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Africa/Global: Decarbonizing Development?

AfricaFocus Bulletin
May 18, 2015 (150518)
(Reposted from sources cited below)

Editor's Note

Decarbonizing Development, a new report from the World Bank, lays out a target of "zero carbon future" by the end of the century. The target year goal is the most conservative of the options laid out for negotiations in the climate summit in Paris in December. Such a long transition can rightly be criticized by climate activists and scientists as falling far short, as can the Bank's own record of continued support for fossil fuels implicitly faulted in this report.

But the report is also another indicator of the growing consensus that the transition away from fossil fuels is both imperative and inevitable, and that it must be managed so as to support wider inclusion and development rather than being seen as contradicting development. Notably, the report strongly advocates replacing fossil-fuel subsidies by direct cash payments which benefit the poor, citing the precedent of Iran's energy reform introducing a quasi-universal $45/month per capita cash payment.

Also notable is the report's warning that current investments in new fossil-fuel power could lock in unsustainable future emissions. The report advises that "all countries should work to avoid creating carbon-intensive lock-ins that will be costly to reverse later and to capture the large economic and health co-benefits from a cleaner and more efficient economic system."

* Just published May 17 - Guardian investigative report illustrating just such a carbon-intensive lock-in: "Shell accused of strategy risking catastrophic climate change." Internal Shell document reveals that company is planning for presumption of catastrophic rise to 4C. Guardian continues campaign for Gates Foundation and Welcome Trust to divest. Read article at http://tinyurl.com/ltwjhss

This AfricaFocus Bulletin contains a news release and excerpts from the overview of Decarbonizing Development: 3 Steps to a Zero Carbon Future. The full report is available at http://www.worldbank.org/climate (direct URL at http://tinyurl.com/l7n4knc)

For previous AfricaFocus Bulletins on climate change and the environment, visit http://www.africafocus.org/intro-env.php

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Burundi Updates

The situation in Burundi is changing daily, with both calls for dialogue and signs that such warnings are still failing. For background see AfricaFocus Bulletin for April 27 (http://www.africafocus.org/docs15/bur1504.php).

For more current analyses:

African Union Statement, May 16, 2015 http://tinyurl.com/n783bdd

Round-up analysis from IRIN, based on a seminar last week in Nairobi http://allafrica.com/stories/201505180715.html.

In addition to regular news sources such as AllAfrica.com and other sources appearing in Google News, another source with up-to-date information, principally in French, is
https://bujanews.wordpress.com/

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New Report Shows How to Decarbonize Development with 3 Steps to a Zero Carbon Future

World Bank News Release, May 11, 2015

http://www.worldbank.org/climate

Washington, May 11, 2015-- A new World Bank Group report lays out three steps countries can follow to reduce net emissions of greenhouse gases to zero and stabilize climate change: Plan for the end goal, not just the short-term; get prices right as part of a broad policy package that triggers changes in investment and behavior; and smooth the transition for those most affected.

The actions necessary to make the transition to zero net emissions are affordable if governments start today, the report Decarbonizing Development: Three Steps to a Zero Carbon Future says, but it warns that the costs will grow if action is delayed. Waiting until 2030 would increase the global cost by 50 percent.

"As science has indicated, the global economy needs to be overhauled to reach zero net emissions before the end of this century so we at the World Bank Group are increasing our focus on the policy options governments and businesses have now. Our role is to help our country clients and others to make the shift to low-emissions development. Choices made today can lock in emissions trajectories for years to come and leave communities vulnerable to climate impacts. We will help support robust decisions when we can," said World Bank Group Vice President and Special Envoy for Climate Change Rachel Kyte.

Planning for the future

The report is designed to help policymakers in both developed and developing countries set priorities as they reduce greenhouse gas emissions on a path to zero net global emissions. That starts with planning for the future by investing today in the research and technology that will be needed decades from now and by avoiding decisions that can lock in high-carbon growth patterns and infrastructure investments that will become obsolete in a low- carbon future.

The report describes how countries can reach zero net emissions by shifting from fossil fuels to clean energy as their source of electricity, and then scaling up electricity use. Improving energy efficiency is important to help lower demand, and keeping natural carbon sinks healthy through good forest and land management helps offset remaining emissions by absorbing and storing carbon.

"The goal is to reach zero emission in 2100, not to reduce emissions at the margin in the next decades. It implies a very different set of measures, including structural and spatial transformations of our economies," said World Bank Group Chief Economist for Climate Change and lead author Marianne Fay.

