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### 1.1 The threat from climate change
- Observed climate changes and variability:
  - Over the period 1950-2018, average temperatures increased by 0.5°C while average rainfall fell by 0.6m.
  - Increase in weather variability, with temperatures regularly above 50°C in certain regions and increasingly unpredictable monsoon timing and quantity.
  - Impacts uneven across states, harming weather-dependent sectors such as agriculture and transport.
- Health and economic costs linked to climate change and pollution:
  - Pollution in India led to US$28.8 billion in output loss due to premature deaths and $8 billion in output loss due to morbidity in 2019.
  - Expected climate-change-related additional deaths: about 250,000 per year between 2030 and 2050 (malnutrition, malaria, diarrhea, heat stress).
- India’s GHG emissions profile and trajectory:
  - India is the world’s third largest GHG emitter; lowest emissions per capita in the G20.
  - India has slightly more emissions than the European Union but only one third of the emissions per capita; the United States has 7 times higher emissions per capita.
  - Historical cumulative GHG emissions contribution: approximately 3 percent.
  - Power sector: 37 percent of total GHG emissions; agriculture 21 percent; manufacturing 17 percent; transportation 9 percent.
  - Under current policies, projected growth leads to a 41 percent increase in GHG emissions by 2030.
  - NDC target: reduce emissions intensity of GDP by 45 percent by 2030 from 2005 levels; existing policies reach this target but model estimates suggest India will exceed the NDC emission level in 2031 and see growing emissions up to 2040 absent additional mitigation.
- Costs and risks of delayed transition:
  - Cost of transition to net zero in 2050 estimated as high as US $9.2 trillion annually (McKinsey Global Institute, 2022).
  - Three reasons delaying is costly: stranded assets from early coal plant closures; intermittency, storage and grid challenges for renewables easier to solve over longer horizons; just transition requirements (retraining, job search assistance, income tax credit schemes).
- Current policy landscape and commitments:
  - NAPCC launched in 2008 with eight National Missions.
  - 2022 updated NDC and third BUR reaffirm: 45 percent emissions intensity reduction by 2030 from 2005; 50 percent of installed power capacity from non-fossil by 2030; propagate LiFE.
  - Net-zero emissions commitment by 2070 at COP26.
- Paper objectives and structure:
  - Assess how current policies reduce emissions while maintaining development; trade-offs if transition accelerates; conditions for global agreement (finance, technology).
  - Key findings preview: sectoral mapping identifies power and manufacturing as largest drivers; three policy packages each deliver 15 percent lower emissions by 2030 relative to BaU with differing macro, fiscal, employment, and distributional trade-offs; global agreement section emphasizes need for greater ambition and climate financing/technology transfer.

### 2.1 Power sector
- 2.1.1 Context:
  - Electricity generation accounts for almost 40 percent of total emissions in India.
  - Coal: over 70 percent of electricity output; 50 percent of installed capacity; coal capacity grew by 3.3 percent since 2019, equivalent to 204 GW.
  - Renewable energy: over 36 percent of installed capacity (including hydro); renewable capacity grown by 150 percent since 2019, an increase of 60.81 GW.
  - Targets: 175 GW by 2022 (2015–16 target not met by end-2022); enhanced COP26 target 500 GW by 2030; NDC: 50 percent cumulative installed capacity from non-fossil by 2030.
  - Figures in source: Figure 7 (2020 electricity generation by fuel): Coal 72%, Modern renewables 18%, Biofuel 2%, Oil 5%, Other 3%.
- 2.1.2 Sector Strategy:
  - Coal-focused efficiency: adoption of supercritical and plans for ultra-supercritical technology with estimated emissions savings of 15-20 percent (IEA).
  - Renewable deployment mechanisms:
    - RPOs: 21 percent share as of 2021/22; scale up to 43 percent by 2029-30.
    - RECs: certification rates rose to 15 percent in 2014-15, fell to 3.6 percent in 2020-21; falling solar REC prices and rising inventory.
    - Green Open Access Policy (2022): allows consumers to demand green power; green certificates for end consumers of 100 kW or more.
  - Infrastructure and supply chain: solar parks, green energy corridor, smart grids, transmission upgrades; FY 2022-23 committed INR 195 billion to PLI for integrated solar panels.
  - Policy signal: May 2023 National Electricity Plan — government will not consider new coal-fired proposals for next five years to increase renewable capacity.
- 2.1.3 Barriers to Decarbonize:
  - DISCOM financial distress: underpriced electricity, inadequate subsidy payments, long-term purchase agreements, high technical/commercial losses; under-investment in distribution and upgrades; payment delays to renewable generators.
  - Government interventions: around USD 60 billion allocated since 2015 (UDAY 1.0/2.0, Revamped Distribution Sector Scheme); smart meter rollout slow.
  - Renewable scaling constraints: need to auction ~40 GW annually but only ~20 GW achieved; investments at most half of required to meet 500 GW by 2030; storage and grid coordination challenges.
  - Carbon lock-in risk: long-lived coal plants may delay renewable investment; premature retirements or CCS retrofits entail significant costs.
- Major policy initiatives (selected):
  - PLI scheme for high-efficiency solar PV modules: FY 23 Budget: Rs. 1.97 lakh crores over 5 years starting FY 2021-22; challenges: steep targets, supply-chain disruptions.
  - RPOs and RECs: enforcement and market-function challenges; DISCOMs ~60% of REC demand.
  - Ultra-mega solar parks: minimum 500 MW parks; CFA Rs.8100.00 crore under NSM; GoI estimates one ultra-mega plant generates 6,000 million units annually for 25 years and offsets more than four million tons of CO2 a year.

### 1. High upfront costs for consumer/non availability of funds for capex
- Major barriers:
  - High upfront costs for consumers and lack of funds for capex; apprehensions about shared savings model for motors; long delivery times and after-sales concerns; low industrial demand.
- Industrial motors program:
  - EESL agreements with over 30 major industries to replace over 1,200 inefficient motors with IE3 motors; energy savings of 48,16,535 kWh and emission reduction of 4,240 tCO2 annually.
- Buildings — ECBC uptake:
  - As on 31st March 2021, only 227 buildings registered under ECBC (total area 3.52 million square meter) leading to energy savings of 141.65 MU.
  - Projection: India will add 1 billion new commercial buildings; BEE estimates ECBC-compliant future stock could save about 300 BU electricity by 2030, translating to 15 GW peak demand reduction and 250mtco2 CO2 abetment.

### 2. Agriculture
- Context and emissions:
  - Sector represents 14 per cent of total GHG emissions.
  - Emissions mainly from livestock enteric fermentation and rice cultivation (methane); manure and residue burning (nitrous oxide).
  - Despite decline in cattle population since 2014, agriculture accounts for about 74 percent of the country’s methane emissions.
  - Agriculture accounts for 20-25 percent of electricity consumed, predominantly for irrigation, despite only 40 percent of arable land being irrigated.
- Sector strategy and programs:
  - Agriculture exempted from energy intensity reduction commitments due to food security; focus on adaptation (insurance, DBT, crop diversification, climate-resilient seeds).
  - Electricity pricing: Rs 2.75 per kilowatt-hour (kwh) at most during the day on energy exchanges; as high as Rs 12/kWh at night; heavy subsidies/free power for agriculture.
  - PK-KUSUM targets: 10 GW small solar plants up to 2 MW; 2 million standalone solar pumps; solarize feeders for 1.5 million grid pumps.
  - Biomass co-firing: mandated 7 percent blend of biomass pellets with coal.
  - Livestock methane mitigation: anti-methanogenic feed supplement cuts bovine and sheep methane by 17-20 percent.
- Barriers:
  - Agriculture omitted from long-term climate strategy; India has not joined Global Methane Pledge.
  - Socioeconomic constraints: subsistence small farms, low margins, high adoption costs; states struggle to get farmer beneficiary contributions under solarization due to existing free/subsidized power.
  - Capacity and trust issues: fewer solar pump sets sanctioned than targets; grid models require metering and billing but suffer lack of trust.
  - Subsidy distortions incentivize high-emissions crops and overconsumption of energy/water.
- Selected policies and impacts:
  - Sustainable Agrarian Mission on use of Agro Residue in coal plants: FY 2021-22 budget 34.56 Cr; implementation used in 40/180 coal plants; 59,000 MT biomass cofired to date.
  - National Policy on Biofuels (2018, 2022 amendment): aim for 20$ bioethanol in petrol regulation from 2023; unblended fuel differential excise duty ₹2/ liter since October 2022.
  - AgDSM: FY 2021-22 figures noted; as of 8th Nov 2022, 81,173 pumps replaced amounting to .15Mt CO2 reduction per year; potential 54 BU energy savings, Rs. 271.9 billion reductions in subsidies, annual 40 Mt CO2 reduction.
  - KUSUM: central support Rs. 34,422 Crore; nearly 80 lakh pumps out of ~3 crore agricultural pumps are diesel; diesel consumption 5.52 billion liter per annum => equivalent CO2 15.4 million tons; full PM-KUSUM could reduce carbon emissions by as much as 32 MTCo2 per annum.
  - Revamped Distribution Sector Scheme — agricultural feeder component: separation of 10,000 agriculture feeders through an outlay of almost Rs 20,000 crore; 3-4 acres land per MW for decentralized solar; example: 190 sq kms land required to solarize all agri feeders in Maharashtra.

