Sustainability Science Program

Overview

Governance Innovations for Sustainable Development

Overview

The sustainable development problem

Industry has fueled rapid growth in many developing countries and has greatly increased living standards, but at a steep environmental price: pollution has led to large negative health and economic impacts in countries such as India (e.g. MoEF 1999). Looking forward, the largest increases in emissions are likely to come from developing countries as they continue to aim for rapid growth. While the pollution spillovers from such growth are global in nature, climate change will affect developing countries most, with lower agricultural yields, lower growth, and increase mortality (World Bank 2010; Guiteras 2009; Dell, Jones and Olken 2008; Burgess et al. 2011).

In many developing countries, existing regulation to control the adverse environmental effects of industrial pollution has proven inadequate. Regulatory capacity must be increased to ameliorate the effects of the tradeoff between growth and the environment. Additional effective regulatory capacity is unlikely to come by adding more inspectors, since hiring budgets are limited and the efficacy of inspections alone is questionable. So it is of pressing importance to test how self-enforcing schemes from developed countries and smart regulatory design can be applied to create sustainable development in low-income countries. Emissions trading systems and transparency initiatives are two examples of such self-enforcing schemes.

Research questions

Is environmental harm an inevitable byproduct of growth, or can it be checked by innovative, transparent regulation? What governance innovations can complement scarce regulatory resources to improve environmental quality? Can transparency, as provided by the media and NGOs, serve as a self-sustaining force to complement governance initiatives in improving environmental outcomes? How can auditing systems be optimized to achieve environmental goals in countries with weak governance? What regulation methods are best at controlling particulate matter air pollution in densely populated urban settings? How can wastage and inefficiency be disincentivized in the middle class?

Solving a practical problem of sustainable development

As detailed in the profiles below, each project in this initiative addresses a concrete, real-world policy problem, in addition to attempting to formulate innovative and scalable regulations. These practical problems include excessive pollution at industrial plants, the use of coal over renewable energy sources, the use of dangerous biofuels in poor households, dishonesty among low-level environmental bureaucrats, pollution and health problems in slums, and energy wastage and the use of environmentally damaging consumer products in middle-class households.

Research strategy

The strategy for the research under this agenda is to conduct rigorous large-scale impact evaluations of innovative regulatory schemes that can be used to directly inform public policy in low-income countries.  Several studies test or apply knowledge from successful regulation in developed countries for application to a developing country context.   Other studies in the initiative are being implemented in close collaboration with government and private partners in low-income countries. Through direct involvement of the relevant stakeholders, there are built-in avenues for scale-up if these interventions are proven successful. Partners will also be able to share first-hand with other counterparts about the success of the research, further building a strong policy-impact strategy. A special focus in the coming year will be how transparency initiatives and regulation interact. We plan for research results to be disseminated at the policy forums discussed below. The work of the Governance Innovations for Sustainable Development initiative is being carried forward with a focus on India through the Governance Innovations for Sustainable Development: Building Public-Private Partnerships in India initiative. The plan for the specific research projects is as follows:

Project 1:
Using New Technology to Increase Transparency and Improve Environmental Regulation
Michael Greenstone, Rohini Pande, Nicholas Ryan, and Anant Sudarshan

This project uses a crosscutting randomized controlled trial design to assess the effectiveness of the release of information in improving the enforcement of environmental laws in India. Pollution control boards in India monitor hundreds of thousands of plants each year, but almost no monitoring is continuous and none of the resulting data is publicly released. Meanwhile, India’s average particulate matter concentration of 206.7 µm/m3 is several times the current national standard of 60 µm/m3. In the most recent year with comparable data, the mean ambient level of total suspended particulates was about five times larger in India than in the US (Greenstone and Hanna 2010).

