Title Page
INTERNATIONAL MONETARY FUND
MIDDLE EAST AND CENTRAL ASIA DEPARTMENT
DEPARTMENTAL PAPER
A Low-Carbon Future for the Middle East and Central Asia What Are the Options?
Prepared by Gareth Anderson, Jiayi Ma, Tokhir Mirzoev, Ling Zhu, and Karlygash Zhunussova
Copyright Page
Copyright ©2022 International Monetary Fund
Cataloging-in-Publication Data
IMF Library
Names: International Monetary Fund, publisher. | Anderson, Gareth, author. |
Ma, Jiaya, author. | Mirzoev, Tokhir, 1976-, author. | Zhu, Ling (Economist), author. | Zhunussova, Karlygash, author.
Title: A low-carbon future for the Middle East and Central Asia : what are the options? / Prepared by Gareth Anderson, Jiayi Ma, Tokhir Mirzoev, Ling Zhu, and Karlygash Zhunussova
Other titles: International Monetary Fund. Middle East and Central Asia Department (Series)
Description: Washington, DC : International Monetary Fund, 2022. | DP/2022/0XX | Includes bibliographical references.
Identifiers:
Paper: Â Â Â Â Â Â Â Â Â Â Â 9798400224126
ePub: Â Â Â Â Â Â Â Â Â Â Â Â 9798400219535
Web PDF: Â Â Â Â 9798400221453
Subjects: LCSH: Sustainable development – Middle East. | Sustainable development – Asia, Central.
Classification: LCC HC79.E5.A53 2022
The Departmental Paper Series presents research by IMF staff on issues of broad regional or cross-country interest. The views expressed in this paper are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
Publication orders may be placed online or through the mail:
International Monetary Fund, Publication Services
P.O. Box 92780, Washington, DC 20090, U.S.A.
T. +(1) 202.623.7430
Contents
Acronyms and Abbreviations
Glossary
Executive Summary
1. Introduction
2. GHG Emissions in ME&CA
A. Trends
B. Drivers
3. Climate Mitigation Pledges
A. Mitigation Plans in Nationally Determined Contributions
B. What Do ME&CA Mitigation Commitments Amount To?
4. The Macroeconomics of Climate Mitigation in the ME&CA Region
A. Challenges
B. Fiscal Policy Framework
C. Macroeconomic Implications
5. Practical Considerations
6. Conclusion
Annex 1. Climate Policy Assessment Tool
Annex 2. Aggregation of ME&CA Region’s Emissions Reduction Targets
Annex 3. ME&CA Countries’ Mitigation Policy Plans
References
BOXES
Box 1. Paris Agreement and Nationally Determined Contributions
Box 2. Climate Mitigation Policy Options
FIGURES
Figure 1. Greenhouse Gas Emissions in the ME&CA Region
Figure 2. Growth of Total GHG Emissions and per Capita Emissions in ME&CA
Figure 3. Emissions and Energy Prices in ME&CA: 2019
Figure 4. Kaya Decomposition of Emissions Growth, 2000-19
Figure 5. Kaya Decomposition of Emissions Growth in the ME&CA Region, 2000–19
Figure 6. ME&CA Emissions: 1990–2030
Figure 7. BAU Emissions Projections and NDC Targets
Figure 8. Conditional NDCs: Implied Changes in per Capita Emissions by 2030
Figure 9. ME&CA BAU Emissions and NDC Targets
Figure 10. Mitigation Policy Transmission Mechanism
Figure 11. Illustrative Mitigation Path: Total GHG Emissions in MENAP
Figure 12. Fiscal Policy Trade-off in the ME&CA Region
Figure 13. Mitigation Policy Mix and Medium-Term Macroeconomic Trade-Offs
Figure 14. ME&CA Sectoral Emissions, 2019
TABLES
Table 1. Climate Mitigation Pledges in ME&CA Countries’ Latest NDCs
Acronyms and Abbreviations
| BAU | Business as Usual |
| CCA | Caucasus and Central Asia |
| CH4 | Methane |
| CO2 | Carbon Dioxide |
| CPAT | Climate Policy Assessment Tool |
| ECR | Effective Carbon Rate |
| FCS | Fragile and Conflict Affected States |
| GHG | Greenhouse Gas |
| IPCC | Intergovernmental Panel on Climate Change |
| LULUCF | Land use, Land-use change and forestry |
| ME&CA | Middle East and Central Asia |
| MENAP | Middle East, North Africa, Afghanistan, and Pakistan |
| NDC | Nationally Determined Contribution |
| NZE | Net Zero Emissions |
| RE | Renewable Energy |
| UNFCCC | United Nations Framework Convention on Climate Change |
Glossary
| Effective carbon rate | The net fiscal revenue from fossil fuels per metric-tonne of carbon dioxide |
| Energy intensity | Energy consumption per unit of real GDP |
| Emissions intensity | GHG emissions per unit of energy consumption |
| Kaya identity | An accounting identity of GHG emissions |
| Effective carbon rate | The net fiscal revenue from fossil fuels per metric-tonne of carbon dioxide |
| Energy intensity | Energy consumption per unit of real GDP |
| Emissions intensity | GHG emissions per unit of energy consumption |
| Kaya identity | An accounting identity of GHG emissions |
Executive Summary
This departmental paper is based on the second IMF study devoted to macroeconomic challenges associated with climate change in the Middle East and Central Asia (ME&CA). It follows a departmental paper, released earlier this year, that highlighted the urgency and macro-critical nature of the region’s climate adaptation needs and called for embedding adaptation policies in countries’ medium-term inclusive growth agendas (Duenwald and others 2022).