### 3. Transport
- Context and emissions:
  - Transport sector: about 9 percent of India's GHG emissions; road transport ~90 percent of sectoral emissions.
  - Road transport: ~97 percent reliance on petrol or diesel; aviation entirely on jet fuel; rail mostly on electricity.
  - Without further policy, road emissions will continue rising with vehicle ownership and incomes.
  - India 2030 e-mobility vision: 70 percent of commercial vehicles, 30 percent of private cars, 40 percent of buses, 80 percent of 2- and 3-wheeler sales to be EVs.
- Sector strategy and instruments:
  - Regulatory: BS 6 passenger vehicle emission standards; CAFÉ Norms; National Policy on Biofuels.
  - EV and battery support: FAME 1.0 & 2.0; PLI schemes for Advanced Chemistry Cells and EV manufacturing; National Mission for Transformative Mobility and Battery Storage; draft battery swapping policy; 100 percent FDI allowed for EVs.
  - Rail electrification: 52,247 RKM (about 80 percent of broad-gauge network) electrified by March 31, 2022; target all routes by December 2023; Ministry projects sector net zero by 2030 contingent on technology and finance.
- Barriers:
  - Focus on passenger vehicles; minimal focus on heavy-duty freight and aviation (hard-to-abate).
  - Freight dominated by trucks with limited alternatives.
  - EV transition depends on charging/battery infrastructure; battery swapping policy nascent.
- Selected policies, budgets, impacts:
  - 100 percent railways electrification: FY23 outlay ₹7,452 crore; estimated reduction 15 million tons CO2; saves Rs 170 billion in fuel and other savings per year.
  - FAME: FAME 1.0 budget Rs 895 Crore; FAME 2.0 Rs. 10,000 crores for five years; industry concerns on localization requirements.
  - EVs through 2030 could cumulatively save 474 million tons of oil equivalent (Mtoe) worth INR 15 lakh crore and generate net CO2 savings of 846 million tons over operational lifetime.
  - PLI for ACC batteries: Budget Rs 18,100 Cr (2.48 bn USD); need standards for end-of-life, recycling, second-use batteries.
  - BS IV/Fuel economy transition costs: one-time investment ~Rs 40,000-50,000 crore and operating cost impact Rs 30,000-40,000 crore for OEMs; reductions in NOx/hydrocarbons ~70 percent and particulate matter ~50 percent compared to BS-IV norms.
  - CAFÉ norms: fuel savings 2017-20 estimated 1.2 Mtoe; emission reduction 3.7 MtCO2.

### 2.5 Residential
- 2.5.1 Context:
  - Residential sector: about 4 percent of national GHG emissions.
  - Solid biofuels remain most common fuel; electricity consumption rising with improved access; electricity generally coal-powered.
  - Households with electricity access rose from 55 percent in 2001 to near universal by 2022.
  - Building space set to more than double over next two decades; 70 percent of new construction in urban areas.
- 2.5.2 Sector Strategy:
  - Key agencies: BEE and EESL.
  - Major programs: Standard and Labelling (S&L); UJALA (LED distribution); ESCO energy audits and SNLP; Biogas program (Ministry of New and Renewable Energy); India Cooling Action Plan (ICAP); Energy Conservation Bill (2022) enabling residential energy conservation code.
- 2.5.3 Barriers:
  - Need to boost living standards; many in non-permanent housing using biofuels.
  - Lack of access to financing for high upfront-cost retrofits.
  - Frequent regulatory changes hinder scale production and raise prices.
  - Electricity tariff cross-subsidization pressures DISCOM finances and may push customers to off-grid solutions.
- Selected programs, budgets, outcomes:
  - Eco-Niwas Samhita (ENS): over 1.55 million sqm residential built-up area compliant; residential labelling potential ~388 BU savings by 2030.
  - S&L program: savings 69 BU; monetary savings Rs. 39,000 crores; emission reduction 53.307 MT per annum.
  - UJALA: FY 21/22 revenue 960 Lakhs; over 36.86 Cr LEDs sold; annual savings 47.87 billion kWh; emission reduction 38.78 MtCO2 annually.
  - SNLP: FY 21/22 services 102850.72 lakhs; sale of goods 9510.18 lakhs; outcomes: 5.99 million tCO2 reduction from 12,954,065 streetlamps; 8700.49 Mus energy saved annually; 1450.08 MW avoided peak demand.
  - ESEAP: sold >1,300 air conditioners; energy saving 9.2 Lakhs Units annually; CO2 reduction 7.54 lakh kg CO2e.
  - MEEP: energy savings 20-40 percent; ~4800 MUs saved per annum; reduction 3.9 million tons CO2 per annum; monetary savings ~Rs 3200 Crores per annum.
  - BEEP: FY 21/22 revenue 360.29 Lakhs (sale of goods) and 7296.77 Lakhs (services); outcomes: 702,959.14 tCO2 reduction and 224,021,105.55 kWh annual avoided energy demand.
- Cross-cutting outcomes:
  - India’s energy efficiency efforts saved total 40 Mtoe in 2019-20, monetary savings INR 152,241 crores per annum, CO2 reduction ~267.98MT annually.
  - PAT scheme accounted for ~two-thirds of energy savings in FY 2019-20 and 55.4 per cent in FY 2020-21.
  - National carbon market developments: Energy Conservation (Amendment) Bill, 2022; BEE consultation on National Carbon Market; December 2022 ICX set up for voluntary carbon credits; March 2023 draft carbon credit trading scheme; June 28 2023 “Carbon Credit Trading Scheme, 2023” announced.