We will test two interventions: one at the collection and the other at the dissemination stage of the flow of information through government. At the collection stage, a randomly selected treatment group of plants will be put on continuous emissions monitoring systems (CEMS) technology that reports pollution readings directly to the regulator, thereby bypassing corruptible low-level officials to a significant extent. At the dissemination stage, we will cross-randomize across both plants on CEMS and plants still on traditional, manual monitoring on whether the information on their pollution readings is released by the regulator to the public. The experiment will be conducted jointly with the Maharashtra Pollution Control Board (MPCB) in a sample of industrial plants selected for their potential for high levels of air pollution emissions (due to their size and industrial processes or products).

Both treatments represent large increases in transparency over current practice at their respective stages of information processing. CEMS instruments need to be calibrated by hand, but thereafter report continuously to the head office of the regulator without human intervention. Bypassing the instrument or intentionally throwing off the calibration will typically give a signal to the monitoring party. Manual monitoring, by contrast, occurs at most several times each year (usually far less) and depends entirely on the skill and uprightness of the field staff from under-resourced SPCBs (CSE 2009). CEMS treatment therefore not only hugely increases the amount of information available to the regulator but also makes distorting or underreporting more costly for plants and low-level officials. Further, it can reduce the wrangling or litigation between regulators and plants over claims that the manual readings were contaminated or unrepresentative.

This project will also represent the first application of continuous emissions monitoring to regulation of particulate matter emissions in developing-country contexts and the first application to relatively small-scale industry anywhere in the world. Furthermore, the information release treatment will be, to our knowledge, the first publicly available data on plant-level pollution in India. The project will run until the end of 2013. A baseline survey will begin in August 2012 and be completed over the next three months. Thereafter industry will be mandated to phase in installation of continuous emissions monitoring systems. Evaluation will be concurrent and industries will come online as they install equipment. Early results are expected to become available by end 2013. The successful implementation of a CEMS is the first stage of enabling a viable Emissions Trading System (ETS).

Project 2:
Can Regulation Reduce Household Use of Polluting Fuels?
Margaret McConnell

Household behavior has an important impact on emissions. Close to half of households in the developing world use traditional fuels as their primary source of energy. The World Health Organization (WHO) World Health Report 2002 estimates that indoor air pollution accounts for almost 4% of lost years of life in the developing world. Moreover, indoor air pollution can have serious economic consequences (Duflo, Greenstone and Hanna 2008). An alternative to biofuels that offers clear health benefits would be the adoption of the more modern Liquid Petroleum Gas (LPG) fuel stoves. However, while households have access to many alternative fuels, conversion to modern fuel technology is often slow.

A crucial component of the transition from traditional fuel to modern fuel technologies is the ability of supply channels to make modern fuel affordably available to a wider portion of the population. Suppliers may assume that the poor have low demand for costly improved fuel technologies and may face low incentives for experimenting with new delivery channels for poor communities. Better regulatory practices could alleviate the supply-side barrier to the adoption of modern energies by ensuring they are both affordable and widely available. In order to achieve this objective, governments could directly subsidize household purchases of alternative energies or provide grants for improving the delivery of alternative energies in under-served areas. However, without corresponding changes in demand for alternative energies, expanding supply may not produce sustainable changes in energy practices.

In this project, McConnell is examining how to make the most effective use of subsidies (on both demand and supply side) in encouraging households to change their cooking behaviors. In particular, she will consider the potential effectiveness of subsidies to modern fuels, especially in urban areas where modern fuels are readily available. Her work will provide valuable information to regulators about the effectiveness of fuel subsidies in encouraging the adoption of modern fuels. 

Many households in poor areas use a variety of different fuels simultaneously, switching from cooking with traditional fuels such as charcoal and wood to modern fuels like LPG in a single day of cooking. However, most data collected around household cooking patterns collects information only about households’ primary fuel source. In order to understand why households use mixed fuels, better data is needed to understand how price, availability and convenience contribute to the choice of fuel source. In pilot work to be conducted in urban Accra, Ghana, McConnell will collaborate with Innovations for Poverty Action to conduct two simultaneous weekly surveys for a period of three months. The first survey will be conducted with households to measure the entire picture of the fuel purchases and use. The second will be with suppliers of charcoal, LPG and wood to measure changes in availability and price. Survey work is expected to commence in August 2012.

