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Session 5 - Presentation by Isabel Blanco, EBRD

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Session 5 - Presentation by Isabel Blanco, EBRD

  1. 1. The Fiscal Implications of a Green Economy Transition – recommendations for fossil fuel rich countries Isabel Blanco, Associate Director Unlocking Private Finance for Energy Efficiency and a Low-Carbon Growth June 30th 2017, Brussels
  2. 2. Contents 1. What EBRD does 2. Why is this topic important? 3. Framework for analysing the fiscal implications 4. How are the sectors projected to change in a green economy transition? 5. How will the sectors affect the national budget? 6. How to mitigate fiscal risks? 7. Contacts 2
  3. 3. 3 Who we are • Supranational Institution founded in 1991 owned by 65 countries, plus the European Union and the European Investment Bank Our mission • To promote transition to open, market-based economies in our countries of operation – we work in 36 countries from central Europe to central Asia and the southern and eastern Mediterranean What we do • Support projects, mainly carried out by private sector clients, in areas that are of interest and within the scope of the Bank. Annual Business Volume of the EBRD in 2016 was EUR 9,390 million, 378 projects signed, 76 per cent with private clients. What EBRD does
  4. 4. Contents 1. What EBRD does 2. Why is this topic important? 3. Framework for analysing the fiscal implications 4. How are the sectors projected to change in a green economy transition? 5. How will the sectors affect the national budget? 6. How to mitigate fiscal risks? 7. Contacts 4
  5. 5. 5 Historically, the oil and gas sectors have been a key driver of economic growth and public finances in fossil rich countries -14 -12 -10 -8 -6 -4 -2 0 2 4 6 2013 2014 2015 2016 PercentageofGDP% Overall fiscal balance Non-oil fiscal balance Economic growth and global oil prices 2000-2016 Fiscal balance 2013-2016 in Kazakhstan 0 20 40 60 80 100 120 0 50 100 150 200 250 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 US$perbarrel US$billions Real GDP Oil price Source: IMF, 2017 Source: IMF, 2017
  6. 6. 6 Approximately 70 per cent of fossil fuel reserves and related assets are owned and controlled by Governments. Fiscal revenues from oil and gas sectors can be up to 50 per cent in fossil fuel rich countries. A green economy transition in line with the Paris Agreement could mean renewables make up 80 per cent of new power generation investment by 2030. Relevant also in countries that are not fossil fuel rich, because: • Different types of investments will be affected (e.g. power generation, transmission and distribution lines, roads and ports, cement and steel industry) • Energy subsidies for consumers will change (fiscal space?) • Revenue-raising opportunities (e.g, through carbon tax) Green Economy Transition will change relative prices of many energy-related assets and infrastructure
  7. 7. Contents 1. What EBRD does 2. Why is this topic important? 3. Framework for analysing the fiscal implications 4. How are the sectors projected to change in a green economy transition? 5. How will the sectors affect the national budget? 6. How to mitigate fiscal risks? 7. Contacts 7
  8. 8. 8 EBRD is developing a framework for thinking about the fiscal implications of a green economy transition About the methodology Prepare fiscal policy recommendations Analyse fiscal implications Identify and assess impact on material sectors Construct scenarios1 2 3 4 About the project • At the intersection of several issues – fiscal policy, climate change, economic policy • Looks at direct impact of climate change policies on national budgets, not taking into account indirect effects through the fiscal multiplier • Up to 2040 • Focus on recommendations around fiscal and budgetary practices • Initially developed in Kazakhstan and Egypt, with potential to be replicated in many other countries.
  9. 9. Contents 1. What EBRD does 2. Why is this topic important? 3. Framework for analysing the fiscal implications 4. How are the sectors projected to change in a green economy transition? 5. How will the sectors affect the national budget? 6. How to mitigate fiscal risks? 7. Contacts 9
  10. 10. 10 Global oil and gas prices will evolve –decrease is expected in the price of oil Source: IEA, 2016 Source: IEA, 2016 Forecast global oil prices 2015-2040 Forecast global gas prices 2015- 2040 - 20 40 60 80 100 120 140 160 US$perbarrel WEO Current Policies WEO New Policies WEO 450 Scenario - 2.00 4.00 6.00 8.00 10.00 12.00 14.00 US$perMbtu WEO Current Policies WEO New Policies WEO 450 Scenario
  11. 11. Contents 1. What EBRD does 2. Why is this topic important? 3. Framework for analysing the fiscal implications 4. How are the sectors projected to change in a green economy transition? 5. How will the sectors affect the national budget? 6. How to mitigate fiscal risks? 7. Contacts 11
  12. 12. 12 Sector-level impacts will affect the national budget through a number of transmission channels Direct subsidies Other Production sharing agreements Royalties and taxes National Budget Oil and gas state owned companies National wealth fund Dividend distributions Annual disbursement Hydrocarbon revenues Fiscal transmission channels
  13. 13. 13 The green economy transition will generate fiscal opportunities, as well as risks National Budget Fiscal risks Fiscal opportunities Government revenue losses Expenditure and debt impacts Consumer-side gains Consumer-side gains arising from changes in fossil fuel prices can create fiscal space for additional revenue raising or can act as an economic stimulus. Opportunities for tax reform Government revenue losses can generate the political will for tax reform to rebalance government revenues and support the growth of the non-hydrocarbon economy. Opportunities for subsidy reform Changes in fossil fuel prices can also create a window of opportunity for fuel subsidy reform by reducing potential political resistance.
  14. 14. Contents 1. What EBRD does 2. Why is this topic important? 3. Framework for analysing the fiscal implications 4. How are the sectors projected to change in a green economy transition? 5. How will the sectors affect the national budget? 6. How to mitigate fiscal risks? 7. Contacts 14
  15. 15. 15 There are a number of options for addressing the fiscal implications Subsidy reform Investment Sovereign Wealth Fund policy Reforming ownership structures Revenue raising External oversight Accounting & reporting Budget execution Budget planning Addressing the fiscal implications of the green economy transition Fiscal policy options Budget process options
  16. 16. 16 A number of countries are already dealing with this type of issues Norway Management of natural resource rents Saudi Arabia Using state investment as a natural hedging Indonesia Climate finance tracking and reporting Morocco Reform of fossil fuel subsidies Kazakhstan Addressing the fiscal implications of the green economy transition
  17. 17. 17 There is a window of opportunity to secure a long-term economic vision compatible with a green economy transition Diversified economy and resilient public finances Addressing the fiscal implications of the green economy transition Capitalising on international momentum Alignment with broader reforms Preliminary quantification shows that there is a period of around 10 years to implement measures before the fiscal impacts are fully felt.
  18. 18. Contents 1. What EBRD does 2. Why is this topic important? 3. Framework for analysing the fiscal implications 4. How are the sectors projected to change in a green economy transition? 5. How will the sectors affect the national budget? 6. How to mitigate fiscal risks? 7. Contacts 18
  19. 19. Dr. Isabel Blanco Associate Director Economics, Policy and Governance Email: blancoi@ebrd.com EBRD One Exchange Square London, EC2A 2JN United Kingdom www.ebrd.com Related document: Government Assets: Risks and Opportunities in a Changing Climate Policy Landscape. Methodology for Calculating Exposure under Alternative Policy Scenarios http://www.ebrd.com/publications/governm ent-assets-climate-policy Contacts 19

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