India’s economy is booming, driving up electric power consumption to unprecedented levels. The nation’s installed electricity capacity, which increased fivefold in the past three decades, is expected to triple over the next 20 years. At the same time, India has committed to limiting its carbon dioxide emissions growth; its Paris Agreement climate pledge is to decrease its carbon dioxide emissions intensity of GDP (CO₂ emissions per unit of GDP) by 33 to 35 percent by 2030 from 2005 levels, and to boost carbon-free power to about 40 percent of installed capacity in 2030. Can India reach its climate targets without adversely impacting its rate of economic growth—now estimated at seven percent annually—and what policy strategy would be most effective in achieving that goal?

To address these questions, researchers from the MIT Joint Program on the Science and Policy of Global Change developed an economy-wide model of India with energy-sector detail, and applied it to simulate the achievement of each component of the nation’s Paris pledge. Representing the emissions intensity target with an economy-wide carbon price and the installed capacity target with a Renewable Portfolio Standard (RPS), they assessed the economic implications of three policy scenarios—carbon pricing,  an RPS, and a combination of carbon pricing with an RPS. Their findings appear in the journal Climate Change Economics.

As a starting point, the researchers determined that imposing an economy-wide emissions reduction policy alone to meet the target emissions intensity, simulated through a carbon price, would result in the lowest cost to India’s economy. This approach would lead to emissions reductions not only in the electric power sector but throughout the economy. By contrast, they found that an RPS, which would enforce a minimum level of currently more expensive carbon-free electricity, would have the highest per-ton cost—more than ten times higher than the economy-wide CO₂ intensity policy. Combining an economy-wide carbon price with an RPS would, however, bring the price per ton of CO₂ down from $23.38/tCO₂ (in 2011 US$) under a standalone carbon-pricing policy to a far more politically viable $6.17/tCO₂ when an RPS is added. If wind and solar costs decline significantly, the cost to the economy would decrease considerably; at the lowest wind and solar cost levels simulated, the model projects that economic losses under a carbon price with RPS would be only slightly higher than those under a standalone carbon price. Thus declining wind and solar costs could enable India to set more ambitious climate policies in future years without significantly impeding economic growth.