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MIT School of Humanities, Arts and Social Sciences - Great Ideas Change the World

THE HUMAN FACTOR

Incentives Matter
Working with the Tata Center, two MIT economics students are testing projects to reduce industrial pollution in India

 


"Even when you have great technology, you need some incentive for people to reduce pollution. We need to find ways to make the benefit of reducing pollution felt by the ones who are paying the cost of reducing pollution."


 

In India, industrial development and rapid urbanization have far outpaced efforts to protect the environment, resulting in levels of air and water pollution that pose major threats to human health. Within MIT's School of Humanities, Arts, and Social Sciences, two doctoral students in economics are working to address this challenge by generating incentives for polluters to change their ways.

Third-year PhD student Ariel Zucker is developing an environmental rating program for industrial smokestack emissions, and fourth-year PhD student Nick Hagerty is designing a cap and trade program intended to reduce pollution from industrial wastewater. Both projects were developed through MIT’s Tata Center for Technology and Design, whose mission is to address the challenges of resource-constrained communities.

 

Environmental Rating Program | Ariel Zucker


India has high environmental standards, but its regulations are not yet well enforced. "I think this project will give industry groups some incentives to start being better citizens. We see a lot of room for small, low-cost improvements that can have a big impact on pollution."

— Ariel Zucker, MIT PhD candidate, Economics


 

"Even if you have great technology, you need some incentive for people to reduce pollution," Zucker says. India has high environmental standards, but its regulations are not well enforced. Since many companies simply don't bother to adopt pollution control measures, she says, "You need some way to make the benefit of reducing pollution felt by the ones who are paying the cost of reducing pollution."

Zucker is working with a team of professors from Harvard, Yale, and the University of Chicago to tackle this issue by giving companies a public reputation for environmental performance — for good or ill. The team is collecting data on stack emissions from about 100 industrial plants in the state of Maharashtra and ranking each plant based on the amount of particulate matter it is releasing into the atmosphere. They plan to assign each plant a star rating and publish the ratings online.

"Right now for whatever reasons the marginal cost of abating pollution is higher than the marginal benefit, so what we’re doing is attacking this," she says. "It’s feasible and pretty low-cost for many of these industries to come closer to compliance. If it’s not worth their reputation to do it, they won’t do it. If it is they will."

Zucker's team is now meeting with industry leaders to get their feedback on the project. The ratings system is expected to go into operation in the spring, after which the group will continually monitor smokestack emissions to evaluate the project's impact.

"I think this project will give industry groups some incentives to start being better citizens," Zucker says. "We see a lot of room for small, low-cost improvements that can have a big impact on pollution."
 



Cap and Trade Program | Nick Hagerty
 

"Economics shows why people and firms end up doing things like polluting even when they know that it's destructive — and how we can restructure incentives in a way that even self-interested groups will end up doing the right thing."

— Nick Hagerty, MIT PhD candidate, Economics




Hagerty's project — developed with the same team of professors — provides a financial incentive to polluters to clean up their act by enabling companies to work together to meet pollution reduction goals. The strategy challenges the assumption that pollution is the natural cost of economic development and that reducing pollution necessarily erodes growth.

"What if there were a way to transcend this tradeoff — to reduce pollution without killing off industry? We’ve seen in other parts of the world that there is a tool that can achieve that: it’s emissions trading, or cap and trade," Hagerty says.

Working with an environmental regulator and a local industrial association, Hagerty and the team plan to monitor the industrial wastewater released by about 110 factories that share a treatment facility in the state of Gujarat. They will then provide plants with pollution permits and enable the companies to trade these among themselves.

This cap and trade strategy makes it possible for a facility that faces high cleanup costs to pay another facility—for example, one with a more modern, cleaner operation — to take on an additional burden of emissions reductions so that the group as a whole can meet more stringent goals.

"In this scheme we don’t as much care who is producing pollution; we just want overall pollution to fall," Hagerty says. "This provides an incentive for firms collectively to figure out where the least expensive pollution reductions are going to come from."


The power of sociotechnical solutions

Both of these MIT Economics/Tata Center projects point to the value of incorporating thinking from the social sciences into environmental remediation projects.

"Incentives matter for how people behave," Hagerty says. "What economics can show is why people and firms end up doing things like polluting even when they know that they’re destructive — and also how we can restructure incentives in a way that not only altruistic, but even self-interested, groups will end up doing the right thing."

The pilot wastewater cap and trade system in Gujarat is expected to begin operation in April 2016. Once the system is up and running, researchers will conduct an impact evaluation to see how well the project worked to reduce industrial water pollution. If the pilot is successful, the system could be expanded to other industrial operations throughout the state and eventually throughout India, Hagerty says.

 

 

 

Suggested Links

MIT Economics

Ariel Zucker webpage

Nick Hagerty webpage

Tata Center for Technology and Design at MIT
The Tata Center, a part of the MIT Energy Initiative, is training engineers and entrepreneurs to tackle the challenges of resource-constrained communities in India and the developing world, inventing solutions designed to serve human needs.



About the Human Factor Series
Solving the economic, political, cultural dimensions of global challenges

MIT as a whole is working to advance solutions to global challenges in several broad thematic areas, including: Innovation, Education, Environment, and Health. For example, How can we reduce morbidity and mortality in cancer cases? How can we halve carbon output by 2050? How can we provide quality education to all people who wish to learn?

Framing the questions — As the editors of the journal Nature have said, framing such questions effectively — incorporating all factors that influence the issue — is a key to generating successful solutions. Science and technology are invaluable tools for innovation, and to reap their full potential, we also need to articulate and focus on solving the many aspects of today’s global issues that are rooted in the political, cultural, and economic realities of the human world.

Sociotechnical collaboration — With that mission in mind, the Human Factor series highlights research and perspectives on the human dimensions of major global issues. Contributors describe social science, arts, and humanities research that generates positive change in the world — social innovation — and they share ideas for cultivating the sociotechnical collaborations needed to solve the major civilizational issues of our time.

 

 

 


Story prepared by MIT SHASS Communications
Emily Hiestand, Kathryn O'Neill
Photographs of Zucker and Hagerty: courtesy of the students
Illustrations from iStock