The energy situation in India is reviewed and two base cases for the future that represent the likely range of carbon energy demand are determined. A macroeconometric model that integrates micro-level analysis of technological options to reduce carbon emissions is used to assess the impact of a small carbon tax. Three cases for the utilization of carbon revenues are examined. A policy scenario with the objective of stabilizing carbon dioxide emissions is studied, and sensitivity analysis with respect to important parameters is performed using optimal control techniques. The results of the study show that, to achieve substantial reductions in carbon dioxide emissions in the medium term, a combination of macroeconomic policies and micro-level investments are required.
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