Cost of electric power sector carbon mitigation in India: international implications

The Third Assessment Report of the Intergovernmental Panel on Climate Change estimated that the near-term cost of reducing carbon emissions would decline with global trading. This decline was based on the assumption that costs of reducing carbon emissions are lower in developing countries than elsewhere. In this paper, we test this hypothesis by estimating the cost of reducing emissions through the use of combined cycle units in place of coal power plants in India. Using data from power plants proposed by independent power producers, we estimate the cost of carbon reduction to be $144/t C. Capital, fuel and other costs are all higher for combined cycles units in India than in the US, while they are comparable for the technologically mature coal plants in the two countries. As the combined cycle technology matures, the cost differential may narrow in the future to as low as $6/t C. A key conclusion of this study is that to the extent project-based activities, e.g., under CDM, rely on new technologies to reduce carbon emissions from similar sources, the cost of carbon reduction may be higher in developing countries, since new technology costs in a nascent market are often higher in these countries.