Project 3:
Using Carbon Taxes in the Presence of Market Power
Gregory Lewis

Economists typically project the effects of environmental regulation under the assumption that firms are perfectly competitive. In this study, we examine whether and how pollution regulation can make the market more competitive. The project will consider the effect of a carbon tax in a typical electricity market. Since carbon taxes raise marginal costs at coal plants more than their lower emitting competitors, they reduce the market power of these large plants, and on average the pass-through rate is lower than it would be under perfect competition or symmetric oligopoly. By estimating a structural model of bidding in electricity auctions in Spain, we will compute the pass-through rates under the current market structure as the price of European carbon permits varies, and the counterfactual pass-through rate under perfect competition. We will ask how much the electricity price will increase due to the cost of regulation (for a fixed tax).

Major developing countries are taking different approaches to lower carbon emissions. China is reportedly considering a low carbon tax to start in 2013 under its twelfth five-year plan. By contrast, India last year instituted a “coal tax” which directly targets coal production and imports, rather than taxing carbon emissions. Our study will also examine the effects of these asymmetric taxes, which hurt one kind of producer relative to another, and analyze the relative costs and benefits of these different policy approaches.

We have thus far developed a theoretical framework to understand these issues, and derived a number of comparative static results. These indicate the possibility of the kind of pass-through effects that we have outlined above. We are now working on using discontinuities in carbon permit prices in Spain to see if the bids submitted by individual generators change as predicted by the theory. Our plan is to test the theory rigorously using non-parametric methods before moving on to the structural modeling exercise.

Project 4:
Can Environmental Certification Programs Reduce Pollution in Global Supply Chains?
Michael Hiscox

A possible complement to government regulation to reduce pollution is voluntary environmental certification and labeling of products. The largest and most prominent environmental certification and labeling initiatives are those managed by Rainforest Alliance, the Forest Stewardship Council, and the Marine Stewardship Council, along with the organic certification programs managed by government agencies. A growing number of certification and labeling programs address carbon emissions and measure carbon footprints. This type of environmental labeling has some obvious attractions: it is a voluntary, market-based approach, so producers and retailers can opt in or out depending on whether they think it will benefit them, and consumers can choose whether or not they wish to support any particular environmental program by buying the labeled products. Green labeled goods are an increasingly common sight in supermarkets, cafes, restaurants, and hardware and home furnishing stores. Many large US retail chains including Wal-Mart, Target, Whole Foods Market, and Home Depot have made commitments to market FSC, MSC, and Rainforest Alliance Certified products. It remains unclear, however, whether these certification programs actually reduce pollution in global supply chains and, if they do, whether enough consumers are willing to pay extra for labeled goods for these initiatives to have a substantial impact on environmental outcomes.

Michael Hiscox will build on his existing work on certification of labor standards by launching field experiments in low income countries to examine whether and how producers who participate in certification programs improve environmental standards and whether consumers reward such behavior by paying higher prices for certified products.

Project 5:
Is There an Energy-Efficiency Gap? Measuring Returns to Efficiency with a Field Experiment in India.
Nicholas Ryan

Policymakers favor energy-efficiency improvements as a near-term means of carbon emissions abatement. Reports of the Intergovernmental Panel on Climate Change (IPCC) have long stressed the importance of energy efficiency in any climate change mitigation strategy, and the head of the UN Climate Change Secretariat recently hailed energy efficiency as "the most promising means to reduce greenhouse gases in the short term.”1 This favored position is based on the poorly tested idea that energy-efficiency investments are a low-cost or even no-cost form of abatement, as energy savings make such investments profitable for firms.

