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India is aiming to increase energy access, affordability, and security while turning towards higher production of renewable energy. In the upcoming years, it is also anticipated to have one of the fastest expanding economies, which would significantly increase energy demand. Whether it uses fossil fuels or environmentally friendly alternatives to meet those demands has the potential to change the trajectory of its greenhouse gas emissions for many more years.

India has made great strides towards achieving its targets for emissions reductions under the Paris Agreement, but under the country’s existing policies, total GHG emissions will still rise by more than 40% by 2030. While meeting poverty reduction and energy security targets may necessitate a minor increase in short-term emissions, a more rapid scaling up of current measures could help cut emissions significantly over the course of the next decade and move India closer to achieving net zero emissions by 2070.

In most nations, changing how people live, work, and commute will be necessary for achieving net zero; some of these changes may be expensive. Nonetheless, taking immediate action might cut costs. First, India is projected to boost investments in coal-fired power facilities, but by limiting these projects, large irreversible fixed costs might be saved. Second, early scaling up of renewable energy enables more continuous acceptance of new technologies and a more gradual policy adjustment, which may be less politically costly. Expenses may also be spread out over a longer time frame.

According to IMF research, enforcing more of the current policies could result in a different emissions trajectory. One of our recommendations involves, in addition to the numerous targeted measures that India has concentrated on, a gradual increase in subsidies for the use of renewable energy along with greater pollution levies. Also, this would decrease the detrimental impacts of pollution on human health and contribute to an early reduction in the dependency on imported fuels. Transfer of technology and money for the climate from outside sources would reduce costs and guarantee sustainability.

According to an IMF estimate, combining subsidies for renewable energy with higher coal tariffs—roughly comparable to raising India’s present excise charge on coal—would lead to about one third fewer emissions by 2030 than the state of current policies. In this scenario, rising energy demand is satisfied by allowing coal power to gradually decline and gradually increasing renewable energy, exceeding the target of 50% non-fossil fuel generating capacity. Such a policy would result in an increase in both the overall supply of electricity and the share of renewable energy sources.

Despite the fact that this policy has obvious environmental advantages, we predict that it will cause enterprises and consumers to pay more taxes, which will cause a slight decline in real gross domestic product (compared to forecasts based on existing policies). Nonetheless, enough tax revenues would increase to compensate the most vulnerable citizens to the point that the general direction of the policy would be progressive. This policy’s low cost is also less distorting than other alternatives.

Significant gains would result from lower emissions. Under IMF’s policy scenario, increasing the use of renewable energy while allowing coal use to decline would result in a 2.5 percent reduction in pollution, saving lives and reducing absences from work and school. By 2030, it would also reduce coal imports by 14%, strengthening energy security and resilience to changes in energy costs around the world.

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