How restricting carbon dioxide and methane emissions would affect the Indian economy

Abstract

India and China contain about 40 percent of the earth's people. They are at an early stage of economic development, and their increasingly massive energy requirements will depend heavily on coal, a potent source of carbon dioxide, a powerful and long-lasting greenhouse gas. India also has important sources and uses of hydroelectric and nuclear power, petroleum, and natural gas. Agriculture still produces about 30 percent of its gross domestic product, and about 72 percent of the population lives in rural areas - with their large animal populations and substantial forest acreage. India has vast cities and an industrial sector that is large in absolute terms, although it represents only 30 percent of the economy. The model developed to analyze the economic effects of constraints on greenhouse gas emissions is a multisectoral, intertemporal linear programming model, driven by the optimization of the welfare of a representative consumer. A comprehensive model was built not to project the future at a single stroke but to begin to answer questions of a"What if?"form. The results strongly suggest that the economic effects on India of such constraints would be profound. The implications of different forms of emissions restrictions - annual, cumulative, and radiative forcing - deserve more attention. Cumulative restrictions - or better still, restrictions on radiative forcing - are closely related to public policy on greenhouse effects. Such restrictions also provide significant additional degrees of freedom for the economic adjustments required. They do this, in part, by allowing the postponement of emissions restrictions, which is not permitted by annual constraints. Of course, the question arises whether a country, having benefited from postponing a required reduction in emissions, would then be willing to face the consequences in economic losses. Might there be a genuine preference - albeit an irrational one - for taking the losses annually? Would compliance with international agreements for emissions restrictions be more likely if they required annual, rather than cumulative, reductions? Monitoring requirements would be the same in either case; if effective monitoring were carried out, it would detect departures from cumulative or radiative forcing constraints just as easily as departures from annualconstraints.Environmental Economics&Policies,Carbon Policy and Trading,Montreal Protocol,Transport and Environment,Energy and Environment