Air pollution in India: New findings on how to reduce crop burning

Air pollution is the top preventable cause of mortality in many low- and middle-income countries, including India. A major source of air pollution in some agricultural regions is seasonal fires caused by farmers burning crop residue, which also harms neighboring areas due to wind flows. This represents a major externality – an indirect cost to the public arising from individuals’ actions – and one the Indian government has introduced multiple measures to reduce, with limited efficacy.  

Can Payments for Ecosystem Services (PES), whereby cash transfers are given out conditional on not burning, improve on the status quo? Rohini Pande and coauthors used a randomized controlled trial to test Payments for Ecosystem Services contracts of different designs to reduce crop burning in northern India. Relative to standard PES, where payments are only made if farmers don’t burn, providing partial upfront payments is more effective at reducing burning.  

In northern India, poor air quality is estimated to reduce life expectancy by six to nine years for half a billion people – one of the world’s largest pollution-related health burdens. An important contributor to this negative environmental externality is smoke from farmers’ fires to clear their fields of crop residue, mainly rice stock, after each harvest.  

“Crop residue burning is extremely widespread, not just in India – where millions of farmers do it every year – but also in large parts of East Asia and Southeast Asia,” said Namrata Kala, an associate professor in applied economics at the MIT Sloan School of Management, in an EGC interview. “And if you look at satellite imagery, aggregate residue burning is increasing over time. It's a phenomenon that affects billions of people across the developing world.” 

Policymakers have long sought to reduce crop burning and the air pollution it produces. In recent years, the Indian government has adopted a punitive approach: since 2015, burning residue has been banned and punishable by fines. However, implementing penalties across jurisdictions has proved challenging, given that smoke spreads freely, and a powerful farmer lobby has made the ban politically costly to enforce.  

Payment for ecosystem services (PES) contracts represent an alternative approach to reducing crop burning. Unlike fines and penalties, they are not politically or logistically challenging to enforce. And unlike equipment subsidies, PES contracts target outputs, with farmers free to choose the inputs to obtain that output. 

In a paper forthcoming in the American Economic Review: Insights, Rohini Pande and coauthors Kelsey Jack of U.C. Santa Barbara, Seema Jayachandran of Princeton University, and Namrata Kala analyze the results of an RCT that explored the effects of alternative PES contract designs. 

“I’ve always been interested in governance issues around environmental regulation,” said Pande, the Henry J. Heinz II Professor of Economics and Director of the Economic Growth Center. “Crop burning had already been made illegal, but clearly this had proven hard to enforce. I was interested to see how you could use carrots rather than sticks.” 

The research team randomized 171 Punjabi villages into three groups: one that was offered standard PES contracts, with payments conditional on ex-post verification that farmers did not practice crop burning; a second that was offered PES contracts where part of the payment was given to farmers upfront and unconditionally, with the remainder disbursed upon verification that burning did not take place; and a control group without PES contracts. For standard contracts, the payout amount was increased from 800 to 1,600 Rupees (around $9 to $20 USD) for some villages to assess the importance of payment amounts, while for upfront PES contracts, the researchers varied whether the upfront payment was 25% or 50% of the total 800 Rupees. To monitor compliance, field staff inspected farmers’ plots, and remote sensing measures were used to monitor control group and non-enrolled treatment group farmers. 

The researchers found that despite receiving smaller conditional payments, farmers with upfront PES contracts had 10 percentage points higher contract compliance rates than those with standard PES contracts. Farmers offered upfront PES contracts burned 7.7 to 11.5 percentage points less, compared to the control group.  

By contrast, standard PES contracts had no effect on burning compared to the control group, suggesting that farmers who complied in this group would not have burned even if the standard PES contract had not been offered to them. Remote sensing measures of burning confirmed these results. Self-reported equipment use aligned with these findings as well. Farmers in the upfront PES group were 9.5 percentage points more likely than those in the control group to report removing crop residue with balers (machinery used to clear residue in a less damaging way) while farmers in the standard PES arm reported no increase in the use of balers or other equipment. The authors estimate that upfront PES contracts costs 2,700 to 4000 Rupees ($35-$50) per averted acre of burning, which is less than the analogous estimate for standard PES contracts. 

I was interested to see how you could use carrots rather than sticks.” – Rohini Pande

To understand what drove these results, the team surveyed farmers. Before the intervention, only around one in ten farmers reported trusting the government or NGOs. In such a setting, upfront PES contract may be especially helpful; and indeed, farmers with this contract were 7 percentage points more likely than those with standard PES contracts to say they trusted they would receive the conditional payment if they complied.  

“The promise of a financial reward won’t motivate people to change their behavior unless they trust that they’ll actually get paid," Seema Jayachandran said. "Giving them some money upfront made the offer more credible and, thus, effective .”

Credit constraints also likely played a role in upfront PES contracts’ effectiveness. Many farmers reported being credit constrained to the point that they would have struggled to rent equipment to clear residue without burning.  

“To me, setting up an RCT is most interesting when the answer to the question isn’t obvious,” Pande said. “But as we were brainstorming about the constraints to farmers, it seemed that trust and liquidity were two important issues. This is a setting where distrust is widespread and the government is seen as a body which makes promises without delivering on them.” 

In the future, systematically varying the amount paid upfront could allow the magnitude of the liquidity constraint to be uncovered. 

The results suggest that appropriately designed incentive contracts, particularly with an upfront payment component, can help policymakers make headway on this critical but difficult problem.  

“There's a large and interesting literature on conditional cash transfer programs,” said Kala, who grew up in Punjab. “What we provide is some evidence that the type of contract you offer might be really important for compliance, and particularly for things like these frictions of trust that might prevent people from taking up and fulfilling the contracts. Providing a portion upfront can offer some benefits, and our evidence suggests that it's driven by trust.” 

The authors’ back-of-the envelope estimates of the mortality costs from crop burning suggests that the benefits of eliminating it are enormous. While their results strongly suggest that upfront PES contracts could help facilitate this, a policy to scale PES contracts would face some challenges. The monitoring technique, for example, would need to be refined to prevent both measurement error in the case of remote sensing, or in-person contractual risks such as corruption. PES at scale would also increase demand for crop residue equipment like balers. “If the supply of balers in villages don’t keep up with the demand when the program is scaled up, farmers will have to pay higher rental prices for balers," Jayachandran explained. "That would undercut some of the benefit. Alongside PES, having supply-side policies that help create a competitive market for baler rental and avoid supply shortages could mitigate this problem.”

Yet scaling up PES contracts also offers unique advantages. First, if trust is a key barrier to compliance, then – as the authors found in their study – a smaller upfront payment may be sufficient to prevent burning. Second, higher overall payments would increase compliance, leading to fewer upfront payments to those who burn and improving cost effectiveness. Third, PES at scale could make use of dynamic contracts, whereby future eligibility is tied to verified, past non-burning. Fourth, the need for upfront payments may decrease over time as trust in the program increases. A large-scale PES program may also create a market for short-term loans for equipment rentals and spur innovation in equipment. 

Beyond North India, the findings could be relevant to the broader community of researchers and policymakers who care about innovative ways to reduce environmentally damaging practices. 

Research Summary by Viola Fur.