Getting prices right as part of a broad policy package

A broad policy package, including a price on carbon, is also necessary to provide incentives to ensure low- carbon growth plans are implemented and projects financed. The report explains how carbon pricing through a carbon tax or carbon market is an efficient way to raise revenue while encouraging lower emissions, and why it can be easier to administer and harder to evade than other taxes. "In the United Kingdom, tax evasion is about 9 percent for the corporate tax, and 17 percent for income taxes. For the excise tax on diesel, similar to a carbon tax, evasion is only 2%", said Fay. Pricing carbon is a valid option for countries at all income levels, provided that the revenue raised is used to finance development and eradicate poverty.

But a larger policy package is needed to accompany carbon pricing or to pave the way to its introduction. The report discusses complementary policies that can encourage investment needed to get to zero net emissions such as performance standards for energy efficiency, rebates on fuel-efficient vehicles, reduced tariffs on low-carbon technologies, and renewable portfolio standards that require electricity providers to get a percentage of their power from renewable sources.

Smooth the transition

The transition to low-carbon growth will have economic impacts. The report describes how governments can take steps to smooth the transition for those most affected and increase support for changes by protecting poor households from the impacts of higher prices and helping businesses reinvent themselves for a cleaner world.

"Data in 22 developing countries show that if fossil fuels subsidies were replaced by universal cash transfers, the bottom 60 percent would benefit from the reform," said Stephane Hallegatte, Senior Economist Climate Change and a lead author of the report.

Removing fossil fuel subsidies, which primarily benefit the wealthy, and implementing carbon taxes or cap- and-trade systems are two ways to generate revenue needed for education, health and infrastructure, and reduce carbon emissions at the same time.


Decarbonizing Development: Three Steps to a Zero-Carbon Future

Overview

Stabilizing climate change entails reducing net emissions of carbon dioxide (CO 2) to zero. CO 2 stays in the atmosphere for hundreds, if not thousands, of years. As long as we emit more than nature can absorb in its sinks (oceans, forests, and other vegetation), concentrations of CO 2 in the atmosphere will keep rising, and the climate will keep warming. And the decisions we make now will determine the planet's climate for centuries.

The latest science also tells us that we need to reach zero net emissions by 2100 to stabilize climate change around the 2 deg C target above preindustrial temperatures that has been agreed by governments as the maximum acceptable amount of warming. Relaxing the target to 3 deg C would make little difference in the policies needed, although a 2 deg C target would require more aggressive, earlier action.

But can we envisage a world in which economic activities have been made completely carbon neutral by the end of the century? Here, we should emphasize that carbon neutrality or decarbonization does not imply no emissions whatsoever. Positive emissions in some sectors and some countries can be offset, to some extent, through natural carbon sinks and negative emissions in other sectors and countries. So decarbonization means zero net emissions of CO2 --as well as the stabilization of emissions of short-lived greenhouse gases such as methane that dissipate in the atmosphere in days, weeks, or decades.

The latest report of the Intergovernmental Panel on Climate Change (IPCC) -- which presents the consensus views of 830 scientists, engineers, and economists from more than 80 countries and was formally endorsed by the governments of 194 countries -- identified many possible pathways to reach carbon neutrality by the end of the century. All require acting on four fronts: (a) decarbonization of electricity; (b) massive electrification (using that clean electricity) and, where that is not possible, a switch to lower-carbon fuels; (c) greater efficiency and less waste in all sectors; and (d) improved carbon sinks (such as forests, vegetation, and soil).

In practical terms, what does this mean for countries, especially developing countries that are already struggling to reduce poverty and achieve prosperity? Many are unable to keep up with the investments to satisfy the basic needs of their citizens, let alone the efficient cities, roads, housing, schools, and health systems they aspire to create. At the same time, the fact that much of their infrastructure is yet to be built means opportunities exist to act early and gain efficiency. Thus, the pursuit of a low- carbon transition must be integrated into the overall development agenda: the goal is not just to decarbonize, but to decarbonize development.

The aim of this report is to take this lofty goal of zero emissions by 2100 and examine what it means in terms of today's policy making for development. It does not discuss whether or why to stabilize climate change, or at which level we should do so. Our starting point is the 2 deg C goal set by the international community. We begin by examining how planning can help lay the foundation for both a stable climate and a good development path. Next, we explore how countries can create the right enabling environment so that the needed technology, infrastructure, and financing are available. Finally, we discuss how countries can carefully manage the transition, given the vital role that the political economy will play.

