There is growing concern around the world about the impact of greenhouse gases (GHG) on the environment and economy. Primarily responsible for global warming, GHG emissions (especially CO2) emissions) are closely linked to economic growth. Since fossil fuels are the primary source of energy, the consumption (burning) of fossil fuels inevitably lead to GHG emissions.

Many countries have not been able to de-link the association between the use of fossil fuels and economic growth until now. The scientific evidence points to increasing risks of serious, irreversible impacts from climate change (global warming) associated with business-as-usual (BAU) paths for emissions. There is an urgent need to cut emissions to scientifically acceptable levels since the costs associated with climate change are significantly higher than the costs of mitigation.

The main objective of this paper is to compare the economic costs of global climate policy regimes with those of climate change-induced agricultural productivity shocks, in the case of India. A dynamic CGE framework is used for the analysis. The paper attempts to answer the crucial question: are the costs of carbon mitigation policies higher than the benefits? The implications of climate policies on growth, welfare, and CO2 emissions are also analysed.

The cost to the economy due to productivity shocks is on average about 70 per cent more than that of mitigation policies, along with milder productivity shocks.Therefore, there is a strong case for the adoption of mitigation policies and other initiatives to stabilise/reduce the level of emissions to protect the agriculture sector.

The paper concludes by stating that climate policies could be a means to not only reduce emissions but also finance agricultural growth in the future. Labour households (rural and urban) experience relatively higher income losses than non-labour households due to climate policies. The welfare loss is relatively less if other countries are less affected by climate change than India as the country can then import agricultural commodities at a cheaper price from foreign markets. However, the welfare loss is higher if other countries are equally affected, in terms of agricultural price increase.