This paper presents a preliminary assessment of the nature and extent of the financial impact of the mitigation policies centered on deep decarbonization of India’s electricity sector on the budget deficits of the states with relatively low endowments of solar and wind power. The impact could be quite substantial, adding 8.66% to the combined deficits of the VRE poor states under fairly conservative assumptions. The impact is most severe on the three coal-rich states of Jharkhand, Odisha and Chhattisgarh. Absent an acceptable framework for an equitable sharing of costs and benefits across the states and with the centre, these developments could impede the realization of the national goals for climate change mitigation.

 

India’s ambitious targets call for a deep de-carbonization of the electricity sector through an accelerated deployment of renewable energy and reduced use of coal. This could exacerbate existing regional inequalities, between the states in the west and the south and those in the north and east. While variable renewable energy (VRE) sources namely, solar and wind are concentrated in a few states in the western and southern parts of the country, coal reserves occur mainly in the eastern part that also happen to have the lowest VRE endowments. As the share of VRE in electricity production and consumption rises, these locational characteristics and the dominant role of state ownership in the electricity sector together play into the finances of the VRE poor states through higher expenditure and lower revenues.