### 3.3 Scenarios and intermediate pathway
- Policy scenarios (three packages), all delivering 15% lower emissions by 2030 relative to BaU; green subsidy rate financed by increasing wage taxes; carbon tax revenues recycled by reducing wage taxes; phased implementation.
  - Package 1: renewable power subsidy only (similar to RPO/PLI).
  - Package 2: renewable subsidy + coal excise tax (feebate-style).
  - Package 3: renewable subsidy + coal excise tax + carbon price on all CO2 from fossil use.
- Energy mix and results:
  - Baseline electricity demand: about 1500 Twh in 2020 to almost 5500 Twh in 2040.
  - Under current policies: renewables/nuclear/hydro meet 44 percent of demand in 2040; coal meets 49 percent in 2040 with coal electricity set to grow ~150 percent vs 2020.
  - Power generation, iron & steel, nonmetallic minerals expected to make up 66 percent of CO2 emissions by 2030.
  - With renewable subsidies: total electricity supply ~10 percent higher relative to BaU in 2040; subsidized production prices lower; gradual decline in coal power.
  - Packages 2 and 3 lead to electricity price decline between 7 to 11 percent relative to BaU in 2040.
- Energy security by 2035 (compared to BAU):
  - Coal imports decline substantially; domestic coal price rises less than international price.
  - Electricity imports decline as renewables produced domestically.
  - Oil and petroleum imports continue to rise; global mitigation lowers international oil price.
  - Global mitigation lowers international gas prices with mixed effects on gas imports.
- Output costs:
  - Package 1: model estimates a 0.45 percent reduction in GDP by 2030 vs baseline; GDP decline drivers include higher wage taxes reducing labor demand and household consumption; decline averages ~0.05 percentage points per year.
  - Packages 2 and 3: GDP declines smaller, between 0.18 to 0.3 percent by 2030 due to feebate-style revenue generation from emitting sectors.
  - GDP losses greater when carbon tax revenues are lump-sum transfers than when used for public investment or reduced labor taxes.
- Just transition and labor impacts:
  - Conservative employment in coal-related sectors: more than 13 million directly employed (coal mining, transport, power, sponge iron steel, bricks); including indirect jobs likely >20 million.
  - Worker mobility from pollution-intensive to green-intensive jobs low: 4-7 percent probability.
  - EV production estimated to create 10 million direct and 50 million indirect jobs by 2030; current 35 million workforce in internal combustion engine production presents upskilling opportunity.
  - Key policies: training programs, job-finding assistance, earned-income tax credit, targeted cash transfers where informality is high.
- Other impacts:
  - Reduced local air pollution improves health outcomes and productivity.
  - Several policy instruments (carbon taxes, coal taxes, electricity tax, road fuel tax) could be mildly progressive; digitalized targeted transfers can offset regressivity.
- Climate financing and global cooperation:
  - COP15 2009 commitment: developed countries agreed to mobilize $100bn/year from 2020; actual broadest-possible-definition annual flows ~$80bn.
  - Estimates for compensating abatement costs under 2°C-consistent pathways:
    - Compensating abatement for countries with per capita income below $4,500: $60 billion in transfers annually in 2030.
    - Fully compensating for pure CO2 mitigation costs alone: $30 billion annually.
  - Three modelling transfer scenarios described (Ability & Need; Compensate; Per capita emissions) — under all scenarios India is a recipient of transfers (30-39 percent of total transfers).
  - Feasibility: to meet $60bn ($30bn) goal, contributions from high-income countries would be 3.4 (1.7) percent of carbon tax revenues.
  - Alternative larger estimates: Great carbon arbitrage project estimate PV 3.418 tr USD to phase out coal starting 2024 (or 1.7% of GDP every year until 2100); Centre for Energy Finance: >USD 10 trillion investment to achieve Net Zero by 2070; concessional finance support of $1.4tr argued.
  - Financing instruments: blended financing with first-loss concessional tranches, public and private green bonds; India issued first two sovereign green bonds in 2023; RBI working on green bond taxonomy; India in Network for Greening the Financial System.

### 4.2 Technology Transfer
- Needs and challenges:
  - Low-income countries seek transfer/sharing of patents for frontier GHG-reducing technologies.
  - India submitted technology needs in UNFCCC bi-annual report including frontier renewable technologies.
  - Key challenges: encouraging knowledge sharing when patents privately held; ensuring right technologies and access to critical minerals.
- India’s role:
  - Leadership in International Solar Alliance aiming to mobilize USD 1,000 billion of investments in solar energy solutions by 2030.
- Dependency on coal and emissions context:
  - Coal powers over 70 percent of electricity generation.
  - Coal accounts for almost 40 percent of India’s CO2 emissions.
  - Over 20 million people dependent on coal for employment directly or indirectly.
- Policy tools deployed:
  - Subsidies and programs: PLI schemes (solar module, battery), National Motor Replacement Program, FAME for EVs, LED streetlights.
  - Regulatory standards: RPOs, building efficiency standards, vehicle emissions standards, S&L, bioethanol.
  - Tradable mechanisms: RECs, PAT; recent carbon trading market.
- Investment, financing, and technology priorities:
  - Substantial scaling of renewable investment required, leveraging technology transfer, international finance, and domestic debt markets.
- Projected impacts and policy priorities:
  - Emissions-reduction policies will almost certainly negatively impact growth in the short run and have distributional consequences for coal-dependent communities.
  - With appropriate policies (transfers, re-/up-skilling), these costs can be limited.
  - Benefits include improved health and productivity from reduced pollution; delays increase costs and reduce cumulative benefits.

### ANNEX 1 - AN OVERVIEW OF THE IMF-ENV MODEL
- Model structure and data inputs:
  - Recursive dynamic neoclassical global general equilibrium model built on GTAP version 10 database (Aguiar and others 2019).
  - Coverage: input-output tables for 141 countries and 65 commodities; version 10 based on 2014 data.
  - Agents: representative firms by sector, regional representative household, government.
- Dynamics, production structure, market closures:
  - Recursive dynamic solved as sequence of comparative static equilibria; nested CES functions for production; Armington specification for trade.
  - Primary factors not mobile across countries; model assumes real government expenditure and current account constant to baseline.
- Capital, labor, adjustment dynamics:
  - Vintage capital stocks, new investment flexible within a year, old capital mostly fixed with adjustment costs.
  - Labor and land can shift across sectors within a year with limited frictions; short-term substitution elasticities lower than long-term.
- Environmental linkage and emissions modeling:
  - Emissions from some activities fixed coefficients; other emissions linked to intensities that fall nonlinearly with carbon prices via marginal abatement cost curves.
  - Limitation: may overestimate long-term decarbonization costs because potential radical technology innovations are not modeled.
- Uses and policy assessment:
  - Projects trends up to 2050 for economic, sectoral, trade, and environmental variables.
  - Quantitative assessment of costs and benefits of policy instruments for GHG reductions and transition-to-low-carbon scenarios.

*Source: wpiea2023218-print-pdf*

### 1.1 The threat from climate change

### 1.1 The threat from climate change

### Observed climate changes and variability
- Over the period 1950-2018, average temperatures increased by 0.5°C while average rainfall fell by 0.6m.
- There has been an increase in weather variability, with temperatures regularly above 50°C in certain regions and the monsoon season becoming increasingly unpredictable (in timing and quantity of rainfall).
- The impact is not uniform across states and is harming sectors dependent on the weather such as agriculture and transport.

### Health and economic costs linked to climate change and pollution
- Pollution in India led to US$28.8 billion in output loss due to premature deaths and $8 billion in output loss due to morbidity in 2019, with the poorest disproportionately affected.
- Looking ahead, it is expected that climate change will cause about 250,000 additional deaths per year between 2030 and 2050 due to malnutrition, malaria, diarrhea, and heat stress.

### India’s GHG emissions profile and trajectory
- India is the world’s third largest greenhouse gas (GHG) emitter, but in terms of emissions per capita it has the lowest level in the G20.
- India has slightly more emissions than the European Union (EU) but only one third of the emissions per capita, while the United States has 7 times higher emissions per capita.
- India’s historical cumulative GHG emissions contribution is approximately 3 percent.
- Under current policies, India’s GHG emissions are on an upward trajectory; historical emissions have been slowly but steadily rising since 2014.
- The power sector accounts for 37 percent of total GHG emissions, followed by agriculture (21 percent), manufacturing (17 percent), and transportation (9 percent).
- Under current policies, projected growth is expected to lead to a 41 percent increase in GHG emissions by 2030.
- India’s NDC target is to reduce emissions intensity of its GDP by 45 percent by 2030 from 2005 levels; India will reach this target with the existing policies but model estimates suggest it will exceed the NDC emission level in 2031 and continue to see growing emissions levels up to 2040 unless additional mitigation policies are introduced.

### Costs and risks of delayed transition
- Estimates put the cost of transition to net zero in 2050 as high as US $9.2 trillion annually (McKinsey Global Institute, 2022).
- Delaying the switch to green energy will be costly for India for three reasons:
  - Coal-fired power plants have typical lifespans of multiple decades and significant fixed costs; early closure would amortize these fixed costs over a shorter period, inducing high transition costs and risking stranded assets. The government has announced a pause on new investment in coal-fired power plants for five years and is currently advising all power utilities not to retire any thermal power generation plants before 2030 due to electricity demand.
  - Scaling up renewable alternatives requires solving intermittency, storage, and grid connection challenges, which are easier to address over longer periods of time.
  - Ensuring a just transition requires retraining workers, assisting job search, and offering income tax credit schemes to provide a safety net while encouraging labor market re-entry; this is easier and less disruptive over longer time horizons.

