This brief has summarised the evidence on the large economic and health costs of air pollution and made a case for policy intervention in the presence of the market and institutional failures that are typical of developing countries. The key question for policymakers, then, is not whether but how to effectively clean up the toxic air that is so widespread in the developing world. The evidence for developing countries remains sparse, but several lessons emerge from the literature:
- Air pollution is an economic issue with both direct and indirect economic costs through factors such as productivity, hours worked, and migration. Policymakers should build these effects into cost-benefit analyses when deciding between competing priorities.
- Policymakers can choose between market incentives and command-and-control policies to tackle pollution. Taxes and tradable permits are more cost-effective, but performance standards may be easier to implement. A mix of the two approaches may also be suitable in some contexts.
- Regardless of the choice of policy instrument, any effective approach needs to account for the mobile nature of emissions. Zoning restrictions can help ensure that emissions are concentrated in areas with low population densities, while regional and cross-country coordination can mitigate pollution spillovers.
- Policymakers need to innovate to come up with solutions to the specific institutional failures in their contexts. Examples include: information campaigns on the harmful effects of air pollution, and public emissions monitoring and rating programmes to increase transparency; improved incentives for third-party auditors and increased discretion for inspectors to strengthen monitoring and enforcement performance of regulators; and reforms to land titling and increased access to credit to increase incentives for individuals to invest in environmental improvements.
- Interactions between multiple market failures can cause certain well-intended reforms to backfire. Policymakers should be ready to experiment, monitor outcomes, and iterate on policy reforms as needed – research partners can help with this.