Applying a heightened coal tax to India's booming economy would trigger a slight decline in gross domestic product but that would be more than balanced out by health gains and the elimination of up to 830 million tons of carbon dioxide emissions, a new World Bank study concludes.

Conducted at the request of the Indian government, the first-of-its-kind study for India weighs what effect a stiffer tax on coal or on local particulate emissions would have on 57 sectors of the country's economy from agriculture to manufacturing. The conclusion, according to the author and environmental activists familiar with the study, underscores the crossroads at which India now finds itself as its population and energy demand skyrocket.

"We are growing very rapidly, and the environment is becoming a big challenge, especially in urban areas," said Muthukumara Mani, a senior environmental economist at the World Bank and lead author of the report. While climate change and the role of exploding coal emissions from countries like India are the top issue at international global warming negotiations, Mani noted that local pollution is higher on India's domestic agenda.

Still, he said, the models he and colleagues used to measure the impact of environmental incentives showed that reducing local particulate emissions from power plants results in curbing 590 million to 830 million tons of carbon dioxide, depending on how heavy the taxes. Meanwhile, the savings from improved health and fewer premature deaths linked to local pollution appears to heavily offset the economic losses.

According to the World Bank model, India by 2030 could see a gross domestic product loss of $46 billion if it imposes an additional 10 percent tax on coal or local particulate pollution. Meanwhile, it could incur losses of $97 billion during that time period if it strives for what the study calls a Green Growth Plus model or a 30 percent particulate emission reduction. That comes to between 0.3 and 1.07 percent of GDP.

By contrast, the authors found, health savings obtained by the improved environment could range from $24 billion to $105 billion.

Gap in energy supply looms

Anjali Jaiswal, who works on Indian environmental issues for the Natural Resources Defense Council, said the study shows that sustainable policies with teeth will actually help improve the Indian economy. "It shows that taking action on building a sustainable economy and addressing climate change in India is well worth the effort," she said.

Jaiswal noted that India's energy consumption is set to skyrocket by more than 90 percent over the coming decade from 170 gigawatts to 369 GW. Already, India suffered last summer the largest electrical blackout in history, affecting more than 600 million people. Future electricity generation growth, she predicted, isn't likely to keep up with demand. But Jaiswal argued that as Indian leaders eye the horizon -- and the price of coal continues to rise -- many are taking clean energy development far more seriously than in the past.

"There is probably going to be a 20 percent gap, and one of the ways you fill that gap is energy efficiency and renewables," she said. "India is in a crisis, and when you're in a crisis, you look at all the options. There are real leaders in the Indian government that want to see a sustainable economy in India, a robust and sustainable economy. And this report supports those kinds of actions."

Jigar Shah, solar pioneer and founder of SunEdison, said he thinks a fundamental shift in India's power sector is going to be a difficult haul, but an important one to help steer. He criticized the World Bank study and others like it that he said make predictions assuming "a non-innovation climate" that is in direct opposition to what is actually happening in India and around the world.

"There are people in [India's] power structure who fundamentally believe that there are no alternatives to providing a modern society other than coal and nuclear power," Shah said. "There are many people who have conveniently forgotten that we have created the Internet and mobile phone technology since they last evaluated how we can deliver modern power."

Water needs may limit coal-fired power

He also pointed out that without thinking about and planning for water availability, India will undermine its own growth scenarios. Noting that nearly all of India's coal plants shut down periodically because of lack of cooling capacity, he said India's power sector already is not getting full use out of its coal plants. "The country simply cannot build more coal capacity that uses up more water capacity that doesn't exist," he said.

Shah said an added coal tax (India already imposes a tax of 50 rupees, or about 93 U.S. cents, per metric ton) would help divert the country to cleaner energy. But he said investors at this point are acting far more rapidly than political leaders, putting as much money globally into new wind, hydropower and other renewable energies last year as into coal.

Mani said he thinks things are in fact changing at a political level, and preliminary analyses like the World Bank study are a first step in reshaping the discussion on economic growth.

"We hope this will stimulate more discussion and debate within the country," Mani said. "The bottom line is that generally, all this talk about green growth right now in the World Bank and all over the place, the question is 'Is it really feasible?' And we think this is one of the first studies that tries to show that yes, green growth is really feasible."