### Current policy landscape and commitments
- Domestically, India launched the National Action Plan on Climate Change (NAPCC) in 2008 with eight National Missions focusing on development, adaptation, mitigation, and sustainability.
- In 2022, India submitted an updated Nationally Determined Contribution (NDC) and its third Biennial Update Report (BUR) to the UNFCCC. The updated NDC reaffirms:
  - a commitment to lower the emissions intensity of GDP by 45 percent from 2005 levels by 2030;
  - to achieve 50 percent of total installed power capacity from non-fossil fuel-based energy resources by 2030;
  - to propagate a healthy and sustainable way of living (LiFE).
- India committed to reach net-zero emissions by 2070 at COP26.

### Paper objectives and structure (summary of aims)
- The paper provides a policy proposal framework in the context of India’s existing policy landscape, focusing on:
  1. How current policies across all sectors are addressing the joint need to reduce emissions and maintain development priorities.
  2. Policy trade-offs if India accelerates the transition.
  3. Conditions that might facilitate a global agreement on more ambitious climate goals including climate financing and technology.
- Key findings previewed:
  - Sectoral mapping (Section 2) identifies power and manufacturing as the largest drivers of emissions despite progress on energy efficiency, reduced reliance on traditional biofuels, financial support to renewables, and electric vehicles.
  - Policy packages (Section 3) consider three packages each delivering 15 percent lower emissions by 2030 relative to a “business as usual” scenario, showing different impacts on GDP, employment, budget structure, income, and energy security. Packages include renewable subsidies alone or combined with higher coal tariffs and carbon trading, with trade-offs including possible increases in government expenditure, output costs from distortions, and the need for job transitions. Suggested mitigations include social transfers, active labor market policies, and revenue transfers to compensate the poorest and those affected.
  - Global agreement gap (Section 4) notes that meeting the Paris climate goal of keeping temperature rises to 2 degrees centigrade requires substantially more ambition from all countries and will likely be accompanied by agreements on climate financing and technology transfer; India is expected to be a net beneficiary and is a leading actor in global distribution of solar technology.

*Source: wpiea2023218-print-pdf - 1.1 The threat from climate change*

### 2.1 Power sector

### 2.1 Power sector

### 2.1.1 Context
- Electricity generation accounts for almost 40 percent of total emissions in India.
- Coal:
  - Accounts for over 70 percent of electricity output.
  - Accounts for 50 percent of installed capacity.
  - Coal capacity continues to grow, increasing by 3.3 percent since 2019, equivalent to 204 GW.
- Renewable energy:
  - Currently accounts for over 36 percent of all installed capacity in the sector, including hydro.
  - Renewable energy capacity has grown by 150 percent since 2019, an increase of 60.81 GW.
  - 2015–16 government target: 175 GW of renewable energy capacity by 2022 (this target was not met by end-2022).
  - Enhanced target at COP26: 500 GW renewable energy capacity by 2030.
  - India's updated NDC target: achieve 50 percent cumulative electric power installed capacity from non-fossil fuel-based energy resources by 2030, with the help of transfer of technology and low-cost international finance including from the Green Climate Fund.
- Figures reported in source:
  - Figure 6: CO2 emissions from fuel combustion in Power sector by fuel type (Ktoe).
  - Figure 7: Electricity generation, by fuel type (2020) (Gwh) showing Coal 72%, Modern renewables 18%, Biofuel 2%, Oil 5%, Other 3%.

### 2.1.2 Sector Strategy
- Coal-focused efficiency improvements:
  - Government expects coal use for electricity to remain a large component of source energy for the foreseeable future.
  - Adoption of supercritical technology to enhance efficiency of coal-fired power plants.
  - Plans to adopt ultra-supercritical plants and develop advanced ultra-supercritical technology, estimated to have emissions savings of 15-20 percent according to the IEA.
- Renewable deployment mechanisms and targets:
  - Renewable Purchase Obligations (RPOs) set a floor on the share of renewable energy in DISCOMs' electricity source mix: 21 percent as of 2021/22; to be scaled up to 43 percent share by 2029-30.
  - DISCOMs unable to meet RPOs can purchase Renewable Energy Certificates (RECs) on national energy exchanges.
  - REC market dynamics (2011–2021): certification rates rose from 2 percent in 2011-12 to 15 percent in 2014-15, then fell to 3.6 percent in 2020-21; the fall coincided with a fall in the average price of solar RECs and a rising inventory of unsold RECs.
  - Green Open Access Policy (2022) established to promote generation, purchase and consumption of green energy; allows consumers to demand green power from DISCOMs with no minimum limit for captive consumption; green certificates issued to end consumers of 100 kW or more.
- Infrastructure and supply chain measures:
  - Investments in solar parks, a green energy corridor, smart grids, and transmission upgrades.
  - FY 2022-23 committed INR 195 billion to the Production Linked Incentives (PLI) scheme for manufacturing integrated solar panels.
  - Research into alternatives to lithium-ion batteries and hybrid renewable solutions (e.g., combination of solar and wind).
- Policy signal:
  - May 2023 National Electricity Plan: government will not consider new coal-fired power plant proposals for the next five years to increase renewable capacity.

### 2.1.3 Barriers to Decarbonize
- DISCOM financial distress:
  - Causes: underpriced electricity, inadequate subsidy payments, long-term purchase agreements, high energy losses (technical loss, theft, inefficiency in billing), high commercial losses (default in payment and inefficiency in collection).
  - Consequence: under-investment in distribution and upgrades.
  - Payment delays by DISCOMs to renewable energy generators are a major barrier to scaling renewable energy.
- Government interventions and limits:
  - Around USD 60 billion allocated across several programs since 2015 (UDAY 1.0 and 2.0, Revamped Distribution Sector Scheme) to resolve DISCOM debt stress and trim electricity losses.
  - State governments took on DISCOM debts in UDAY 1.0 but DISCOMs continued to face financial strains.
  - Smart meter rollouts seen as a solution but progress has been slow.
  - Revising electricity tariffs will be important for DISCOM viability.
- Renewable scaling constraints:
  - India needs to auction around 40 GW of renewable energy projects annually but to date has only been able to auction about 20 GW annually.
  - Parliamentary Standing Committee on Energy (2021-22) indicated investments in the renewable energy sector have been, at most, half of what is required to meet India’s 2030 target of 500 GW renewable energy installation.
  - Coordination across states/DISCOMs is needed to better transfer excess power to deficit regions and to ensure fossil fuels are curtailed when there is an overall surplus.
  - Renewable energy storage technology improvements required (pumped storage hydropower demonstrated by international solar alliance; research into liquid-based batteries).
  - Need to crowd-in private investment; evidence shows private capital tends to flow to more innovative, mature companies with better emissions-reducing technologies.
- Risk of carbon lock-in and costly transition:
  - Long-lived coal-fired plants can create carbon lock-in, delaying investment in modern renewable infrastructure and threatening long-term climate objectives.
  - Reaching long-term emissions targets may require premature retirement of coal-fired plants or retrofitting with carbon-capture and storage—both entail significant additional costs.

### Power Sector – Major policy initiatives (selected entries)
- PLI scheme for high efficiency solar PV modules
  - Description: Production-linked incentive scheme providing financial incentives based on incremental domestic manufacturing of solar panels.
  - Budget: FY 23 Budget: Rs. 1.97 lakh crores, over 5 years starting FY 2021-22.
  - Challenges: Steep targets for incentives; until 2021 only 3-4 companies achieved incremental sales targets; supply chain disruptions.
  - Emissions objective: Aimed at reducing emissions intensity of GDP by reconfiguring the energy mix of the country.
- Renewable Purchase Obligations (RPOs) and Renewable energy certificates (RECs)
  - Description: RPOs require large electricity consumers to purchase a percentage from renewable sources; RECs can be purchased in lieu of RPOs.
  - Budget: NA.
  - Challenges: Almost all REC demand from obligated entities (DISCOMs 60 percent; captive/open access ~40 percent); poor enforcement of penalties and discretionary regulator powers have allowed RPO carry-forwards despite available RECs.
  - Emissions objective: NA.
  - Note: Green open access (2022) included under related measures; historical challenges included uncertain/high open-access charges and varying state policies inhibiting adoption.
- Development of ultra-mega and mega solar parks
  - Description: Solar power parks planned with minimum capacity of 500 MW.
  - Estimated Central Financial Assistance (CFA): Rs.8100.00 crore under the National Solar Mission (NSM).
  - Challenges: Acquiring contiguous land close to power grids; draft park requirement of at least 5 acres per MW.
  - Emissions saving: GoI estimates an ultra-mega solar plant when fully operational is expected to generate 6,000 million units of electricity annually for 25 years and offset more than four million tons of CO2 a year.

