IMF Recommends Renewable Subsidies And Higher Coal Tariffs To Cut India’s Emissions By One-Third

IMF Recommends Renewable Subsidies And Higher Coal Tariffs To Cut India's Emissions By One-Third

A study conducted by two economists from the International Monetary Fund (IMF) has found that combining renewable subsidies and higher tariffs on coal could lead to a reduction in India’s emissions by almost one-third by 2030, compared to current policies. The study by Margaux MacDonald and John Spray also noted that the two measures would reduce coal imports by 14% by 2030, thereby improving energy security and increasing resilience to global changes in energy prices.

According to the study, India has made significant progress towards achieving its emissions reduction targets under the Paris Agreement. However, with current policies, total greenhouse gas emissions are expected to increase by more than 40% by 2030. The economists argue that while a modest increase in short-term emissions may be necessary to meet poverty reduction and energy security goals, a more rapid scaling up of current policies could significantly lower emissions over the medium term and bring India closer to a path to net zero by 2070.

MacDonald and Spray propose a gradual increase in subsidies on the use of renewable energy coupled with higher taxes on emissions, in addition to the many targeted policies that India has focused on. The researchers estimate that this policy would result in a modest reduction in the level of real gross domestic product (relative to projections based on current policies) as firms and consumers pay higher taxes. However, enough fiscal revenues would be raised to compensate the poorest citizens to such an extent that the policy would be progressive overall.

The study suggests that the proposed policy would have clear environmental benefits, including reducing pollution by 2.5%, saving lives and leading to fewer missed school and workdays. It would also decrease India’s reliance on imported fuels and help ensure universal access to energy. External climate financing and technology transfer would help mitigate costs and ensure sustainability, the economists said.

“In our model, combining renewable subsidies and higher tariffs on coal (roughly equivalent to ramping up India’s existing excise duty on coal) would result in nearly one-third lower emissions by 2030 compared to current policies,” said the IMF paper. 

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