Evolution of global carbon market: implications for India

Abstract

Emissions mitigation efforts for limiting atmospheric temperature rise have lead to the evolution of a global carbon market. Future carbon price expectations will play an increasingly important role in long term investment decisions and well as environmental policy. The overall aim of the present research is to understand the evolution of global carbon market and its implications for India. The specific research questions being addressed are (i) what will be the cumulative demand for global emission reductions vis-H-vis reference scenario under various stabilization levels?, (ii) what will be the carbon prices and emission reductions under various stabilization levels?, (iii) what are the policy implications for India from the analysis of carbon market dynamics under different scenarios?, and (iv) What are the implications for India of different emission allocation rules? A carbon market analysis framework has been presented and employed for understanding the long term scenarios of global carbon market evolution. Global Climate Change Assessment Model (GCAM) has been used for analyzing the effect of different level of emission caps (stabilization levels) and technology approaches on the long term demand and supply of emission reductions. GCAM is an energy sector focused partial equilibrium based integrated assessment model. The model includes 14 regions (with India as a separate region) and runs from 1990 to 2095 in time steps of 15 years. The total absolute reduction required globally by century end range between 386 GtC (29%) and 1096 GtC (81%) compared to reference scenario emissions depending on the stringency of emission cap. Carbon price can be as high as 255 US$/tC in 2020 and range between 150 US$/tC and 600 US$/tC in 2095. The marginal abatement cost curves exhibit that abatement cost is much higher in the short term and it decreases along with time till the end of century, and would be lower for India than the average world marginal abatement cost. GDP loss is higher when the stabilization targets are more severe, and this loss starts happening in the initial part of the century itself. Under a sustainable technology approach, the carbon prices as well as GDP losses are always lower compared to the conventional approach. The research highlights the importance of carbon capture and storage, nuclear, biomass, wind and solar technologies for meeting Indian emission reductions in the short as well as long run. The choice of emission allocation rule can have significantly different implications for emission allocation and financial transfer. The research contributes by bringing out the carbon price trajectory under various scenarios, emission mitigation required to be undertaken in India in the long term under various scenarios, marginal abatement cost curves for India, quantitative estimates of the role of various energy technologies in the future, and implications of two most discussed and debated emission cap allocation rules on India with the resulting expected financial transfers. The methodological contribution are separating Indian region from among the 14 world regions for an India centric analysis, and modeling a sustainable scenario for meeting global emission reduction demand.