Our study tests this idea rigorously by conducting a randomized controlled trial of industrial energy audits in India, a fast-growing developing country whose future emissions will be important for global climate change. The project will be carried out among small, energy-intensive industrial plants in the state of Gujarat; their technology choices and energy use will be tracked against a comparable group of control firms. The study will measure the relation between engineering projections for energy savings and actually achieved savings, and also test two leading economic hypotheses for why industry may not adopt technologies that appear privately profitable.

In the energy audit intervention,half of a total sample of interested factories will receive energy audits, during which auditors will suggest investments to improve the efficiency of energy use and prioritize such investments by their expected economic return. This will test the pervasive hypothesis that two types of informational market failures may prevent the adoption of efficient technology: 1) asymmetric information between firms and service providers may deter adoption of efficient technologies, and 2) information about efficiency may be undersupplied in the market because it is a public good. The energy audit intervention overcomes these obstacles by providing information about energy efficiency, specific to each plant and free of cost. In the energy manager intervention, half of a sample of audited plants will be randomly chosen to receive energy managers, skilled engineers who will stay on in the plant part-time for approximately three months to implement audit recommendations. Energy managers will liaise with service providers, oversee equipment installation, and train plant staff on new technology. This will test the relation between skilled labor and technology adoption. If plants are skill-constrained, then those provided energy managers should adopt a broader set of technologies and save more energy than those provided audits alone. Study results will indicate what government policies might cost-effectively promote energy efficiency.

New Transparency Studies Supported by the Governance Initiatives

In the coming year, a special emphasis will placed on studies on transparency as a tool for sustainability. The research on this agenda is focused on India and will be continued in years to come by the In the coming years, the work of the Governance Innovations for Sustainable Development initiative will be carried forward with a focus on India through the Governance Innovations for Sustainable Development: Building Public-Private Partnerships in Indiainitiative.

Project 6A:
Truth-telling by Third-party Auditors: Evidence from a Randomized Field Experiment in India
Esther Duflo, Michael Greenstone, Rohini Pande, and Nicholas Ryan

The research team is in advanced stages of analysis of a two-year randomized field experiment on environmental audits of industrial plants conducted in collaboration with the Gujarat Pollution Control Board in India. For a set of plants, the financial relationship between auditors and client plants was severed, in that auditors were randomly assigned to plants and paid from a central pool of funds. Random backchecks by independent surveyors allowed us to observe “true” pollution outcomes. The study produced two main findings. First, auditors who faced the standard incentives in the control group systematically underreported pollution readings relative to the truth. They falsified reports in a targeted fashion, reporting many plants as just meeting regulatory limits. Second, the reports of auditors for the treatment group of plants were statistically equal to the truth. Notably, many auditors worked simultaneously in the treatment and control groups of plants, and the results were evident when we compared the reporting of the same auditors across the two sets of economic incentives.

Nicholas Ryan presented the results of this study to a group of international scholars and policymakers at the 2012 San Servolo Workshop, which sparked substantial interest in the audience of how to apply the research findings. An initial working paper on the first set of results from this study has been presented widely and will be submitted to a top peer-reviewed economics journal. Policy briefs have been submitted to the International Growth Centre and will be posted on their website.

Furthermore, this study has led to interest from the Gujarat State Pollution Control Board in permanently incorporating the results of the study into audit policy, and from the Maharashtra State Pollution Control Board, in developing a more systematic and rational way of allocating their monitoring and inspection resources. The Initiative will work with these partners to design and implement policy recommendations based on this study. In Gujarat, we will especially target the permanent adoption of audit reforms—such as random assignment of auditors, central auditor payments and backchecks of auditor performance—that we have found to be effective in improving reporting and reducing pollution.

