Enabling Collaborative Action on Carbon Pricing in Africa
One of the strongest policy levers available to shift financing flows is carbon pricing because it translates carbon pollution into a price that governments, businesses, and consumers can factor into their spending and investment decisions. It delivers a triple dividend – it protects the environment, generates revenue, and promotes clean energy investments. For this reason, many jurisdictions have been incorporating carbon pricing policies into their climate strategies. The number of carbon pricing initiatives implemented or planned has almost doubled over the last 5 years. To date, 42 national and 25 sub-national governments are already pricing carbon or are planning the implementation of a carbon price. These jurisdictions represent about a quarter of global greenhouse gas emissions.
Today, Africa remains a region with limited application of explicit carbon pricing instruments. So far, only South Africa has formally started a process to introduce a carbon tax. Countries’ experiences vary widely when it comes to the social, political, and institutional barriers involved in enacting carbon pricing policies at the domestic level. And to date, there has been little comparison of these experiences, or sharing of the mechanisms used to overcome these barriers.
A consultative dialogue was organized by the Carbon Pricing Leadership Coalition (CPLC) in collaboration with the African Development Bank, the UNFCCC and the German Ministry of Environment on Oct 5-6, 2017, to discuss the role and potential for carbon pricing instruments in African economies. It gathered about 25 public and private sector experts from various African countries, including Benin, Cameroon, Democratic Republic of Congo, Cote d’Ivoire, Ethiopia, Kenya, Senegal, South Africa, Zambia, and Zimbabwe.
The meeting aimed to get a realistic assessment of the potential to develop carbon pricing initiatives in Africa. The experts shared their experiences and discussed the relevance of these policies for African countries, as well as challenges and opportunities for their implementation The dialogue highlighted the need to change the narrative on carbon pricing from being mere emission reductions - or even a burden - to a booster of a sustainable "Green Economy" in Africa.
Key messages from the discussion included the following:
· Implicit carbon pricing: 30 sub-Saharan countries refer to the use of carbon pricing or carbon markets in their Nationally Determined Contributions (NDC) to the Paris Agreement. However, for almost all of them, carbon pricing is seen as being synonymous to international carbon markets, with the main objective being financing for mitigation. Given Africa’s low emissions and the slow progress of the negotiations on carbon markets at the international level, this narrow perception seems to initially limit the scope to consider carbon pricing instruments as part of the climate change strategies. However, on closer reflection and while accepting a broader definition of carbon pricing, it is clear that there are a range of active measures and instruments that implicitly already put a price on carbon in Africa. Many of these are in the transport, energy and industry sector, and take the form of duty taxes, fuel taxes, subsidies, feed-in tariffs and other green incentives
· Policy alignment: The carbon pricing debate in Africa needs to shift to how the existence of implicit instruments including energy efficient goods and services labeling, building standards, fleet efficiency standards, removal of subsidies on fossil fuels, feed in tariffs, renewable energy power purchase agreement etc. can be used to send price signals and lay a foundation for the development of explicit instruments such as carbon taxes or Emissions Trading Systems. Given that many countries have included measures to increase energy efficiency and renewable energy in their NDCs, there is a significant scope to explore how carbon pricing instruments can expedite such efforts. However, such alignment often requires a good data basis and specific sector expertise to understand the dynamic interaction between carbon pricing and other green policies.
· Sustainable development co-benefits: Carbon pricing in Africa should therefore be framed in a broader context and be embedded in the overall sustainable development approach for the continent. This would ensure alignment and complementarity across different policy areas and increase the effectiveness/impact of such instruments. The new carbon pricing policies need to look beyond emissions reduction to embrace the full scope of Sustainable Development.
· Country-specific customization: Some of the participants were of the view that the ultimate design principle of the new carbon market should not be a one-size-fits-all, but rather should be customized to the specific context of each country and should be fit for purpose for both the country and the investor.
· Use of revenues: Revenues generated by carbon pricing instruments can provide much-needed resources to African countries. Depending on national priorities, those resources can either be directed to the national treasury or ear-marked for specific spending purposes such as further advancing a country’s sustainable development agenda. Furthermore, well managed revenues could improve the acceptability of carbon pricing, and as such there will be need to further engage a multitude of stakeholders with emphasis on entities that are mandated to shape fiscal policy e.g. Ministries of Finance and revenue authorities in order to secure more buy in from other African states.
· Distributional impacts: Several experts noted the strong need to consider the effective governance of carbon pricing instruments to ensure that they do not disproportionality impact on poorer parts of the society. Within this context, revenues can be managed in a manner that would benefit these groups as well.
· Capacity: Capacity constraints regarding carbon pricing remain a challenge in African countries. Building such capacities will be crucial to ensure that carbon pricing policies beyond simple offsetting are fully understood and that all relevant stakeholders within the government, the business community and civil society are consulted in an inclusive process.
· Regional cooperation: Regional collaboration through already existing political, economic- and financial alliances can become promising vehicles to establish and harmonize carbon pricing policies, reduce adverse effects and boost joint efforts to build up regional centers that will provide support in the development of carbon pricing initiatives. There may be more potential to consider pricing instruments at the regional level, especially as related to the integration of energy systems, which can also help to address efficiency and competitiveness issues. The African continent already has some well-established regional institutions which can help to facilitate such cross-border cooperation on fiscal policies.
Looking ahead, the CPLC will continue working with its partners to support African stakeholders as they move their carbon pricing initiatives forward.