A range of traditional climate-economic models have been used to assess the consequences of India’s transition to net zero.
These approaches struggle to represent structural change, are relatively insensitive to the implications of changing ownership and employment structures in the power sector, and do not consider key frictions in the inter-sectoral labor market. Nonetheless, the model analysis indicates where changes will likely be substantial.
- Traditional climate-economic models struggle to represent structural changes in the economy and the investment-employment impacts of changing ownership from public to private in the power sector as renewables become more dominant.
- For inter-sectoral employment shifts that do occur, key frictions such as differential geographical impacts, the flexibility of different labor markets, and the mobility and ability of workers in the fossil fuel economy to adapt and reskill are not considered.
- As climate change policies will be broad and structural, triggering productivity-driven changes in aggregate supply and through investments, consumption and wages, and changes in demand, it is not trivial that models do not capture the associated economic transitions well. This also increases uncertainties about the long-run consequences of the transition.
- Nonetheless, these models can indicate which sectors and industries are most likely to be severely affected and can thereby guide further analysis.
Steps to address modeling challenges on the part of economists include using outputs from climate-economic models to anticipate effects across the economy, via more data and a broader range of tools. The sharing of knowledge, best practice, and data can also help, especially where these are key enabling factors. Qualitative analyses backed by data and, potentially, simulations can further help MoFs understand transition impacts.
Keywords
combining approachesdistributional consequenceslabormodelssectoral impacts
