Environmental Benefits and Cost Savings Through Market- Based Instruments: An Application Using State-Level Data

This paper develops a methodology for estimating potential cost savings from the use of market-based instruments (MBIs) when local emissions and abatement cost data are not available. The paper provides estimates of the cost savings for a 50% reduction of particulate emissions in India’s five main industrial states, as well as estimates of the benefits from doing so. The estimates are developed by applying World Bank particulate intensity and abatement cost factors to sectoral output data. The estimated costs savings range from 26% to 169% and the benefits are many times greater than the costs even without the use of MBIs. The paper concludes by commenting on the relative difficulty of implementing reductions by market-based instruments and conventional command-and-control regulations.