With the World Bank loosening its purse strings to the tune of $0.5 million, India launched its first pollution cap and trade scheme on Thursday.

The pilot scheme will cover air pollution caused by 1,000 industries in Tamil Nadu, Maharashtra and Gujarat, and could have a significant impact on public health.

Market regulation

The scheme involves capping the total pollution by these industries, issuing permits to each industry on how much pollution it can individually emit in the air, and then allowing them to buy and sell those permits. This means cleaner units will make a profit by selling permits, while polluting ones will have to shell out money to meet the standard. Essentially, the scheme allows the market to regulate pollution rather than sending out an army of government regulators to do the job.

This scheme covers only particulate matter — tiny particles of smoke, dust and industrial emissions that hang in the air, causing air pollution and health woes. But the same technical details could later be expanded to include greenhouse gas emissions that impact climate change.

A programme to monitor pollution on a real-time online basis is the first step that could be rolled out by year-end, and will be complete in the next 18 months.

Trading could begin in early 2012. While the total cost of the scheme is estimated at Rs. 360 crore, the World Bank has decided to sanction a grant of Rs. 2.34 crore — just over $0.5 million — for the preliminary design phase, which will be completed by August.

It is still uncertain who will pay for the remaining bulk of the scheme.

Monitoring system

The government proposes to ask industries to shell out half the cost of installing the costly monitoring systems and take on the complete burden of maintenance.

This will reduce the Centre's budget to about Rs. 142 crore, according to the project proposal.