India Can Balance Curbing Emissions and Economic Growth

IMF News, March 7, 2023

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India is shifting toward greater renewable energy generation while striving to improve energy access, affordability, and security.
India is poised to be one of the fastest growing economies in coming years, which will sharply boost energy demand.
Under current policies, total GHG emissions would increase by more than 40 percent by 2030.
A more rapid scaling up of current policies could lower emissions considerably over the medium-term and bring India closer to a path to net zero by 2070.

Scaling up renewables and curbing coal investments can avoid substantial irreversible fixed costs associated with new coal-fired power plants.
Early scaling up of renewable energy allows more gradual policy adjustment, continual adoption of new technologies, and amortization of costs over longer periods.
Combining renewable subsidies and higher tariffs on coal (roughly equivalent to ramping up India’s existing excise duty on coal) in the IMF model would result in nearly one third lower emissions by 2030 compared to current policies.
Under this scenario, growing energy demand is met through a gradual increase of renewable energy and by allowing coal power to taper off, thus exceeding the goal of 50 percent non-fossil fuel electricity capacity.
The same scenario would lead to a 2.5 percent reduction in pollution, saving lives and leading to fewer missed school and workdays.
Coal imports would decrease by 14 percent by 2030 under the proposed policy, increasing resilience to global changes in energy prices and improving energy security.

Proposed policy package in the IMF model:
- Gradual increase in subsidies on the use of renewable energy.
- Higher taxes on emissions, including higher tariffs on coal approximately equivalent to raising the existing excise duty on coal.
- Continuation and scaling of many targeted policies India has focused on.
Fiscal outcomes:
- The policy would raise enough fiscal revenues to compensate the poorest citizens to such an extent that the policy would be progressive overall.
- The model estimates a modest reduction in the level of real gross domestic product (relative to projections based on current policies) as firms and consumers pay higher taxes.
- The small cost of this policy is characterized as less distortionary than other options.

Environmental and health co-benefits:
- Early reduction in reliance on imported fuels.
- Improved universal access to energy.
- Lessening of negative health effects from pollution (2.5 percent reduction in pollution).
External support:
- External climate financing and technology transfer would help mitigate costs and ensure sustainability of the transition.

By Margaux MacDonald and John Spray; research contributions from Geetika Dang and Sneha Thube; March 7, 2023.

Source: India Can Balance Curbing Emissions and Economic Growth — Margaux MacDonald and John Spray, March 7, 2023 (IMF).