Project 6B:
Can Transparency Improve Service Delivery in Urban Slums?
Abhijit Banerjee, Rohini Pande, Michael Walton

Part of a larger suite of studies on quality of life in Delhi’s slums, this project examines the channels through which information sharing can stimulate public service delivery. Despite making up a sizable proportion of the population, India’s urban poor have been largely unable to translate their political weight into effective public service delivery and other economic gains. As a result, quality of life in slums is low: in a 2010 survey in Delhi that will serve as our baseline, 88.4% of respondents had overflowing sewers near their tenements and 44% had faced non-availability of water for multiple consecutive days. This phenomenon is not unique to India: the quality of social service delivery remains poor in most low-income democracies (Chaudhury et al. 2006; Banerjee et al. 2008). Moreover, the incidence of corrupt and criminal politicians also remains high (Banerjee and Pande 2009; Golden and Tiwari 2009).

We make use of three rounds of public service audits collected in Delhi slums 2011-12. Preliminary results find a significant association between the quality of toilet and garbage facilities and childhood nutrition. Holding wealth constant, families living near a clean public toilet have better-nourished children. Our results suggest the presence sanitation services that are low in quality has no positive influence, but by investing in the quality and cleanliness of toilet and garbage facilities, health—and hence development outcomes—may be improved.

This prong of the study looks at how information affects politician behavior. We aggregated information from the service audits at the constituency level and sent report cards to a random group of Members of Legislative Assembly (MLAs) and Municipal Corporation of Delhi Councilors (MCDs). We find that doing so is associated with an increase in toilets closing, but also improvements in those toilets that were kept open. Provision of report cards is also associated with increasing problems of severe garbage overflow in dumpsters—an apparently perverse effect that will be explored further. The effects of report card distribution differ between MLAs and MCDs, suggesting different responses or methods of influence on service delivery. These results are preliminary. Any treatment effect will be magnified in the lead up to the 2012 elections, and we will be better equipped to isolate effects in our analysis of the third round of audits.

Project 6C:
Improving Household Energy Efficiency through Information and Incentives
Anant Sudarshan


The generation of electricity is the single largest contributor to anthropogenic carbon emissions both in the US (US Emissions Inventory, EIA) and in India. Power generation also contributes to particulate air pollution in India as well as water pollution from coal plants. It is the residential sector (and almost entirely the urban middle and upper class) that has driven the demand for more electricity in India, and policy initiatives that manage this growth are therefore greatly needed. Unfortunately, electricity consumption habits in these households appear to be mirroring those in the developed world, with rapidly growing demand, limited adoption of energy efficiency, and limited attention to conservation behaviors. Tackling this problem is made all the more difficult by the lack of political will to raise electricity prices is concerned and the limited adoption of other energy efficiency programs.

This study investigates whether simple behavioral techniques and direct provision of better information can reduce the energy consumption patterns of urban middle class households in India. The study will seek to quantify whether households can be induced to adopt energy efficient appliances and energy conserving behaviors if provided 1) weekly report cards on their electricity consumption including comparisons of own consumption levels with average consumption in similar homes, 2) information on ways to save electricity, and/or 3) small financial rewards linked to total electricity use. The study will be carried out over a six-month period in a randomly selected set of households in a typical new urban residential complex in a Delhi suburb. We will compare total electricity use of households provided weekly information (as described above) and compare this to a control group of similar households not provided this information.

The effectiveness of such techniques is important to quantify because they may lead to immediate and politically feasible public policy interventions aimed at managing energy use in developing countries. This study builds on recent studies that have evaluated similar programs (albeit in developed-country contexts and typically in small samples) and found them effective. To the best of our knowledge however, no such intervention has ever been evaluated in a developing-country context. In addition, this project will provide the first rigorous experimental evidence on the relative effectiveness of behavioral and traditional financial incentives. The provision of report cards and financial incentives is presently ongoing and will continue through the Delhi summer. Early results will be available in November 2012.

