CO₂Emission Reduction Strategies and Economic Development of India

Abstract

This article examines the consequences of alternative CO 2 emission reduction strategies on economic development and, in particular, the implications for the poor by empirically implementing an economy-wide model for India over a 35-year time horizon. A multisectoral, inter-temporal model in the activity analysis framework is used for this purpose. The model with specifi c technological alternatives, endogenous income distribution and truly dynamic behaviour and that covers the whole economy is an integrated top-downbottom-up model. The results show that CO 2 emission reduction imposes costs in termsof lower GDP and higher poverty. Cumulative emission reduction targets are, however, preferable to annual reduction targets and that a dynamically optimum strategy can help reduce the burden of emission reductions. The scenarios involving compensation for the loss in welfare are not very encouraging as they require large capital infl ows. Contrasted with these, scenarios involving tradable emission quota give India an incentive to be carbon effi cient. It becomes a net seller for the fi rst 25 years, and because of reduction in carbon intensity it would demand less in later years when it becomes a net buyer. The results suggest that for India and other developing countries, the window of opportunity to sell carbon quotas is the next two decades or so.

Carbon emissions reduction strategies and poverty alleviation in India

“…Fisher-Vanden et al (1997) used a CGE model to compare the impacts of these two policies on GDP, and found that tradable permits are preferable to carbon taxes. Murthy et al (2007) used an activity-analysis-based model with endogenous determination of income distribution and poverty ratio. Incidentally, the CGE model of Fisher-Vanden et al (1997) is based on the assumption of a single representative household.…”

“…In a comparison of the two types of schemes for emission permits -the grandfathered emissions allocation scheme in which permits are allocated on the basis of 1990 emissions, and the equal per capita emission permits allocation scheme -they found the latter to be more beneficial for India. However, Murthy et al (2007) did not analyze the impact of a domestic carbon tax as their model is not price driven. Hence, it does not reflect the impact of carbon taxes on income distribution or the poverty ratio.…”

Copenhagen commitments and implications: A comparative analysis of India and China

“…However, this has significant impacts on growth and welfare. In the case of India, Murthy et al (2006) estimate that as the emission restriction level is tightened from 10% to 20% and further to 30%, the effects on long run GDP and welfare become increasingly adverse. GDP falls by 0.53%, 1.36% and 4.06% and the number of poor increases by 2.1%, 5.9% and 17.5%, in the 30th year for 10%, 20% and 30% cumulative carbon emission restrictions, respectively.…”

Effects of international climate policy for India: evidence from a national and global CGE model

“…Bussolo and O'Connor (2001) use a single country model for India to assess impacts of climate policy on four different regions within India taking into account ancillary benefits of CO 2 reduction. In more recent studies, Murthy et al (2007) with an activity analysis model and Ojha (2009) with a CGE model analyze the impact of Indian climate policy on poverty. Both models include different household types.…”

“…Fischer-Vanden et al (1997) take international carbon prices from independent global studies, while Ojha (2009) assumes a fixed price of US$ 10 or 20 throughout the model period. Murthy et al (2007) compute the necessary monetary inflow to compensate for the welfare loss of domestic climate policy, so no assumption on international regimes or carbon prices is needed.…”