In addition to the challenge of climate adaptation, nearly all countries in the Middle East and Central Asia have pledged to contain greenhouse gas (GHG) emissions as part of the Paris Agreement. Collectively, these commitments envisage reducing annual emissions in 2030 by an estimated 13 to 21 percent, depending on the availability of external support, relative to the current trend of their rapid growth. This will require reducing the region’s per capita emissions by as much as 7 percent over the next eight years—a feat only a few emerging and developing economies have been able to achieve over a similar period while maintaining economic growth.
Achieving the goals of the Paris Agreement is of paramount importance both globally and for the region, which is among the most vulnerable to the effects of climate change although it accounts for only a tenth of annual global GHG emissions. In the long term, the environmental, health, security, and economic benefits of successful climate mitigation would undoubtedly outweigh its financial cost, including by reducing the price tag of climate adaptation (IMF 2020a, IPCC 2022, OECD 2017). Nevertheless, reaping these benefits could require a potentially sizable initial investment of resources and policy efforts to set off a low-carbon transition.1 Recognizing and balancing the key macroeconomic trade-offs along the way is the main challenge for economic policymakers.
The purpose of this departmental paper is to identify the menu of fiscal policy options which would allow the region to fulfil its emissions reduction commitment. Specifically, the paper examines and estimates the trade-off between two broad categories of fiscal policies: public investments, for example in renewable sources of energy, and measures that raise the effective price of fossil fuels. Such a dichotomy captures the key medium-term macroeconomic and long-term intergenerational trade-offs that are arguably the most pertinent for the countries in the Middle East and Central Asia, where governments are likely to play a leading role in the low-carbon transition.
At one end of this trade-off, a gradual removal of all fuel subsidies and, in addition, a phased introduction of a carbon tax of $8 per metric-tonne of CO2-equivalent in the Middle East, North Africa, Afghanistan, and Pakistan (MENAP) and $4 in the Caucasus and Central Asia (CCA) over the next eight years could achieve the region’s 2030 emissions abatement goals without additional investments in renewables. This approach would set off a potentially challenging transition by the private sector toward a cleaner fuel mix and lower overall energy consumption that could temporarily weigh on economic growth. In the long term, however, such a transition would leave to future generations an economy with a stronger fiscal position, greater energy efficiency, and a more efficient overall allocation of resources.
Alternatively, additional combined public investments of close to $900 billion in renewable sources of energy between 2023 and 2030 would allow achieving the region’s emissions reduction targets with fuel subsidies reduced by two-thirds and without any carbon tax. Such a greening strategy implies a smaller increase in energy prices and faster economic growth during the transition. But a smoother low-carbon transition for the current generation could set future generations on a path of lower long-term growth due to higher debt, persistent distortions in the energy sector, and unabated emissions in many parts of the economy.
In practice, most countries are likely to choose a mix of these policies based on their individual circumstances. Importantly, the deployment of non-fiscal mitigation policies—such as tightening of environmental regulations, raising emissions standards, or incentivizing green private investments—could play an important role in reducing the required fiscal efforts and improving the trade-off described above. Global and regional initiatives to provide affordable financial support and technological assistance would be equally important in improving the region’s economic options.
Regardless of the chosen strategy, delaying the rollout of mitigation policies would make achieving the emissions reduction targets more difficult and costly. Therefore, an early start will be essential to tread a smoother path toward a low-carbon future in the Middle East and Central Asia.
More precisely, a transition toward an economic growth model with low overall greenhouse gas emissions.