The message of this report is that to decarbonize development, and to do so by 2100, three broad principles must guide countries' low- carbon efforts:

Plan ahead with an eye on the end goal.

The appropriate way to achieve a given reduction in emissions by, say, 2030 depends on whether that is the final target or a step along the way to zero net emissions. If the latter, early action will need to be a mix of cheap, quick fixes and costlier long-term measures to promote technology development, investment in long- lived infrastructure, and changes in how cities are built. So every country needs to define a long-term target-- say for 2050--that is consistent with decarbonization and to build short-term, sector- specific plans that contribute to that target and are adapted to the country's wealth, endowments, and capacity. The good news is that many options with high potential offer immediate local co- benefits, especially in low-income countries, so that early action need not represent a trade-off with short-term development goals.

Go beyond prices with a policy package that triggers changes in investment patterns, technologies, and behaviors.

Carbon pricing is necessary for an efficient transition toward decarbonization. It is also an efficient way to raise revenue, which can be used to support poverty reduction and development or to reduce other taxes. And a carbon tax can be designed to be administratively simple yet harder to evade than taxes on income or capital. But carbon pricing alone cannot solve the climate change problem, given the many market failures and behavioral biases that distort economies. Policy makers also need to adopt measures such as targeted investment subsidies, performance standards and mandates, or communication campaigns that trigger the required changes in investment patterns, behaviors, and technologies--and if carbon pricing is temporarily impossible, to use those measures as a substitute.

Mind the political economy and smooth the transition for those who stand to be most affected.

Reforms live or die on the basis of how well the political economy is managed: a climate policy package must be attractive to a majority of voters and avoid impacts that appear unfair or that are concentrated in a region, sector, or community. Thus, reforms have to smooth the transition for those who stand to be affected--by not only protecting vulnerable people but also avoiding concentrated losses and sometimes compensating powerful lobbies. Fortunately, getting rid of environmentally harmful subsidies and pricing carbon provide additional resources with which to improve equity, to protect those affected, and, when needed, to appease opponents.

Of course, these are broad principles that every country will need to interpret in light of its own needs, institutions, and aspirations. Even so, a few generalizations can be made. Low-income countries, given their extremely low emissions levels, should focus on options that are consistent with immediate poverty alleviation and that do not stand in the way of short-term growth, including the adaptation and diffusion of technologies developed elsewhere. Richer countries can afford to implement more expensive measures and take the lead on developing frontier technologies such as carbon capture and storage and subsidizing their deployment so that the technologies improve and their cost decreases.

But all countries should work to avoid creating carbon-intensive lock-ins that will be costly to reverse later and to capture the large economic and health co-benefits from a cleaner and more efficient economic system. Further, income is not the only factor that differentiates countries. Countries that are rapidly urbanizing have a crucial window of opportunity to create cities that are energy efficient and easy to serve with public transit. Countries with large forests can achieve a lot by focusing on reducing irreversible deforestation. More generally, countries differ by the endowment of natural resources--for instance, their potential for hydropower or solar energy--and will therefore implement very different strategies. But, although countries will follow different pathways, all countries have a role to play.


Managing the Transition: Protecting Poor People and Avoiding the Potential Pitfalls of Reforms

The goal of the transition is to decarbonize development rather than just reduce emissions. Hence, reforms must contribute to poverty alleviation and shared p rosperity. And as with any major transition, the political economy of reforms must be managed with allowances made to those with a stake in the status quo and with good communication of the goals and benefits of the reform.

Ensuring Poor People Benefit

Fossil-fuel subsidies and artificially low energy prices are not efficient ways to boost competitiveness or help poor people. Such measures drain fiscal coffers, hurt the environment, slow the deployment of greener technologies, and chiefly benefit nonpoor people. A review of fossil-fuel subsidies in 20 countries shows that the poorest 20 percent of the population receive on average less than 8 percent of the benefits, whereas the richest 20 percent capture some 43 percent (Arze del Granado, Coady, and Gillingham 2012).

But even if removing fossil-fuel subsidies and adopting carbon pricing improve equity, those measures will also increase the price of energy and other goods (such as food), thereby reducing poor households' purchasing power. Further, higher prices for modern energy could lock poor people into using solid fuels for cooking, with impacts on health, gender balance, and children's access to education (women and children spend a disproportionate amount of time collecting traditional fuels and spend more time exposed to indoor pollution). Also, industrialization has been a powerful force for poverty reduction in many countries and could theoretically be slowed by higher energy prices.

