In December 2017, participants at the One Planet Summit cautioned that “we are losing the battle” on climate change and we are “nowhere near” being able to contain rising temperatures to between 1.5°C to 2°C. Altering the trajectory of carbon emissions will require operationalizing the Paris Accord’s Nationally Determined Contributions (NDCs) through public policies, public and private investments, and innovative financial instruments. Finance ministers are pivotal to achieving these objectives. From tax instruments to strengthening social and economic resilience, finance ministers have a wide range of policy instruments with which to fight climate change and manage the transition towards low carbon development. Key ingredients for a fiscal reform to move from fossil fuels to low carbon forms of energy include:
- Fossil fuels subsidy removal;
- Environmental tax reform (ETR);
- Incentives for the use of Renewable Energy Sources (RES).
Together, these policy measures send price signals to reduce emissions of carbon dioxide, and provide incentives for desirable activities like innovation and investments in energy efficiency. In addition, environmental revenues can be a much-needed source of domestic resources, which can be channeled towards reducing distortionary taxes or increased spending for adaptation or the provision of public goods like health and education.
Moreover, fiscal reform and regional energy market integration need to move in harmony. Regional market integration has a key role to play in the energy transition, as it is one of the options to provide the flexibility that electricity systems need to accommodate a large RES penetration. However, the benefits of regional electricity market integration can be reaped only if the interconnection infrastructure exists to enable trade and if no other barriers hinder trade, such as differences across countries in pricing and taxation regimes.
The Center for Mediterranean Integration (CMI) and the Climate Action Peer Exchange (CAPE) organized jointly a workshop entitled “Fiscal Reforms for Low Carbon Growth in the Mediterranean”. The workshop took place at Villa Valmer in Marseille on 18-19 October 2018. It brought together around 30 participants, amongst whom high-level academics, representatives from international organizations (World Bank, IMF and OECD) and representatives from the governments of Algeria, Egypt, Lebanon, Morocco and Tunisia.
The objectives of the workshop are: (i) to discuss the fiscal reforms that are critical for a low carbon energy transition in the Mediterranean and (ii) to share country experiences and knowledge on the design of fiscal reforms conducive to the energy transition. Countries that are just starting on the long path of energy pricing reforms can learn from those that have successfully implemented these reforms.
Session 1: Fossil Fuel Subsidy Reform: Why, How and When
- The Quest for Subsidies Reforms in the Middle East and North Africa Region (2010-2014) - Paolo Verme (WB)
- Energy Subsidies, Economic Growth, and CO2 Emissions - Gabriela Mundaca (WB)
- Energy Subsidies in Mediterranean Developing Countries and their Reform - Thomas Flochel (WB)
- Fiscal Reforms for a Low Carbon Energy Transition: The Experience of Egypt - Moheb Malak (Ministry of Finance)
Session 2: Environmental Tax Reforms: Rationale, Benefits and Pitfalls
- Environmental Tax Reforms: Rationale, Benefits and Pitfalls - Anil Markandya (Basque Centre for Climate Change)
- Tax Policy Aspects of Decarbonisation - Kurt Van Dender (OECD)
- Taxation and the Environment in MENA - Mario Mansour (IMF)
Session 3: Promoting the Use of Zero-carbon Energy: RES Support Schemes
- La promotion des énergies renouvelables: approche méthodologique - Jacques Percebois (CREDEN) (in French)
- The Evolution Toward Market Mechanisms Such As Auctions in the European Union Under the New RES Directive - Mario Ragwitz (ISI)
- Support Schemes in the South and East Mediterranean Countries - Emanuela Menichetti (OME)
- Role of Regional Trade in Supporting scale-up RES - Waleed Alsuraih (WB)