates that emissions reductions can be achieved at significantly lower costs and with an improved probability of success by pursuing market-based alternatives instead of the traditional command and control methods. Therefore, in this short framing paper, we discuss three market-based alternatives. These include an emissions trading system, emissions portfolio obligation, and an emissions reduction surcharge. In the discussion of each alternative, we assume the total emissions reductions are identical across all of the options. We compare the advantages and disadvantages of each alternative.

The goal of this framing paper is to stimulate a robust discussion of the merits of these options for meeting India’s public health and economic development goals. The paper also includes a robust appendix that summarises the legislative and governance structures that apply to air emissions from thermal power plants.