*Source: wpiea2023218-print-pdf - 2.1 Power sector*

### 1. High upfront costs for consumer/non

### 1. High upfront costs for consumer/non availability of funds for capex

### Major barriers (overview)
- High upfront costs for consumers and lack of availability of funds for capital expenditure.
- Apprehensions about ‘shared savings model’ in context of motors.
- Longer delivery time of motors and after-sales service concerns.
- Lack of demand from industry.

### Industrial motors program (example)
- EESL signed agreements with over 30 major industries to replace over 1,200 inefficient motors with IE3 motors, enabling energy savings of 48,16,535 kWh and emission reduction of 4,240 tCO2, annually.

### Buildings — ECBC uptake
- ECBC sets minimum energy standards for commercial buildings.
- Slow uptake: As on 31st March 2021, only 227 buildings have been registered under ECBC.
  - The 227 constructed and ECBC compliant buildings with total area of 3.52 million square meter have led to energy savings of 141.65 MU.
- Projection: It is estimated that India will add 1 billion new commercial buildings with increased demand for air conditioning.
  - BEE estimates that if the future stock is built in compliance with ECBC, about 300 BU electricity will be saved by 2030.
  - This translates to 15 GW peak demand reduction and 250mtco2 co2 abetment.

---

### 2. Agriculture

### Context and emissions
- Emissions stem primarily from livestock’s enteric fermentation and rice cultivation (methane) and from manure and residue burning (nitrous oxide).
- The sector represents 14 per cent of the total GHG emissions.
- Despite a decline in cattle population since 2014, the sector nonetheless still accounts for about 74 percent of the country’s methane emissions.
- The agriculture sector accounts for 20-25 percent of electricity consumed in the country, predominantly for irrigation, despite only 40 percent of arable land being irrigated.
- Stubble burning causing air pollution between cropping cycles is an area of policy focus.

### Sector strategy and programs
- Agriculture is exempted from India’s energy intensity reduction commitments due to food security needs, but policies have been implemented that help reduce emissions.
- Policy action has focused on adaptation (insurance, direct benefit transfers, crop diversification, research on climate-stress resilient seed varieties).
- Electricity pricing and timing:
  - Power costs Rs 2.75 per kilowatt-hour (kwh) at most during the day on energy exchanges, the rate surges to as high as Rs 12/kWh in the night.
  - Electricity is heavily subsidized (or free) for agriculture, causing heavy losses to DISCOMs; policy focus on solarize agriculture to ease DISCOM financial stress and enable day irrigation.
- PK-KUSUM targets:
  - Deploying 10 GW of solar capacity through installation of small solar power plants of capacity up to 2 MW.
  - Installing 2 million standalone solar powered agriculture pumps.
  - Solarizing agricultural feeders for 1.5 million grid connected pumps.
- Biomass co-firing in coal plants:
  - Mandated 7 percent blend of biomass pellets made from agro-residue along with coal.
- Livestock methane mitigation:
  - National Livestock Mission focuses on breed improvement and other measures.
  - Local anti-methanogenic feed supplement cuts down bovine and sheep’s methane emissions by 17-20 percent and results in higher milk production and body weight gain.

### Barriers to decarbonize agriculture
- Agriculture omitted from India’s long-term climate strategy; India has not joined the Global Methane Pledge (launched at COP26 to catalyze action to reduce methane emissions by 30 percent by 2030 and signed by 100 countries).
- Socioeconomic constraints:
  - Most farming is subsistence with small farms and low margins; high costs to adopt new technologies.
  - States find it difficult to get farmers to shoulder beneficiary contribution under solarization schemes in the backdrop of free or subsidized power.
- Capacity and trust challenges:
  - Far fewer solar pump sets sanctioned compared to targets.
  - Grid-connected models require metering and billing but suffer from lack of trust between farmers and DISCOMs.
- Subsidy distortions:
  - Subsidies (direct and indirect) encourage cultivation of high-emissions crops and overconsumption of energy and water.

### Selected agriculture policies, budgets, challenges, and impacts
- Sustainable Agrarian Mission on use of Agro Residue in coal-fired Power Plants
  - Description: Replace coal with agro-residue in coal-fired power plants.
  - Budget: FY 2021-22 34.56 Cr.
  - Challenges: NTPC accounts for 98.3per cent (58,000 MT) of all the cofiring; lack of awareness among farmers and compensation for agro waste below transportation cost.
  - Implementation: Used in 40/180 coal-fired power plants, 59,000 metric tons (MT) of biomass cofired to date.
- National Policy on Biofuels, 2018 and 2022 amendment
  - Goal: Foster domestic biofuel production, reduce petroleum imports, impose 20$ bioethanol in petrol regulation from 2023.
  - Note: Unblended fuel has additional differential excise duty of ₹2/ liter since October 2022.
  - Challenge: Almost entire quantity of ethanol is transported by diesel-based road tankers adding to cost, potentially increasing GHGs on net.
- Agriculture Demand Side Management (AgDSM)
  - Goal: Replace agricultural pump sets to reduce energy intensity.
  - Budget: FY 2021-22 369.42 in sale of goods. FY 2021-22 540.75 lakhs in services rendered.
  - Challenges: Improper metering and calculations for energy savings; limited awareness regarding water use efficiency and energy efficiency; connectivity issues for smart control panels.
  - Impact: As of 8th Nov 2022, 81,173 pumps replaced amounting to .15Mt CO2 reduction per year.
    - Could result in 54 BU in energy savings, an Rs. 271.9 billion reductions in subsidies, and annual 40 Mt reduction in CO2 emissions.
- Kisan Urja Suraksha evam Utthaan Mahabhiyan (KUSUM)
  - Goal: Increase share of non-fossil installed capacity to 40% by 2030; set up renewable power plans on barren and cultivable land; deploy decentralized solar.
  - Budgeted central financial support of Rs. 34,422 Crore including service charges to the implementing agencies.
  - Challenges: DISCOMs wary due to surplus contracted generation capacity; utility-scale solar often cheaper than distributed solar; states struggle to get farmers to shoulder the beneficiary contribution (40 per cent).
  - Implementation note: According to MNRE, nearly 80 lakh pumps out of approximately 3 crore agricultural pumps installed in India are diesel pumps.
    - Total diesel consumption of these pumps in a year works out to 5.52 billion liter per annum along with equivalent CO2 emission of 15.4 million tons.
    - When implemented fully, PM-KUSUM will lead to reducing carbon emissions by as much as 32 MTCo2 per annum.
- Revamped Distribution Sector Scheme — agricultural feeder component under PM KUSUM
  - Goal: Improve operational efficiencies and financial sustainability of DISCOMs by conditional financial assistance for supply infrastructure.
  - Under the scheme, works of separation of 10,000 agriculture feeders would be taken up through an outlay of almost Rs 20,000 crore.
  - Implementation constraints: 3-4 acres of land required to install one decentralized solar power project of 1 MW capacity for solarization of agricultural feeders, land within 2-5 kms radius from DISCOMs sub-station.
  - Example: 190 sq kms of land required to solarize all agri feeders in Maharashtra.
  - Metering and billing many dispersed connections and managing non-participant farmers make the scheme unattractive for DISCOMs.

---

### 3. Transport

### Context and emissions
- Transport sector accounts for about 9 percent of the country’s GHG emissions.
- Road transport accounts for about 90 percent of sectoral emissions.
- Road fuel dependence: About 97 percent of road transport relies on petrol or diesel; air transport relies entirely on jet fuel; rail mostly on electricity.
- Despite a rise in absolute electricity use in transport, its share of overall final transport fuel consumption has declined due to sharp rise in petrol and diesel consumption.
- Absent additional policy interventions, road emissions will continue rising with increased vehicle ownership and incomes.
- India’s 2030 e-mobility vision: 70 percent of commercial vehicles, 30 percent of private cars, 40 percent of buses, 80 percent of 2- and 3-wheeler sales to be EVs.

