In the model CO2 emissions can be reduced in a number of ways. First, it can be reduced by reducing the levels of different activities. This has the direct effect of reducing income and consumption and hence a loss in the social welfare. The second method is to change the composition of production in the economy in favour of less CO2-intensive activities. This can be done either by changing the structure of trade so that the more CO2-intensive products are imported or the structure of consumption and other final demand may be changed by reducing the budget share of CO2-intensive goods in total final demand. This leads to an indirect loss of current welfare as the investor and consumer choices get distorted. 9 In addition, technological options are also available for reducing the CO2 intensity of activity levels. 

These have the virtue of reducing emissions without any significant loss of output. There are essentially two types of such options: (a) Reduce the amount of CO2 emitting energy inputs required by different activities; additional investment may be required to install equipment that can operate these processes at higher energy efficiency. (b) Switch to less carbon intensive fuels. For example, instead of a coal based power plant, we may install a CCGT power plant, or instead of running industrial boilers on coal, we may use oil.  The CO2 emission coefficient varies across the fuels, being highest for coal (26 tC/GJ), followed by oil (21 tC/GJ) and the lowest for natural gas (14.7 tC/GJ). Thus, oil or natural gas can substitute coal and lower CO2 emissions.  Alternative fuels or production technologies can be introduced by expanding the set of activities. None of the equations (given in Appendix) need change when new activities are introduced. 

http://www.igidr.ac.in/pdf/publication/WP-2006-004.pdf