India’s commitment to achieving net-zero emissions by 2070 requires state-level strategies for low-carbon economic transitions. This study develops a state-specific macroeconomic framework linked to an energy system model to assess the investment needs and employment impacts of decarbonization. Focusing on Odisha, an eastern coastal state producing 23% of India’s coal and 44% of mineral output, with a high industrial GDP share, we construct a 49-sector computable general equilibrium (CGE) model and soft-link it with a bottom–up MESSAGEix model. Studies utilizing integrated CGE–MESSAGEix models at the subnational or regional level in India remain limited. The integrated approach evaluates the economic and employment impacts of alternative low-carbon pathways, capturing inter-sectoral and national-global linkages. The findings indicate that fossil-fuel taxation with revenue recycling and renewable energy investment, if applied in isolation, may dampen growth. However, combining renewable energy development policies with energy efficiency and productivity gains mitigates adverse effects, supporting a sustainable transition. In the policy scenario, while coal sector jobs decline, overall employment rises, highlighting opportunities for a just transition in resource-dependent states.

Article highlights

• Uses top–down regional recursive dynamic CGE model with a bottom–up energy model.

• Assesses the economic, energy, employment impact of decarbonization and investment need.

• Development of renewable sector by taxing fossil fuels hampers economic growth.

• Improvement in energy efficiency & productivity enhances economic growth.

• Overall employment even in coal-rich state is not affected by the transition.