### Sector strategy and instruments
- Multi-pronged approach: regulatory measures, subsidy schemes, fuel-efficiency standards, and support for EV market and battery manufacturing.
- Regulatory programs:
  - Passenger vehicle emission standards (Bharat Standard (BS) 6).
  - Overall fuel-economy standards (CAFÉ Norms).
  - National Policy on Biofuels promoting ethanol from damaged food grains.
- EV and battery production support:
  - FAME 1.0 & 2.0 programs to boost EV adoption and charging infrastructure.
  - PLI schemes for Advanced Chemistry Cells and for manufacturing of EVs.
  - National Mission for Transformative Mobility and Battery Storage — five-year phased manufacturing mission for large-scale integrated battery and cell-manufacturing giga plants.
  - Draft battery swapping policy emphasizing interoperability standards.
  - Electric vehicles permitted 100 per cent foreign investment without government approval under FDI rules.
- Rail electrification:
  - Electrified 52,247 Route kilometers (RKM), or about 80 percent of the total (broad-gauge) network, by March 31, 2022.
  - Target: electrification of all routes by December 2023.
  - Ministry projects the sector will be net zero by 2030 contingent on access to technology and finance.

### Barriers to decarbonize transport
- Policy focus heavily on road-based passenger vehicles; minimal focus on heavy-duty freight and aviation, which are hard-to-abate and potentially rising emission sources.
- Freight sector dominated by trucks with limited sustainable alternatives.
- Aviation demand will rise with income, increasing the share of aviation in transport emissions.
- Passenger EV transition depends on deployment of support infrastructure, primarily battery charging facilities.
- Battery swapping policy remains nascent.

### Selected transport policies, budgets, challenges, and impacts
- 100 percent railways electrification
  - Rail budget for FY23 gave an outlay of ₹7,452 crore for electrification projects.
  - 100 percent electrification is estimated to reduce 15 million tons of Carbon Dioxide (CO2).
  - This would save Rs 170 billion in fuel costs and other savings per year.
- FAME (Faster Adoption and Manufacturing of Electric Vehicles)
  - FAME 1.0 (2015-2019) budget outlay of Rs 895 Crore.
  - FAME 2.0 Rs. 10,000 crores for a period of five years.
  - Regulatory loopholes and localization requirements: recent amendments to better account for domestic value addition; industry claims 50 percent localization policy requirement will make it challenging to avail the scheme.
  - Impact: EVs sold through 2030 could cumulatively save 474 million tons of oil equivalent (Mtoe) worth INR 15 lakh crore and generate net CO2 savings of 846 million tons over their operational lifetime.
- PLI for ACC batteries
  - Budget: Rs 18,100 Cr (2.48 bn USD).
  - Need for standards: regulations required for OEMs to manage end-of-life disposal, recycling, or reuse of batteries; framework for minimum specifications and standards for second-use batteries.
  - Note: "Batteries and hydrogen are both energy carrier and storage technologies. As such they are only as green as the source of energy that gets stored in them."
- BS IV Fuel Economy Standards (transition costs)
  - Cost implications: Changes estimated to account for a total one-time investment of around Rs 40,000-50,000 crore and an operating cost impact of Rs 30,000-40,000 crore for automotive OEMs, increasing vehicle prices.
  - Transition is estimated to reduce almost 70 per cent in nitrous oxides and hydrocarbons, and a 50 per cent reduction in particulate matter emissions, compared to BS-IV norms.
- Corporate Average Fuel Economy (CAFE) norms
  - Cost implications: Difficult to implement updated CAFÉ II norms with price increases being passed on to consumers.
  - Fuel savings for the period 2017-20 are estimated at 1.2 Mtoe, and the emission reduction is estimated at 3.7 MtCO2 for the same period.

*Source: wpiea2023218-print-pdf*

### 2.5 Residential

### 2.5 Residential

### 2.5.1 Context
- India’s residential sector contributes about 4 percent to the national GHG emissions.
- Solid biofuels (e.g., wood) remain the most common source of fuel in the sector; consumption of electricity has been rising in line with improved electricity access.
- Electricity is generally coal-powered in India.
- Percentage of households with access to electricity increased from 55 percent in 2001 to near universal by 2022.
- India is set to more than double its building space over the next two decades, with 70 percent of new construction happening in urban areas.
- The extent to which new construction follows energy-efficient building code will shape patterns of energy use for the sector.

### 2.5.2 Sector Strategy
- The Government of India (GoI) combines approaches to meet current needs and set standards for future housing stock; local municipalities and state DISCOMs are critical stakeholders.
- Enhancing energy efficiency is a key feature of demand-side management policies in the residential sector. Key implementing agencies include the Bureau of Energy Efficiency (BEE) and Energy Efficiency Services Limited (EESL).
- Major programs and initiatives:
  - Standard and Labelling (S&L) program to improve energy efficiency of home appliances.
  - Unnat Jyoti by Affordable LEDs for All (UJALA) program to purchase LED light bulbs at scale and distribute them at discount to consumers through state DISCOMs.
  - Energy audits and efficiency measures via Energy Service Companies (ESCOs), including LED streetlights under the Street Light National Program (SNLP), part of Municipal Demand Side Management (MuDSM).
  - Biogas program (Ministry of New and Renewable Energy) to provide clean cooking fuel, lighting, thermal and small power needs; promotes biogas-based decentralized renewable energy in capacity range of 3 kW to 250 kW or thermal energy from biogas plants of 30-2500 M3 size.
  - India Cooling Action Plan (ICAP) to ensure sustainable cooling and thermal comfort while securing environmental and socio-economic benefits.
  - Energy Conservation Bill (2022) empowers central government to specify an energy conservation code for residential buildings covering energy efficiency, use of renewable energy, and other green building requirements.

### 2.5.3 Barriers to Decarbonize
- Principal challenge: need to boost living standards for a large share of the population; many still live in non-permanent housing and use biofuels for cooking and heating.
- Continued development will drive increased residential construction, electrification, appliance use, and cooling demand, increasing emissions.
- Lack of access to financing makes high-up-front-cost efficiency-improving retrofits or renovations out of reach for many households.
- Frequent changes in regulations hinder producers’ margins and keep prices high, limiting adoption of energy-efficient appliances at scale.
- Electricity tariff policy complexities:
  - Cross-subsidization system charges low-income households and agriculture prices below DISCOM’s supply cost.
  - To compensate, DISCOMs charge higher prices to other customers (typically commercial and industrial users) and receive direct subsidies from state governments.
  - As household electricity demand rises, either subsidy costs will rise, or residential and agriculture customers will shift to cheaper sources of electricity (e.g., off-grid solar panels), both exacerbating DISCOMs’ financial troubles.

### Policy Programs, Budgets, Challenges, and Emissions Outcomes (selected)
- Eco-Niwas Samhita (ENS): energy conservation building code for residential buildings; Part-I prescribes minimum standards for building envelope designs.
  - Budget: NA
  - Challenges: Greater policy focus on increasing efficiency of cooling technologies rather than efficient building envelopes.
  - Outcomes: Over 1.55 million sqm of residential built-up area compliant with ENS. Residential labelling program estimated energy saving potential around 388 BU by year 2030.
- Standard and Labelling program (S&L):
  - Budget: NA
  - Challenges: Frequent change in codes limits producers’ ability to produce at scale; labelling is self-declared with limited testing facilities for certification.
  - Outcomes: Savings of 69 BU, monetary savings of Rs. 39,000 crores and emission reduction of 53.307 MT per annum.
- Unnat Jyoti by Affordable LED for All (UJALA):
  - FY 21/22: Revenue of 960 Lakhs from sale of goods
  - Challenges: NA
  - Outcomes: Over 36.86 Cr LEDs sold, resulting in annual savings of 47.87 billion kWh of electricity, emission reduction estimated at 38.78 MtCO2 annually.
- Street Lights National Program (SNLP):
  - FY 21/22: 102850.72 lakhs for services; 9510.18 lakhs for sale of goods
  - Challenges: Conflicting budgetary interests of municipalities
  - Outcomes: 5.99 million tCO2 GHG emissions reduction from installing 12,954,065 streetlamps; 8700.49 Mus energy saved annually, and 1450.08 MW avoided peak demand.
- Super-Efficient AC Program (ESEAP):
  - Budget: NA
  - Challenges: Price sensitivity and brand preference of Indian consumers
  - Outcomes: Sold more than 1,300 air conditioners, energy saving of 9.2 Lakhs Units annually and CO2 emission reduction of 7.54 lakh kg CO2e.
- Municipal Energy Efficiency Programme (MEEP):
  - Budget: NA
  - Challenges: After 5 years, IGEA studies executed for only 338 cities out of targeted 500 cities.
  - Outcomes: Energy savings of 20 percent to 40 percent, approximately 4800 MUs of energy savings per annum; reduction of 3.9 million tons of CO2 emissions per annum and monetary savings of approximately Rs 3200 Crores per annum.
- Building Energy Efficiency Project (BEEP):
  - FY 21/22: Revenue of 360.29 Lakhs from sale of goods and 7296.77 Lakhs from rendering services.
  - Challenges: Ministry limits service offering to replacement of selected equipment.
  - Outcomes: A total of 702,959.14 tCO2 emissions reduction from annual 75.64MW avoided demand, resulting in 224,021,105.55 kWh annual avoided energy demand.

