Modelling Decarbonisation Pathways for the Indian Economy

This brief explores four scenarios of climate action for India using a systems dynamics model called the Energy Policy Simulator for India. It investigates policy trade-offs and co-benefits and estimates the costs of climate action. It finds that deep decarbonisation in the Indian economy is possible while also boosting jobs and GDP and avoiding millions of premature deaths due to harmful air pollution. The low-carbon transition will require massive investments in power, industry, transport, and hydrogen. Early policy signals could accelerate technology adoption by industry, benefiting from decreasing technology costs. Attribution: Varun Agarwal, et al., “Modelling Decarbonisation Pathways for the Indian Economy,” ORF Issue Brief No. 503, November 2021, Observer Research Foundation.

• Climate Action
• EPS-India
• GDP
• Indian economy
• Low Carbon
• Net Zero

Introduction For developing countries like India, strong climate action can appear to be a trade-off—one that may come at the expense of robust economic growth. The question that India faces today is this: Will it compromise economic development and job creation if it chooses a low-carbon pathway, or can actions to reduce emissions in different sectors be the foundation of a stronger economy and improved human well-being? India’s long-term development pathway cannot directly borrow the approaches of other countries. For countries that are already industrialised, tackling the challenge of climate change requires decarbonising the existing infrastructure and moderating high consumption. For India, on the other hand, it means creating new green energy infrastructure that meets the needs of its population without locking into fossil-fuel path dependence. For instance, the International Energy Agency’s India Energy Outlook 2021 notes that 60 percent of India’s carbon dioxide emissions in 2040 are projected to come from infrastructure, buildings, factories, vehicles and appliances that do not yet exist, pointing to the opportunity to build cleaner. India will also need to plan for transition in the global economy away from fossil fuels, which will cause shifts in technologies, cost and availability of capital, competitiveness, prices, and employment. As India explores a net-zero emissions future, recent studies have shown the daunting scale of this challenge. Such studies, however, do not always model the macroeconomic implications of climate policies. For example, what could be the impact of climate policies on GDP and jobs? Will the savings in fuel costs, energy imports, improved health, and reduced climate damages outweigh the upfront capital costs? How will a carbon tax affect the government’s finances and consumers’ cash flow?