Addressing path dependence in emissions-economy models for emerging economies: Implications for identifying low-carbon development pathways

Emissions-economy models are widely used for informing low-carbon development policies and targets. These models typically use historical data sets to quantify interrelationships among key variables, which are then used to translate inputs into forward-looking projections. While such models have been extensively applied in developed countries, they are also being increasingly deployed in developing countries. These countries are witness to rapid – often uneven – economic growth, as they transition from predominantly agrarian and low-quality manufacturing to industrialised or services-dominated economies. Given these upcoming structural shifts, the interrelationships among variables that have been quantified using historical data are likely to be rapidly outdated. As a result, the internal formulae by which such models translate assumptions into projections may not be fit for purpose.

Using a two-part approach, this paper argues that this path dependence embedded into model constructs can lead to constrained projections for developing countries, thereby risking misaligned policies. Primarily, studying six recent emissions-economy modelling studies conducted for India, this paper illustrates how development choices – which are baked into model constructs – largely shape projected emissions, energy demand, power generation, investment requirements, and employment implications, and thereby inform recommendations for India’s low-carbon transition policies. Within this, the paper explores the shifting interrelationships among three major structural variables that strongly reflect India’s future development pathway – urbanization, shares of economic output from different activities, and total factor productivity – to show that most existing models for India overdetermine its future pathway through their internal design choices.

The paper highlights how modelling of low-carbon pathways for developing countries carries these additional complexities, and suggests rethinking how models developed for the global North are used in more structurally evolving countries such as India, incorporating greater flexibility, allowing for more explicit structural variations, and encouraging greater uncertainty analyses.