### Cross-cutting outcomes and implications
- India’s energy efficiency efforts achieved total energy savings of 40 Mtoe in 2019-20, corresponding to annual monetary savings worth INR 152,241 crores per annum and an equivalent reduction in CO2 emissions of around 267.98MT annually.
- The PAT scheme accounted for about two-thirds of all energy savings in FY 2019-20 and more than half (55.4 per cent) in FY 2020-21.
- India is moving towards a national carbon market:
  - Energy Conservation (Amendment) Bill, 2022 equips central government to specify a carbon credit trading scheme (passed by Parliament in late 2022 and awaiting Presidential assent).
  - BEE released a consultation paper on a National Carbon Market proposing transition of PAT into the national carbon market.
  - December 2022: Indian Energy Exchange set up International Carbon Exchange Pvt. Ltd (ICX) for voluntary carbon credits trading.
  - March 2023: Ministry of Power released a draft carbon credit trading scheme; proposed BEE as market administrator.
  - June 28 2023: “Carbon Credit Trading Scheme, 2023” formally announced defining a regulatory framework for carbon market design, implementation, and monitoring.
- A compliance market for energy saving (PAT scheme) was particularly successful; a similar compliance market for carbon credit trading, leveraging BEE experience, could accelerate transitions to cleaner production methods across sectors.

*Source: 2.5 Residential, wpiea2023218-print-pdf*

### 3.3 Scenarios and intermediate pathway

### 3.3 Scenarios and intermediate pathway

### Policy scenarios (three packages)
- All scenarios lower emissions in 2030 by 15% relative to BaU and are closely aligned with India’s current policy mix.
- Policies are introduced in a budget-neutral way; the green subsidy rate in India is endogenously determined and financed by increasing wage taxes.
- In all scenarios, high income countries meet their NDC targets by 2030 using carbon pricing and governments balance their budget by adjusting labor income taxes; middle income and other low-income countries only continue current policies.
- Carbon tax revenues in all regions are recycled by reducing the wage taxes.
- All policies are gradually phased in to allow an orderly transformation.

- Package 1: A subsidy to renewable power
  - Entire emission reduction target met using only a subsidy on production of solar and wind power.
  - Comparable to India’s renewable purchase obligations (RPO) and production linked incentive (PLI) schemes.

- Package 2: A subsidy to renewable power + coal excise tax
  - In addition to the renewable subsidy, coal excise taxes are increased.
  - Functions effectively like a feebate: one tool incentivizes green power; the other disincentivizes coal production.
  - The renewable subsidy required is smaller in package 2 versus package 1.

- Package 3: A subsidy to renewable power + coal excise tax + a carbon price
  - Introduces a carbon price on all CO2 emissions from fossil use.
  - The renewable subsidy needed is the lowest among the three packages because both the carbon tax and coal excise tax discourage carbon-intensive fuels.

### Energy mix (results)
- Baseline electricity demand forecast: about 1500 Twh in 2020 to almost 5500 Twh in 2040.
- Under current policies:
  - Renewables, nuclear and hydropower grow to meet 44 percent of total electricity demand in 2040.
  - Coal still meets 49 percent of demand in 2040, with electricity from coal set to grow by almost 150 percent compared to 2020 levels.
  - Power generation, iron steel, and nonmetallic minerals are set to make up 66 percent of India’s CO2 emissions by 2030.
- Under each policy package with renewable production subsidies:
  - Total electricity supply increases by almost 10 percent relative to BaU in 2040.
  - Production prices for subsidized sectors are lower relative to BaU, contributing to a gradual decline in coal power production.
- Combining renewable subsidies with coal and carbon taxes (packages 2 and 3):
  - Work like a feebate; increase renewable production and reduce electricity prices.
  - Net effect on the electricity price: a decline between 7 to 11 percent relative to BaU in 2040.
  - Energy mix remains tilted heavily towards renewable energy sectors.

### Energy security
- By 2035 (compared to BAU), in all three scenarios:
  - Coal imports decline substantially as domestic demand for coal falls and can be met domestically.
  - Domestic coal price does not rise as much as the international price, contributing to lower imports.
  - Electricity imports decline as subsidized renewable electricity is produced domestically.
  - Oil and petroleum imports continue to rise because international mitigation efforts reduce the international (pre-tax) price of oil and petroleum.
  - Global mitigation lowers international gas prices (though by a lower amount than oil), with mixed effects on gas imports depending on the extent of renewable subsidization.

### Output costs
- Package 1 (only renewable subsidy):
  - Model estimates a 0.45 percent reduction in GDP by 2030 compared to baseline.
  - GDP decline drivers: (i) financing the subsidy by increasing wage taxes reduces demand for labor; (ii) lower labor income reduces household consumption.
  - The decline in GDP growth averages about 0.05 percentage points per year.
- Packages 2 and 3 (with coal excise and carbon price):
  - GDP declines are smaller: between 0.18 to 0.3 percent by 2030.
  - Feebate-style financing is fiscally less expensive because taxes on emitting sectors generate revenue, reducing the need to raise labor income taxes for subsidies.
  - Carbon tax revenues recycled to reduce wage taxes dampen the wage tax increase needed to finance green subsidies and correct price signals, facilitating a switch from carbon-intensive to low-carbon sectors and reducing fiscal pressure.
- Alternate revenue recycling:
  - GDP losses are greater when carbon tax revenues are distributed via lump sum transfers to households than when used to fund public investment or reduce labor taxes.

### Just transition (labor impacts and policies)
- Sectoral employment shifts:
  - Some sectors expand (solar and wind); others shrink (coal and gas).
- Employment exposure:
  - Conservative estimate: more than 13 million people are employed in coal mining, transport, power, sponge iron steel, and bricks sectors (National Foundation for India, 2021).
  - Including indirect jobs, there are likely more than 20 million people dependent on the sector.
- Geographic mismatch:
  - Indian states with high coal employment tend to have less optimal conditions for solar and wind and consequently have few jobs in these sectors.
- Cross-country evidence on worker mobility:
  - Probability of workers in pollution-intensive jobs moving to a green-intensive job is very low, between 4-7 percent.
- Opportunities:
  - Electric vehicle production in India is estimated to create 10 million direct and 50 million indirect jobs by 2030, offering opportunities to upskill and integrate the existing 35 million workforce currently producing internal combustion engines.
- Key policies to help displaced workers (from IMF WEO modelling):
  - Training programs to develop new skills.
  - Assistance with job finding to reduce matching frictions.
  - An earned-income tax credit to encourage lower-income workers back into the workforce; where informality is high, supplement with cash transfers targeted to those most likely to be working informally.

### Other impacts
- Lowering GHG emissions also improves local air pollution substantially, reducing welfare costs, improving health outcomes (including preventing air pollution deaths), and reducing lost work and school days, thereby supporting productivity and output.
- Distributional effects:
  - Several policy instruments could be mildly progressive in India, including carbon taxes, coal taxes, electricity tax and road fuel tax.
  - Widespread digitalization of the public welfare distribution system and its targeting ability can help make regressive options progressive via targeted transfers to households.

