How system dynamics models can inform India’s low-carbon pathways

• The finance required for mitigation is estimated in the order of tens of trillions of U.S. dollars and the adaptation finance gap is estimated at around US$870 billion up to 2030.
• The India Energy Policy Simulator (EPS) simulates changes in the economy relative to an exogenous baseline and therefore assumes a static structure of the economy. However, this enables sectoral granularity—the model calculates direct, indirect, and induced impacts of mitigation policies via a fully integrated input-output table spanning 36 sectors.
• The Green Economy Model (GEM) for India models production endogenously, meaning the effects of changes in technology, energy prices, and human capital on output and employment are considered. The model also captures details on natural resources and helps determine the impact of decarbonization policies on water use and critical minerals. However, disaggregation is limited to three sectors (agriculture, industry, and services), and labor market frictions and wage-employment relations are modeled in a limited manner.

Empirical findings, caveats, and implications:

• Fiscal: Both models estimate overall economic gains from the transition to net zero by 2070. Tax revenue from petroleum products is reduced, though this could be offset by a linearly increasing carbon tax that widens the tax base. The fiscal deficit is estimated to be higher initially, due to clean energy investments, the high cost of carbon capture and storage (CCS), and land-based interventions. In the long term, public debt is expected to recover due to economic growth and tax revenue from non-energy sources.
• Trade: Import dependence will likely shift from OPEC to mineral-rich countries such as China, Australia, and Argentina due to decreasing imports of oil and increasing imports of minerals, e.g., for solar panels and batteries. This new dependency could be mitigated by recycling and reuse.
• Employment: The transition scenario is estimated to provide 3.5 million additional jobs, on aggregate. However, this masks the heterogenous impacts across sectors and assumes higher labor demand is indeed translated to job gains, which requires (re)skilling of the workforce. Moreover, the models do not adequately capture informal sector impacts, which are likely to be even larger and require welfare and social-protection schemes to ensure a just transition.