Ethiopia exploring carbon pricing policy

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The Ethiopian Development Research Institute (EDRI) is collaborating with the World Bank to study the potential for implementing carbon pricing in Ethiopia, also as case study for low-income countries. One specific instrument that is being investigatesd is vehicle fuel tax.
After a High-Level Carbon Pricing Panel summit in New York last year, PM Hailmariam Desalegn promised to explore the potential of carbon pricing, the method favored by many for reducing global-warming.

The first phase of the study, focusing on the economic and distributional impacts of social impacts of carbon pricing, is almost finished.  The second phase will look at sector-specific aspects.

Dr. Haileselassie Medhin, who directs the Environment and Climate Research Center at the Ethiopian Development Research Institue, told Capital that the study will help the government take action on climate.

“Carbon pricing is one among an array of policy instruments that could help in achieving the targets set in Ethiopia’s ambitious Climate Resilient Greem Economy (CRGE) Strategy. But it’s potential needs to be carefully explored as it has multi-dimensional economic, environmental, and social impacts. Our job is to provide policy makers with the best possible evidence on these impacts by taking into consideration different scenarios on the rate of carbon taxes and recycling of revenues.” he said.

“Our study is forward-looking. We analyse the role of carbon pricing over the next two and three decades by taking the trajectory of Ethiopia’s economic transformation into consideration”Dr. Haileselassie added.

Capital asked the director why the current study focuses on fuel taxes, and hence not taxes on emissions from forestry and agriculture sectors.

“It is true that the majority of Ethiopia’s carbon emissions currently come from biomass-burning and agricultural activities, but it is complicated and a challenge to levy a tax on them given the current economic situation. The structure of the economy is also changing fast, making these kinds of emissions less and less prominent.’’ he said.
The point of carbon pricing is to charge producers and consumers for the cost of the carbon pollution they are discharging into the atmosphere, to discourage polluting, and reward innovation in energy efficiency.

Carbon pricing falls under two basic models. Carbon taxes can be levied by governments setting a price per ton on the production of greenhouse gases, typically on the sale and use of fossil fuels depending on the carbon content of the fuel. Cap-and-trade systems set economy-wide limits on emissions and then establish a carbon market, within which industries are allotted permits for emissions which they can buy and sell, with the costs passed on to consumers.

Norway, Sweden, Switzerland, France, Canada’s British Columbia and California have instituted carbon pricing; none have experienced adverse effects on industrial production or economic growth. When British Columbia introduced a carbon tax, an entirely new clean technology sector of over 200 companies sprouted up, collectively generating USD 1.7 billion annually.