India's just energy transition: Political economy challenges across states and regions

Abstract

To comply with international climate targets, India will eventually need to phase out coal-fired power plants and substantially increase the use of solar-PV and wind power. Winners and losers of this transformation will not be distributed equally across the country, which potentially holds severe implications for the feasibility of the transformation. In an effort to understand political economy constraints from adversely impacted key societal groups, we discuss how Indian states would be affected in terms of distributional implications for households, industrial competitiveness and employment. We examine the effects of phasing-out of energy subsidies and carbon pricing (USD 40 per ton CO2) on household incomes. We likewise analyze employment effects of ramping-up renewables and phasing-out of coal-fired power plants. Finally, we assess the impacts of carbon pricing on key industries. Our findings suggest that adverse impacts are strongly concentrated in Eastern, less wealthy, coal- mining states, which would face employment losses with pressure on poor households and energy intensive industries. Employment creation through deployment of renewables would, however, be more dispersed across India's Western and Central states. Complementary policies, such as recycling carbon tax revenues, will be necessary to avoid deepening regional disparities and increase acceptance from adversely impacted regions.