Outreach

The Governance Initiative was the focus of the 2012 San Servolo Workshop on Grand Challenges of Sustainability. Held May 28-29 on San Servolo Island, Venice, the Workshop, Industrial Pollution, Regulation and Growth: Governance Challenges and Innovations, attracted leading experts from the fields of policy, science, and business for an intensive two-day session. The goal was to identify possibilities for innovative regulation of industrial pollution and share evaluation experiences on new innovations, especially on how the government can channel the enterprising potential of the private sector. Major themes that emerged from the sessions included the importance of high-quality data and monitoring, the idea that effective regulation requires multi-stakeholder engagement (government, civil society, and industry), the efficiency potential of market-based mechanisms, and the value in piloting and evaluating new innovations. Our flagship study on the randomized evaluation of a CEMS and ETS in India was the focus of one of the Workshop sessions.

Partners

Several of these projects are being conducted in partnership with our in-country research partner, Abdul Latif Jameel Poverty Action Lab (J-PAL) South Asia at the Institute for Financial Management and Research (IFMR), based in Chennai, India, which has a longstanding reputation as the premier institution undertaking randomized controlled evaluations of development projects. Additionally, the project Truth-telling by Third-party Auditors: Evidence from a Randomized Field Experiment in India is being conducted in close collaboration with the Gujarat Pollution Control Board, and Using New Technology to Increase Transparency and Improve Environmental Regulation, in collaboration with the Maharashtra Pollution Control Board. Both are part of a larger suite of studies that was initiated at the behest of, and with the full cooperation of, the Indian Ministry of Environment and Forests (MoEF). In her project on household fuels, Margaret McConnell is working with Innovations for Poverty Action (IPA), an NGO dedicated to conducting randomized evaluations that maintains an office in Ghana staffed with a mix of local and international researchers.In the project Is There an Energy-Efficiency Gap? the J-PAL South Asia staff, led by Harsh Singh, will supervise the implementation of the energy endline survey by our local technical partners. The team working on Can Transparency Improve Service Delivery in Urban Slums? collaborates with Satark Nagrik Sangathan, a Delhi-based citizens’ group with a mandate to promote transparency and accountability in government functioning and to encourage active participation of citizens in governance. Finally, the study on Improving Household Energy Efficiency through Information and Incentives was developed with the Orange County Property and Asset Management Society (operated by Jones Langlaselle Inc.).

Endnotes

  1. http://www.reuters.com/article/2007/08/28/environment-climate-investment-dc-idUSL2836333720070828

References

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Banerjee, A. V. and R. Pande (2009). Parochial Politics Ethnic Preferences and Politician Corruption. Faculty Research Working Papers Series: John F. Kennedy School of Government.

Burgess, R. O. Deschenes, D. Donaldson, and M. Greenstone (2011). Weather and Death: Public Policy Challenges for South Asia. Mimeo, MIT.

Central Pollution Control Board (2009). Ambient Air Quality Standards. Available at http://cpcbenvis.nic.in/airpollution/standard.htm (last accessed 27 June, 2012).

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Chaudhury, N., J. Hammer, M. Kremer, K. Muralidharan, and F. H. Rogers (2006). Missing in action: Teacher and health worker absence in developing countries. Journal of Economic Perspectives. 20(1), 91–116.

Dell, M., B.F. Jones and B.A. Olken (2008). Climate Shocks and Economic Growth: Evidence from the Last Half Century. National Bureau of Economics Research, Working Paper 14132.

Duflo, E., M. Greenstone, R. Pande and R. Hanna (2008). Cooking Stoves, Indoor Air Pollution and Respiratory Health in Rural Orissa, India. Economic and Political Weekly, August 2008.

Golden, M. A. and D. Tiwari (2009). Criminality and malfeasance among national legislators in contemporary India. Mimeo, UCLA.

Greenstone, Michael and Rema Hanna. (2010). Environmental Regulations, Air and Water Pollution, and Infant Mortality in India. NBER Working Paper #17210.

Guiteras, R. (2009). The Impact of Climate Change on Indian Agriculture. Mimeo, University of Maryland.

Ministry of Environment and Forests (1999). State of The Environment Report, Chapter 1. Available at http://www.envfor.nic.in/soer/1999/chap1.html (last accessed 27 June, 2012).

World Bank (2010). World Development Report: Development and Climate Change.