Lowering emissions without breaking the bank in India

From pv magazine India.

Combining an economy-wide carbon price with a renewable portfolio standard requirement on Indian electricity utilities could set a price per ton of CO₂ emitted at a politically acceptable $6.17, according to a study by MIT’s Joint Program on the Science and Policy of Global Change. That figure compares to a price of $23.38/t which researchers estimate would be achieved by a carbon price alone – a level that would accelerate the move to a carbon free economy but which would probably prove too costly to be politically acceptable to voters.

In either case, researchers found the rapidly declining cost of generating electricity from solar and wind power –  if the technologies maintain their current trajectory – holds the key to unlocking greater climate change policy ambition in India.

“Globally, it has been politically impossible to introduce CO₂ prices high enough to mitigate climate change in line with the Paris Agreement goals,” said Valerie Karplus, co-author of the study and assistant professor at the MIT Sloan School of Management. “Combining pricing approaches with technology-specific policies may be important in India, [as it has been] elsewhere, for the politics to work.”

The MIT researchers assessed the economic implications of three policy scenarios: carbon pricing; a renewable portfolio standard (RPS) requiring electricity companies to source a percentage of their power from clean energy; and a combination of the two. For the assessment, the researchers developed an economy-wide model of India featuring energy-sector detail and applied it to understand what was required for the achievement of each component of the nation’s Paris pledge.

Working in tandem

They found carbon pricing – imposing an economy-wide emissions reduction policy – would cause the least damage to India’s economy. By contrast, an RPS which would enforce a minimum level of more expensive carbon-free electricity would have the highest cost per ton – more than 10 times higher than a carbon price.

“In our modeling framework, allowing emissions reduction across all sectors of the economy through an economy-wide carbon price ensures that the least-cost pathways for reducing emissions are observed,” said Arun Singh, lead author of the study. “This is constrained when electricity sector-specific targets are introduced. If renewable electricity costs are higher than the average cost of electricity, a higher share of renewables in the electricity mix makes electricity costlier and the impacts of higher electricity prices reverberate across the economy.”

Combining a carbon price with an RPS would, however, bring the price per ton of CO₂ down to a more politically acceptable $6.17/t.

Cost declines could ramp ambition

If solar and wind power costs decline significantly, the cost to the economy would decrease. At the lowest solar and wind cost levels simulated, the model projected economic losses under a carbon price plus RPS would be only slightly higher than those seen under a standalone carbon price so declining renewables generation costs could enable India to set more ambitious climate policies without impeding economic growth.

Developed by Singh with Karplus and MIT joint program principal research scientist and study co-author Niven Winchester, the economy-wide model of India enabled researchers to gauge the cost-effectiveness and efficiency of different technology and policy choices designed to transition the country to a low-carbon energy system.

The study was supported by the MIT Tata Center for Technology and Design, the Energy Information Administration of the U.S. Department of Energy and the MIT Joint Program.

The findings were published in Climate Change Economics.