### Climate financing and global cooperation (section highlights)
- Current global commitments:
  - COP15 2009 commitment: developed countries agreed to mobilize $100bn a year in climate financing from 2020 onwards; actual broadest-possible-definition annual flows are approximately $80bn.
- Estimates for compensating abatement costs under 2°C-consistent pathways:
  - Compensating abatement costs for countries with per capita income below $4,500 would cost $60 billion in transfers annually in 2030.
  - Fully compensating countries for pure CO2 mitigation costs alone would require annual transfers of about $30 billion.
- Three modelling transfer scenarios illustrated:
  - Ability & Need: HICs contribute based on share of emissions; MICs and LICs receive transfers per population share.
  - Compensate: HICs contribute based on emissions share until cumulatively $60bn (or $30bn) disbursed. India fully compensated with $60bn; partially compensated with $30bn.
  - Per capita emissions: Contributors/receivers based on deviation of domestic per capita emissions from global average; GCI is $4/tCO2 in 2030 calibrated so total transfers equal $60bn.
- Under all scenarios India is a recipient of transfers (30-39 percent of total transfers) due to large population and relatively small emissions per capita; Indian GDP rises in all scenarios due to direct climate financing and lower fossil fuel import costs from global transition.
- Feasibility:
  - All scenarios could be funded via carbon taxes in high income countries. To meet the $60bn ($30bn) goal, the size of contributions from high-income countries is 3.4 (1.7) percent of carbon tax revenues.
- Alternative larger estimates and financing proposals:
  - Great carbon arbitrage project estimate to phase out coal starting in 2024: 3.418 tr USD in present value of climate financing (or 1.7% of GDP every year until 2100) to cover coal opportunity cost and renewable investment.
  - Centre for Energy Finance estimate: investments worth over USD 10 trillion needed to achieve Net Zero by 2070; support of $1.4tr in concessional financing argued.
  - These larger estimates focus on more ambitious targets and total green investment rather than incremental green over carbon-intensive investment costs.
  - Blended financing proposals: concessional financing taking a first-loss tranche in large public-private partnership climate funds to crowd in private investment; public and private green bonds as potential sources.
  - India progress: first two sovereign green bonds issued in 2023; RBI working on a taxonomy for green bonds; India’s participation in the Network for Greening the Financial System.

*Source: IMF staff calculations and analysis in wpiea2023218-print-pdf - 3.3 Scenarios and intermediate pathway*

### 4.2 Technology Transfer

### 4.2 Technology Transfer

### Technology transfer needs and challenges
- Many low-income countries argue for the transfer of technology, or sharing of patents, of frontier GHG-emissions reducing technologies.
- The Indian authorities submitted a list of technology needs as part of their most recent UNFCCC bi-annual report; this includes making available cutting-edge technologies in renewable energy generation (Ministry of Environment, Forest and Climate Change, 2021).
- Key challenges:
  - How to encourage knowledge sharing across countries when patents are privately held.
  - How to ensure that the right technology is made available.
  - How to ensure critical minerals are widely available for purchase by all countries.

### India's role and initiatives
- India is already playing a leading role through leadership of the International Solar Alliance, which aims to mobilize USD 1,000 billion of investments in solar energy solutions by 2030.

### Dependency on coal and emissions context
- The Indian economy relies heavily on coal which powers over 70 percent of electricity generation.
- Coal accounts for almost 40 percent of India’s CO2 emissions.
- Over 20 million people are dependent on the mineral, its extraction and use for employment either directly or indirectly.
- Shifting away from coal is described as a formidable challenge requiring a multipronged approach.

### Policy tools deployed
- Forms of subsidies for renewable energy adoption and generation mentioned:
  - PLI schemes for solar module and battery manufacturing
  - National Motor Replacement Program
  - FAME for EVs
  - LED streetlights and bulbs
- Regulatory requirements and standards cited:
  - RPOs for electricity
  - Building efficiency standards
  - Vehicle emissions standards
  - Standards & labelling
  - Bioethanol
- Tradable energy certificates and mechanisms:
  - RECs
  - PAT
- Recent policy: most recently a carbon trading market.

### Investment, financing, and technology transfer priorities
- Investment in renewables will need to be scaled up substantially.
- Scaling up will require leveraging, in particular, technology transfer, international finance, and domestic debt markets.

### Projected impacts of emissions-reduction policies
- Modelling emissions trajectories under different policy options shows:
  - Reducing GHG emissions will almost certainly have a negative impact on growth in the short run.
  - There will be important distributional consequences for individuals and communities who today rely on coal.
- With the right policies, these costs can be significantly limited.

### Benefits of emissions reduction and policy priorities
- Positive benefits include improved health outcomes and productivity from reduced pollution.
- Policy will need to focus on ensuring those most impacted by the shift to cleaner energy are not left behind; this will have to be done through a combination of transfers and re- or up-skilling.
- Any delays in transitioning from the current emissions path towards a more sustainable one will increase costs and decrease cumulative benefits.

*Source: wpiea2023218-print-pdf - 4.2 Technology Transfer*

### ANNEX 1 -   AN OVERVIEW OF THE IMF-ENV MODEL

### ANNEX 1 -   AN OVERVIEW OF THE IMF-ENV MODEL

### Model structure and data inputs
- Recursive dynamic neoclassical, global, general equilibrium model built primarily on a database of national economies and a set of bilateral trade flows.
- Central input: Global Trade Analysis Project version 10 database (Aguiar and others 2019).
- Database coverage: country-specific input-output tables for 141 countries and 65 commodities and real macro flows.
- The currently used version 10 is based on data from 2014.
- Agents represented: representative firms by sector of activities, a regional representative household, a government, and markets.
- Firms optimize profits by purchasing inputs and primary factors; households optimize welfare under budget constraints and demand goods and services produced by firms.
- Markets determine equilibrium prices for factors, goods, and services.
- Frictions on factor or product markets are limited except where explicitly described.

### Dynamics, production structure, and market closures
- Recursive dynamic: solved as a sequence of comparative static equilibria; fixed factors are exogenous in each time step and linked between periods with accumulation expressions (like the dynamic of a Solow growth model).
- Output production: implemented as a series of nested constant-elasticity-of-substitution (CES) functions to capture different substitutability across inputs.
- International trade: modeled using the Armington specification with demands differentiated by region of origin; uses a full set of bilateral flows and prices by traded commodity.
- Primary factors are not mobile across countries; intermediate inputs follow bilateral flows.
- Model closures assume real government expenditure and current account to be constant to baseline values.

### Capital, labor, and adjustment dynamics
- Capital market: characterized by real rigidities and features vintage capital stocks so firm production structure and behavior differ short-term vs long-term.
- New investment: flexible within a year and can be allocated across activities until returns to the “new” capital are equalized across sectors.
- Old (existing) capital stock: mostly fixed and cannot be reallocated across sectors without costs, producing lower short-term substitution elasticities relative to the long term.
- Labor and land markets: limited frictions—within each year labor (and land) can shift across sectors with no adjustment cost until wages (land prices) equalize; labor (land) supply responds with some elasticity to changes in the net-of-taxes wage rate (land price).
- Implication: short-term elasticities of substitution across inputs are much lower than in the long term, making capital adjustments more realistic.

### Environmental linkage and emissions modeling
- Economic activity linked to environmental outcomes.
- Emissions treatment:
  - Some emissions linked with fixed coefficients (e.g., emissions from fuel combustion).
  - Other emissions linked with emission intensities that decrease nonlinearly with carbon prices via marginal abatement cost curves (applies to non-energy-input uses and output processes—for example, nitrous oxide from fertilizer use; methane from waste management; CO2 from cement manufacturing).
- Acknowledged limitation: in the very long term the model may overestimate the cost of decarbonization because it does not account for potential radical technology innovations (examples cited: hydrogen, second generation of nuclear and biofuel technologies, carbon capture and storage technology).
- Reason given: lack of reliable information about future costs of these technologies at industrial scale limits inclusion.

### Uses, scenarios, and policy assessment
- Scenario analysis use:
  - Projects up to 2050 an internally consistent set of trends for all economic, sectoral, trade-related, and environmental variables.
  - Can analyze economic impacts of drivers of structural change: technological progress, increases in living standards, changes in preferences, and changes in production modes.
- Policy assessment use:
  - Quantitative economic and environmental policy assessment for coming decades, including transition-to-low-carbon scenarios.
  - Assesses costs and benefits of different sets of policy instruments for reaching given targets such as GHG emission reductions.

*Source: ANNEX 1 -   AN OVERVIEW OF THE IMF-ENV MODEL*

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_Source: https://www.imf.org/-/media/files/publications/wp/2023/english/wpiea2023218-print-pdf.pdf_