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The Environment and Climate Research Center is based at the Ethiopian Development Research Institute. It held its first annual conference recently on ‘green development’ in collaboration with the Ministry of Forest, Environment and Climate Change. It covered topics like carbon pricing.
Dr. Haileselassie Amaha Medhin directs and helped establish the Environment and Climate Research Center. He is also a Research Fellow at the Department of Economics at the University of Gothenburg, Sweden. After obtaining his Bachelor’s degree from Addis Ababa University in 2004, he pursued his post-graduate studies at the University of Gothenburg, where he completed his Master’s and Doctoral degrees in Economics. He spoke with Capital’s Tesfaye Getnet about the Centre’s research activities. 

Capital:  Tell us about the Institute, what are its primary goals?

Dr. Haileselassie Amaha: The Ethiopian Development Research Institute (EDRI), was established in 1999 by the Ethiopian government to support the design and implementation of policies through rigorous research. EDRI has been working on environmental issues and climate economics since the early 2000s, especially with the Environment for Development Initiative, based at the University of Gothenburg, Sweden. With Ethiopia’s increasing focus on building a green and resilient economy, which was cemented with the launch of the Climate Resilient Green Economy (CRGE) strategy in 2011, there was a need for stepping up the research at EDRI on related issues. We saw the need for forward-looking and institutionalized research and knowledge of the management processes in support of the CRGE implementation.  And we initiated the Environment and Climate Research Center (ECRC) at EDRI as a result. In just two years after its establishment, ECRC has now what we believe is the highest concentration of highly qualified environmental and climate economists in the country, if not in the region. We also have a number of international associates actively involved in our research.

Our core programs focus on supporting the implementation of Ethiopia’s CRGE strategy with policy-oriented research, data generation and knowledge sharing, bridging gaps between research and policy, and capacity building. Most of our effort is of course devoted to research, and we currently have research programs that cover themes related to sustainable energy transition, green industrialization, sustainable agriculture, urbanization, water management, and forest management. We particularly focus on impact-evaluation research, where we try to generate lessons from ongoing interventions by the government and other stakeholders. What Ethiopia is aiming to achieve with the CRGE strategy is something that no country has done in the past. This makes learning from doing very critical, hence our focus on impact-evaluation. We work on the pathos that good research should respond to both current and future knowledge demands. We therefore focus heavily on developing data and a knowledge base that can be vital in addressing future challenges and generating new tools.

We also work actively with local and international partners on relevant topics. For example we are currently partnering with the World Bank on a number of research projects related to carbon pricing, country environmental analysis, and access to cleaner cooking technologies for rural households.

Capital: What is carbon pricing how does it help alleviate climate change? 

Dr. Haileselassie: Carbon pricing places a price tag on carbon emissions by firms or individuals. In most cases goods that create carbon emissions such as fossil fuel are taxed based on how much carbon they emit.

The basic motivation behind carbon pricing is to encourage climate-friendly production and consumption by making it more expensive to pollute. Conversely, it lowers the relative price of non-polluting goods and services, attracting their consumption and production.

The revenue collected from tax on carbon emissions can also be used to invest in cleaner technologies and environmental rehabilitation. Carbon pricing is one among many policy instruments useful for developing a green and climate-resilient economy. An increasing number of countries now have carbon pricing policies.

The application of carbon pricing has been concentrated in developed countries. However, now there are initiatives to increase its global coverage. A prime example of this is the Carbon Pricing Panel, convened by the World Bank Group president and IMF Managing Director, which includes Ethiopia’s Prime Minister.

Ethiopia will need to utilize many policy instruments like carbon pricing if it is going to realize its goal of developing in an environmentally sustainable manner, if the country can achieve this it can set an example for others.

Capital: Is carbon pricing the best way to reduce carbon emissions?