It is therefore critical to use the savings or new proceeds generated by climate policies to compensate poor people, promote poverty reduction, and boost safety nets. One way to do that is by recycling revenue through tax cuts and increasing transfers to the population--as British Columbia did to ensure that its reforms were progressive (Beck et al. 2014). Similarly, the Islamic Republic of Iran implemented a quasi-universal cash transfer (about $45 per month per capita) as part of its energy reforms (IMF 2013). A modeling exercise carried out using data from developing countries shows that taking $100 away from fossil-fuel subsidies and redistributing the money equally throughout the population would on average transfer $13 to the bottom quintile and take away $23 from the top quintile (figure O.5).

Another way to ensure that poor people benefit is with in-kind measures. Ghana's 2005 fossil-fuel subsidy reform increased the price of transport fuels by 50 percent but also included an expansion of primary health care and electrification in poor and rural areas, the large-scale distribution of efficient lightbulbs, public transport improvements, and the elimination of school fees at government-run primary and secondary schools (IMF 2013; Vagliasindi 2012).

Redistribution has also been shown to significantly increase the odds of reforms succeeding. A review of reforms in the Middle East and North Africa classifies all reforms with cash and in-kind transfers as successful, as opposed to only 17 percent of the cases without (IMF 2013; Sdralevich, Sab, and Zouhar 2014).

...

Managing the Political Economy of Reform without Getting Captured by Vested Interests

Worries about large-scale deindustrialization and job losses--which play a big role in debates on carbon tax and cap-and-trade systems--may be overblown. Evidence from developed countries suggests that there are no discernible impacts on productivity and jobs from introducing cost-increasing environmental regulations or pricing schemes.

Indeed, pollution abatement costs represent only a small fraction of production costs for most industries, and factors such as the availability of capital and skilled labor or proximity to markets are much more important determinants of firm location and competitiveness (Copeland 2012). A detailed analysis of the European iron and steel industry shows that the impact of the European Union's emissions-trading scheme remains limited, with impacts smaller than interannual exchange rate variations (Demailly and Quirion 2008). In contrast, resources raised by carbon-pricing schemes can contribute to attracting more jobs and investments by improving more important factors, such as education and workers' skills or infrastructure, and by reducing capital and labor taxes that are more distortive than carbon pricing.

However, what is valid for relatively modest environmental regulations may not be true for stricter policies. A low-carbon transition entails a shift away from carbon- intensive sectors and technologies toward low-carbon ones. In the short to medium term, that transition means reallocating capital, labor, and rents. It cannot be done without negative impacts on some asset owners and workers. Further, those impacts may be spatially concentrated in regions that specialize in energy-intensive or extractive industries, such as steel production or coal mining.

A key question is the extent to which those who stand to be most affected need to be compensated or protected. The answer can be based on ethical considerations: poor people are vulnerable to those changes and have a lower capacity to adjust to price changes; and some (poor or non-poor) stand to lose their investments and livelihoods because the rules of the game have changed, not because they were willfully doing the wrong thing. But there is also a pragmatic argument: compensation may be needed for political economy reasons. Climate policy gains tend to be diffuse across economic actors, and the benefits of climate change stabilization are intangible avoided losses, which take place mostly in the future. Those characteristics do not help create a vocal group of policy supporters (Olson 1977). In contrast, policy costs tend to be visible, immediate, and concentrated over a few industries, which may have a de facto ability to veto the reform.

A number of steps can help smooth the transition and avoid concentrating losses (either spatially or within a particular interest group). One option is to start the reforms with regulations such as performance standards that apply only to new capital. This approach is less efficient from an economic point of view than immediately introducing a carbon price. But it has the advantage of putting the economy on the right path without hurting owners of existing capital (hence, reducing resistance). Further, it creates a constituency for change, as business owners are less likely to lobby for repeal of a carbon law or against the subsequent introduction of a carbon tax if they have already invested in the new, cleaner capital. ...

Another solution is to adopt compensation schemes. Strong social protection systems play the role of horizontal compensation systems, since they protect households and individuals against economic shocks. Specific instruments can also be implemented, as in Japan's support for traditional industries (such as textiles and shipbuilding) in the 1960s and 1970s. ... The U.S. Trade Adjustment Assistance Program also provided reemployment services to displaced workers and financial assistance to manufacturers and service firms hurt by import competition.

...


AfricaFocus Bulletin is an independent electronic publication providing reposted commentary and analysis on African issues, with a particular focus on U.S. and international policies. AfricaFocus Bulletin is edited by William Minter.

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