Challenges and Policy Implications for Low Carbon Pathway for Kerala: An Integrated Assessment Modelling Approach

AbstractAs India has embarked on the journey of fulfilling the net-zero emissions target by 2070, the states of India are steering up too to meet the target. The per capita emission for Kerala is low in comparison to national average. Energy sector is the main contributor of the GHG emissions in Kerala. A major share of 76 per cent of electricity power is purchased from other states. When other states undergo energy transition, availability of imported electricity may be e a challenge for Kerala. Hence the State needs to harness its own potential for renewable energy sources and also incorporate improved technologies leading to energy efficiencies in all sectors of the economy to save energy and thereby have lower carbon footprint. The state is gearing up to traverse through low carbon pathways by way of strategies for mitigation, adaptation and sector specific policies for abatement of GHG and air pollutants and for the promotion of Electric Vehicles policy. Naturally these transitions involve adoption of some technologies with their underlying financial costs. Hence it is crucial to understand the fiscal burden vis-a-vis the benefits of each policy intervention as an alternative low carbon pathway. Only by incorporating the behavioural aspects of economic agents, relevant energy technological innovations interplaying with the markets and prices in the economic system, a well coherent energy transition pathway can be developed. Accordingly this paper has undertaken the integrated modelling (approach with the primary objective of quantifying the gains and losses of low carbon transition and their financial implications. The integrated modelling approach involves soft linking of the macroeconomic top-down CGE model and bottom-up (Messageix) energy model. The top-down macroeconomic CGE model used for integration is multi-sectoral, multi-regional (Kerala, Rest of India and Rest of World) variant of GTAP Power model that has a detailed power sector. The CGE model produces forecasts of sectoral output and prices of the BAU and policy scenarios. These CGE results were fed as exogenous input demand projections into the Messageix model, which is an Energy Optimization model. These projected demands are met by supplies subjected with least cost optimizations and other policy constraints such as environmental constraints, resource constraints, capacity constraints, etc., taken into consideration. The model provides technology-based decisions in each of its sectors in terms of cutting down of emissions, and the cost of implementation of those pathways in a given period of time. The integrated model is recursively dynamic model with multiple periods of time to simulate changes as per policy targets of short, medium and long term for low carbon pathway of Government of India. In this paper, we have undertaken policy scenario in which (i) the imports of fossil based electricity from other states of India is restricted into Kerala, (ii) 50 per cent of the existing potential of renewable electricity by various modes is achieved in Kerala and Rest of India, (iii) concomitantly energy efficiency in all energy sectors is increased to the tune of 2.5 percent per annum along with 1 percent total productivity growth per annum in all sectors of the Kerala and India’s economy. Our results show that reduced import of fossil-fuel electricity without any policy intervention to strengthen renewable energy sector would hamper growth. On the other hand, investment on renewable energy to facilitate complete energy transition with self-reliance of energy for the state would expand the economy, would increase the returns to the factors of production, and also escalate employment. The key message that comes out from our simulation is that energy transition towards renewable energy will not take place without complementarity support polices towards this sector. There is a need for the government to play a key role in effecting the change. Also, it is not pragmatic to augment capacity of renewable capacity as far as possible. Depending on imported electricity may be a risky proposition if other states face bottlenecks in transition process towards renewable electricity. Also, it is very important to focus on improvement in energy efficiency in all the sectors. If all these factors are taken into consideration (policy simulation 3), we find that there will be substantial fall in per capita emissions in Kerala. With the change in fuel mix in favour of green sources of energy there has been a sharp fall in emissions from oil sources. Our observation is that energy transition may be a win-win situation in the sense that growth and employment creation may be positive with suitable policy intervention. It must be mentioned that the paper has focused only on energy sector. The developed model may be used in future to focus on the economic implication of other polices, like carbon sequestration etc.