How India Can Grow Its Economy Through Stronger Climate Action

This blog was first published on WRI.org on February 23, 2022.

India is an emerging economy at the cusp of sizeable growth: over the next three decades, its gross domestic product (GDP) is expected to triple and the population is expected to increase by another 200 million people. As a result, the country is poised for significant expansion in its infrastructure, energy consumption and resource-use as it seeks to improve the standard of living of its population.

Under business-as-usual practices, this expansion will lead to much higher emissions. For example, under current practices, more than half of India’s projected carbon dioxide emissions in 2040 will come from buildings, appliances, factories and vehicles that do not yet exist. This points to not only the urgency of national climate action, but the scale of the opportunity to create a low-carbon development pathway for the country.

Given these converging needs, India faces a critical question: will stronger climate action entail a trade-off with economic growth that would put its development goals at risk, or can the nation lay the foundation for a more robust economy and improved human well-being through ambitious climate goals?

A new WRI paper finds that India does not have to choose between its economy and climate action. In fact, eight critical policies would allow India to decarbonize its economy, achieve economic growth and create new jobs.

The Many Benefits of Decarbonization in India

The policies outlined in this research would have several benefits. First, these policies could enable India to cut its projected greenhouse gas (GHG) emissions to around one-third by 2050. Without these policies, the nation’s emissions will likely continue to grow and potentially reach over 7 billion metric tons of carbon dioxide equivalent (CO2e) by 2050.

Decarbonization will not only cut GHG emissions, but also create net-cost savings across the economy, create new jobs, grow the nation’s economy and yield positive public health outcomes.

While there are many costs associated with building and maintaining clean energy technologies, the gradual shift away from fossil fuels would lead to savings in the long run. In fact, the savings from avoided fossil fuel costs would begin to outweigh the cost of clean technologies within this decade. This could lead to net savings of ₹66 trillion ($965 billion) by 2050.

The shift away from fossil fuels could affect India’s GDP and employment due to a contraction in sectors such as coal mining, petroleum refining and manufacturing for internal combustion engine vehicles. Moreover, the economic contraction could be aggravated by the loss in government revenue from taxes on petroleum products, which would constrain government spending.

However, our analysis shows that phasing in an economy-wide carbon tax can offset the decline in government revenue from petroleum taxes. The jobs created in the economy when the government spends its carbon tax revenues, together with new jobs in industries like clean electricity generation and hydrogen production, more than compensates for jobs lost in high-emitting sectors. Overall, the package of decarbonization policies would generate up to 40 million net additional jobs and deliver a GDP that is up to 1.5% higher compared to business-as-usual by 2050.

Finally, the analysis shows that these policies could help avoid up to 9.4 million premature deaths by 2050. The reduction of fossil fuel use in the transport, industry and power sectors would dramatically cut harmful air pollutants such as sulphur oxides (SOx), nitrogen oxides (NOx) and particulate matter, improving overall human health.

Key Policies for Decarbonization

So what does India need to do to make these benefits into reality? Here are eight key policies, targeting different economic sectors, that need to be implemented to put India on its low-carbon development pathway:

1. Electricity: Introduce a carbon-free electricity standard to ensure at least 75% of electricity is generated from fossil-free sources by 2050, as compared to approximately 20% presently.
2. Electricity: Phase out the existing coal-based capacity, which is currently around 200 gigawatts, by the 2040s by retiring inefficient thermal power plants.
3. Industry: Improve the efficiency of energy use by at least 25% by strengthening and expanding the coverage of existing programs like the Perform, Achieve Trade (PAT) energy trading scheme.
4. Industry: Introduce material efficiency, longevity and re-use standards that reduce the projected use of emissions-intensive materials, such as cement and steel, in the economy by at least 15% by 2050. Considering that most of India's urban infrastructure is yet to be built, this provides a significant opportunity to slow the growth of emissions from hard-to-abate sectors.
5. Industry: Substitute approximately half of the fossil fuel used to generate energy for industrial processes with electricity and green hydrogen by 2050.
6. Transport: Introduce fuel economy standards and provide support for mode shifting — such as from private to public passenger transport and from road to rail freight transport — to reduce fuel use.
7. Transport: Set phased electric vehicle (EV) sales mandates that ensure all two- and three- wheelers, half of all cars and half of all buses sold in the market are electric by 2050. Additionally, around half of the trucks sold should be powered by electricity or hydrogen.
8. Economy-wide: Enforce a carbon tax, which is increased in a phased manner over time to reach approximately $75 per tonne of CO2e emissions in 2050.

Getting India on Track for a Low-Carbon Future

A just, low-carbon transition in India needs to be built on three supporting pillars. The first pillar is to ensure adequate infrastructure — such as battery storage, EV charging stations, and hydrogen supply and distribution networks — to enable an economy-wide shift from fossil fuel use to clean fuels and electricity. The second is to re-design government revenue generation mechanisms to offset the losses from current energy taxes on fossil fuels. The final pillar is to design an implementation roadmap that ensures an equitable distribution of economic gains from the transition across all sections of society.

The case is clear: taking strong action today to decarbonize India’s economy will create a stronger, healthier and more prosperous society. The question is no longer whether to pursue these policies, but how to design them in a way that supports both socioeconomic and climate goals.

Views are personal.