۱- Introduction

۲- Coal fired electricity generation and carbon mitigation policy in India

۳- Opportunity abatement cost estimation

۴- Data and results

۵- Conclusions

References

Abstract

This study shows potential cost savings by adoption of emission trading in India. At the Paris Agreement, India pledged to reduce CO2 emissions intensity by about 30–۳۵% by 2030 relative to 2005. Applying joint production function of electricity and CO2 emissions, we find that India could have saved about US$ 5 to 8 billion, if she had constituted an emission trading system, with the provision of banking and borrowing over the study period of 5 years. To our knowledge, this is the first study measuring foregone gains due to absence of a nationwide carbon emission-trading program in coal fired thermal power sector, using an ex-post analysis.

Introduction

At the Paris Agreement in 2015 , India pledged to reduce CO 2 emissions intensity 1 by about 30 -35 percent by 2030 relative to 2005 . Coal based electricity generation sector, with an installed capacity of 222 GW, accounts for about three -fourth of total electricity generation (Central Electricity Authority [CEA], 2018) and will remain dominant source of power generation in India. This sector contributes to about half of the total CO 2 emissions generated in the country (CEA, 2013). Therefore, if India is to achieve the targets announced at the Paris agreement, it is imperative to find cost effective measures of reducing CO 2 emissions in this sector. Carbon pricing is economically the most efficient strategy for reducing the emissions (Aldy and Pizer, 2015; Managi, 2015; Schmalensee and Stavins, 2017). The Paris Agreement offers avenues for new market -based approaches such as emission trading, to countries for realizing their Nationally Determined Contributions (NDCs). Emission trading, popularly known as cap -and -trade program, is one of the way s of putting price on pollution, the other being taxation. Given the heterogeneity in abatement cost s, market -based instruments , such as emission trading , accomplish the targeted emission levels cost effectively , by equalizing marginal abatement cost across the polluters (Carlson et al., 2000). An emission -trading program offers an opportunity to thermal power plants to realize regulatory compliance at lower costs, as compared to CAC regulatory mechanism, by purchasing right s to emit CO 2 emission s from the plants facing lower abatement cost s. Moreover, inter -temporal trading of emissions equalizes marginal abatement costs, not only spatially but also inter -temporally , and thus, further reduces the abatement costs. Note that given the flexibility in regulatory compliance with least cost, investment s in technology or procedures flow to the plants having low abatement cost s (Chan et al., 2012; Goulder and Schein, 2013).