Evaluating India's Climate Targets: The Implications of Economy-wide and Sector-Specific Policies

Abstract

We employ a numerical economy-wide model of India with energy sector detail to evaluate the impact of achieving India's commitments to the Paris Climate Agreement. We simulate targets for reducing CO₂ emissions intensity of GDP via an economy-wide CO₂ price and for increasing non-fossil electricity capacity via a Renewable Portfolio Standard. We find that compared with the no policy scenario in 2030, the average cost per unit of emissions reduced is lowest under a CO₂ pricing regime. A pure RPS costs more than 10 times the cost of a CO₂ pricing regime. Projected electricity demand in 2030 decreases by 8% under the CO₂ price, while introducing an RPS further suppresses electricity demand. Importantly, a reduction in the costs of wind and solar power induced by favorable policies may result in cost convergence across instruments, paving the way for more aggressive decarbonization policies in the future.