The heavy lifting in the climate transition is done in the electricity sector. Decarbonisation of the economy requires a large-scale rearrangement of technology and business models, in supply and demand, in the electricity sector. The Indian electricity sector is ill-suited to perform this role and this constitutes the major roadblock for the climate transition in India. The solution lies in electricity reform, that addresses the long-standing fundamental problems of the electricity sector, that places this sector on the foundation of the price system. Once electricity works through the price system, an escalating schedule of a carbon tax will deliver the cost-minimising climate transition through myriad actions of self-interested actors spread all over the country, without requiring central planning. Many elements are coming together, through which this reform is feasible today while it was not in the past 30 years.
The lowest hanging fruit on the coconut tree: India’s climate transition through the price system in the power sector, Akshay Jaitly and Ajay Shah, XKDR Working Paper 9, October 2021.