Is carbon pricing critical for developing countries to meet climate action commitments?

Doaa A.Moneim , Wednesday 2 Jun 2021

Egypt's energy-related CO2 emissions rose to a global peak of 33 Gt in 2019, resulting in an unprecedented level of global warming, according to a recent research


Despite COVID-19 remaining a threat to human lives and the global economy, it has managed to draw the world's attention to accelerating climate action as well as dealing with climate change implications.

From 25 to 27 May, Innovate4Climate (I4C)’s three-day virtual conference shone the light on how countries, especially developing countries and low-income economies, can scale up their climate action and green field efforts amid the ongoing challenges through banking on innovative ideas and out-of-the-box actions.

The conference was organised by REVOLVE along with the I4C platform and hosted by the World Bank Group in collaboration with the governments of Germany and Spain.

One of the mechanisms the conference discussed was carbon pricing and how it is considered a double-face beneficial tool for developing countries and low-income economies that could contribute to fast-tracking their climate action.


What is carbon pricing?

Carbon pricing is an approach that the countries can bank on to reduce carbon emissions through passing the cost of emitting on to emitters that can, incrementally, force the emitters to switch to more cleaner fuels.

It includes a package of procedures, such as imposing carbon tax and fees on corporates with emissions containing carbon.

Such an approach is adopted in a number of developed countries but the ongoing efforts in this regard cover only 22 percent of the emissions worldwide, according to Senior Climate Change Specialist Daniel Besley.

COVID-19 vs climate action targets

In its 2021 version of 'State and Trends on Carbon Pricing' report, the World Bank said that as the world starts to recover from the pandemic, there is a strong consensus on the need to strengthen its preparedness for future global crises, including those related to climate change.

“The last year has shown us that cooperation is essential to address problems that transcend national borders. Achieving a resilient recovery therefore requires enhanced cooperation and collaboration. This is the case for climate change as well,” read the report.

Carbon pricing as a policy to accelerate climate action

The report said that carbon pricing is a cost-effective policy tool that can create a financial incentive to mitigate emissions through price signals as well as help encourage changes in production and consumption patterns, through which curbing low-carbon growth and consequently, helping fulfill the countries' commitment to reach zero-carbon by 2050.


However, such a policy needs to be supported by other policies as well to be effective.

According to the report, that can be executed through applying sector-specific regulations and other targeted incentive mechanisms –such as research and development funding- in order to enable investments in technologies that require application over a long time to develop and deploy.

Other complementary measures are also needed alongside carbon pricing policies to tackle non-price barriers and to reduce emissions in sectors not covered by carbon pricing, according to the report.

Why is carbon pricing currently imperative for developing countries and low-income economies?

In 2020, carbon pricing and its related instruments managed to generate $53 billion in revenue globally, up from the $8 billion in 2019, according to the World Bank, which means that adopting such a policy can benefit those economies through increasing their total revenues that will contribute to providing finances to meet their needs and to tackle climate change impacts as well.


Moreover, carbon pricing can help address the high levels of informality in developing countries, where 70 percent of all employment is informal, as carbon taxes are harder to avoid than direct taxes on personal or corporate income, according to a recent report published by the Organisation for Economic Co-operation and Development (OECD).

“Carbon taxes also permit trading as well as encourage cleaner investment and consumption choices for all public and private spending, which is not only an effective and efficient way to reduce CO2 emissions, but it can also future-proof investments," the report said.

The report stressed that a long-term commitment to carbon pricing and phasing out fossil fuel subsidies ensures that investments will flow into assets that are aligned with low-carbon development objectives and that those assets will remain valuable once the transition to a carbon-neutral economy scales up around the world.

The situation in Egypt as a developing country

Under its economic reform programme, implemented in November 2016, Egypt has been phasing out its fuel and oil product subsidies, in addition to initiating the implementation of a national project of converting oil-run vehicles to run on natural gas.

Moreover, Egypt has allocated EGP 36.7 billion in the current FY2020/2021 –ends in June– for the implementation of 691 green projects, accounting for 14 percent of the budget’s allocations for investment.


The total value of the 691 green projects is estimated at EGP 447.3 billion, according to Egypt’s Ministry of Planning and Economic Development.

In the upcoming FY2021/2022, which starts in July, Egypt plans to raise public investments in green projects to 30 percent, up from the 15 percent in FY2020/21.

These steps however, and other related actions, are not enough. The country needs a bold idea to stop rising carbon emissions, according to a report released in March by a US-based Middle East Institute.

The report explained that Egypt is highly vulnerable to the effects of climate change, especially with its increasing population and the repercussion of the ongoing pandemic crisis.

“Rising waters on the coast or Nile delta threaten the food security of millions. Egypt’s economy is largely dependent on tourism, which is impacted by weather — whether at the archaeological sites or its beaches. The cost of Cairo’s air pollution alone exceeds one percent of GDP and there are significant costs to the health care system, stemming from rising carbon emissions from power; transportation and manufacturing," the report added.

To deal with this, the report called for establishing carbon exchange or putting a price on carbon that would help make Egypt an environmental leader in the region.


Counting its benefits, the report said that countries that had adopted such a policy witnessed a double increase in their revenues in 2018 to reach $44 billion, up from $22 billion in revenues recorded in 2016, which means that if such a policy could generate revenues, Egypt needs to finance its reforms and address the implications of the COVID-19 crisis as well.

Egypt's energy-related CO2 emissions rose to a global peak of 33 Gt in 2019, resulting in an unprecedented level of global warming, according to a research published by the Nature Public Health Emergency Collection Journal –under its initiative to address COVID-19 and its related implications.

Also according to the research, Egypt emitted 250 million tons of CO2 in 2018, ranking 27th among the countries of the world in terms of energy-related CO2 emissions.



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