CARBON PRICING IN AFRICA: EXPERIENCES AND LESSONS LEARNED

1. CPLC Webinarseries -------------------------------------------------------------------------------------------------------------------- CARBON PRICING IN AFRICA: EXPERIENCES AND LESSONS LEARNED Presented by: Rachel BOTI-DOUAYOUA Africa CPLC Working Group Co-leader October 3rd, 2019

2. Introduction • Côte d’Ivoire has been exploring carbon tax and market options since 2015 with the support of the CPLC and the PMR, some important studies are ongoing and we expect some results in 2020. Nevertheless, we learned a lot from Carbon Pricing so far. • First of all, everyone should know that Carbon Pricing is not only for economies in transition or developed countries • Carbon Pricing is for any country having a ER target, even if it is a low-income country like Côte d’Ivoire

3. Ask ourselves the right questions The most important thing for a country willing to engage in Carbon Pricing is to ask itself the right questions: • Do I have an Emission Reduction target? • What are the possible tools to achieve my commitments? • Do I want to use the carbon Market? Our experience is that Carbon Pricingcould be a good alternative for those who implemented CDM and the main challenge in the CDM success was to get a stable price not even a high price. Something stable is easy to manage because it can lead to predictable results. This can be overcome by setting a price through a domestic market.

4. Need to mobilizeinternalfinancialresources for Climate • In the CDM we relied a lot on external funding and resources and because we were not the only ones on the market applying for these funding, it was difficult to get them; through the domestic market and Carbon Pricingwe want to rely on us firstand for us it is a good way to mobilize new financial resources to fund renewable and low carbon activities • This predictability and complying aspect of the Carbon tax for local stapled companies can help meet our NDCs

5. Choose the right type of CarbonMarket instrument Africa should be careful about the type of Carbon Market Instruments they want to use, a Carbon Tax or an ETS? • What we learned is that for rather small- economy like most of the African countries, dominated by informal activities, characterized by a lack of data and structured system, it is preferable to go for a carbon tax instead of an ETS. Indeed, a carbon tax can be structured in a way that efficiently covers the informal sector i.e. taxation at the source of production. • An ETS requires a better structured system with strong data and at least basic infrastructures that are not yet in place in most of African countries. • There is a need for a simple system with low transaction costs that is not vulnerable to market power and that can reuse the existing fiscal system instead of requiring entirely new administrative structures. Carbon tax therefore represents a better solution for Cote d’Ivoire. • In a long-term perspective, an ETS could be envisioned at the sub-regional level and why not at a regional level later on in order to mitigate issues related to competitiveness and risks of carbon leakage.

6. Need for a regulatory and institutional anchorage Implementing Carbon Pricingalso means there’s a kind of mandate to do so. • At the International level we have the Paris Climate Agreement, and its decision 1 / CP21 para 136, which encourages "incentives for the implementation of emission reduction activities, including tools such as national policies and carbon pricing"; • At the national level, it will be also preferable to mention in the NDC the willingness to use carbon markets or pricing to meet our NDC. Côte d'Ivoire has done so by clearly stating in its report on its NDCs that it intends to "explore the opportunity of setting up a carbon market and a carbon price at the national level"; Côte d'Ivoire adopted Decree No. 2012-1047 of 24 October 2012 setting the detailed rules for the application of the polluter-pays principle as defined by Act No. 96-766 of 03 October 1996, Environment.

7. To summarize Domestic use of CP may help: • stabilize the carbon price at the national level; • create demand at the domestic level through the NDCs; • reach faster the NDCs goals because it induces a mandatory framework so applicable at the national level and induces penalization. • provide local financial resources for NDCs goals; • have more predictable results; • use carbon pricing as a source for funding renewable and low carbon activities; • industrial and commercial entities to benefit from tax collection incentives for carbon less intensive activities;

8. Some prerequisites are needed • Making sure that the political level or decision makers are on board. It is a kind of mandate to allow real actions on the ground; • Also making sure that all the stakeholders are involved in the process mainly the entities to which the carbon taxation could be sensed as a burden because of a lack of understanding of the process.

9. The future outlook • Improve the local communication on the topic; • Give the decision-makers scientific and technical arguments for a carbon taxation policy implementation through in-depth economic study on the matter; • Conduct capacity building activities on Carbon Tax for local stakeholders; • Put in place a strong, reliable and centralized infrastructure to run the tax at the local level.

10. CONCLUSION • Carbon pricing is one tool in the whole programme to combat Climate change • it should be associated with other tools in order to reach better results • Indirectly, the effective application of the carbon tax as a courageous policy could allow the release of additional external funding.

11. THANKS FOR YOUR ATTENTION