Dr. Haileselassie: Carbon pricing is considered one of the most effective policies for reducing emissions, if not the most effective. It is attractive because it has a strong economic rationale, its implementation is relatively easy, and it raises revenues that can be invested in sustainable activities such as renewable energy generation. In addition to combating climate change, it also has potentially significant domestic health benefits.

But it important to note that carbon pricing is one among multiple policy instruments, each with its own value. The focus should be on understanding what works best for which situation, and putting in place an optimal package of different instruments across the economy. While there are situations where cost is the main parameter in the choice of instruments, policy instruments are more complementary than substitutes. Understanding and exploiting complementarities among different instruments will go a long way.

Capital:  Can you tell us more about the carbon pricing study being carried out by your center and the World Bank?

Dr. Haileselassie: The project was initiated mainly as result of the deliberations on the Carbon Pricing Panel in April 2016. The Panel called for the expansion of carbon pricing across the globe in order to deliver on the promised of the Paris climate agreement. Prime Minister Hailemariam on his part expressed Ethiopia’s commitment to use all available instruments including carbon pricing. This led to the collaboration between our center and the World Bank to explore the potential for carbon pricing in Ethiopia, as a case study for other developing countries.

The overall aim of our project is to understand of the potential benefits and costs of carbon pricing policies in Ethiopia. We follow a phased-approach. The first phase, currently nearing completion, utilizes macro-economic models based on national accounting data as well as simulations of micro-level data to assess the economic, environmental and distributional impacts of carbon pricing. Different scenarios of carbon tax and revenue recycling mechanisms are being explored as part of the exercise, with the aim of identifying an optimal rate that maximizes benefits and minimizes costs. We take a dynamic approach, where the impact of carbon pricing is analysed for the next two and three decades by taking the trajectory of the economy. The second phase of the study, currently in its early phase, will supplement results from the macroeconomics analysis with a more bottom-up assessment of policy instruments across selected sectors. We have already started working on transport, household energy use, and forestry.

Capital: Compared with other African countries Ethiopia does not have many vehicles on the streets so how will a fuel tax be effective?

Dr. Haileselassie: While it’s true Ethiopia currently has one of the lowest numbers of vehicles per capita, experience from other countries shows this is likely to change rapidly. Projections show that the number of vehicles will grow exponentially over the next decade, making it very important to come up with guidelines that are consistent with green development goals. For example, we need to put in place policies that attract the import of environmentally-friendly vehicles. We also need to invest in alternative and cleaner transport systems, such as the light-rail in Addis. Carbon pricing is directly and indirectly linked to such processes.

Capital: What made you focused on fossil-fuel taxes when farming and forestry are responsible for a great deal of carbon emissions?

Dr. Haileselassie:  In this study we focused on fossil-fuel taxes and didn’t consider taxing emissions from agriculture and forestry because we think taxing these sectors is not feasible so it would be pointless to waste resources on something that we don’t think will work. Looking at the long term we expect over the next few decades industrial and transportation pollution is going to dramatically increase.  We do analyze rural areas. For example, one of the issues that we will explore is using revenue from the fuel tax on improved cooking technologies for rural households who depend on burning charcoal and wood for cooking, which has a direct impact on emissions from deforestation.

Capital: Ethiopia is working to build a manufacturing industry as part of its economic-transformation agenda. How can this be achieved in parallel with creating a green economy?

Dr. Haileselassie:  There is no inherent conflict between green economic development and industrialization. Ethiopia can leap-frog to a green industrialization path by adopting cleaner technologies and prompting green investments. There are practical steps in this direction, such as the development of eco-industrial parks like the one in Hawassa. The country’s massive potential for renewable energy is a key advantage for building a green industry. Being a late comer also helps. There is now ample evidence that shows that grow-first-and-clean-later approaches followed by other countries in the past are neither the best option nor the most feasible in the 21st century. This is part of the reason why Ethiopia’s drive for green development has attracted a lot of international attention. Ethiopia has the potential to be a leader in a new paradigm of growth.