FEMISE at Plan Bleu Workshop on “Economic Instruments of Environmental Policies”

The Plan Bleu and the Mediterranean Action Plan Coordination Unit have been mandated by the Contracting Parties to prepare a new report on the State of the environment and development in the Mediterranean, to be presented to the Conference of Parties of the Barcelona Convention by end 2019.

Therefore, the Plan Bleu organized a workshop on “Major marine and coastal issues in the Mediterranean rregion : Data and trends” at the Campus du Développement (formerly CEFEB) of AFD in Marseille (France), December 12th and 13th 2017.

The objective was to form a group of about thirty thematic experts, from international, Mediterranean, and also national and local institutions, to contribute to the preparation of the report. Three experts from the FEMISE network were mobilized, helping to identify priority themes, missing information, and knowledge to be improved on economic instruments for adaptation to climate change. The objective is to provide usable content in the next report of the Plan Bleu on the State of the environment and development in the Mediterranean.

Overview of the three FEMISE presentations

Dr. Constantin Tsakas (General Manager of Institut de la Méditerranée, Secretary General of FEMISE)

Dr. Constantin Tsakas (General Manager of Institut de la Méditerranée, Secretary General of FEMISE): “South-Med strategies and instruments for climate change : what consistency of action for mitigation/adaptation and what further needs?” (presentation available here)

Climate change is a major theme for the Mediterranean countries, because of the strong interconnections between economy and the environment. These interdependencies bring out opportunities, in terms of job creation, resources, but also raise issues (seal level rise, water stress …). Southern Mediterranean countries are impacted on all fronts by climate change (marine ecosystem, biodiversity, vulnerable populations, agriculture, tourism …), and the socio-economic implications are a potential source of revolts and conflicts. Despite these challenges, many Mediterranean countries have experienced an increase in CO2 emissions per capita.

What economic instruments for environmental policies? The taxonomy of instruments identified by FEMISE researchers, as part of the work carried out for the next IM-FEMISE-ENERGIES2050 report on the impact of climate change in the Mediterranean (to be published in 2018), lists environmental goods (public procurement), regulations (quotas, standards, etc.), the creation of new markets (emission allowances, compensation for emissions exceeding allowed thresholds), the use of existing markets (taxes, subsidies), and other instruments such as energy labels and standards. On paper, all Mediterranean countries (except Libya) have a policy framework for renewable energies. These countries have adopted some of these tools in specific sectors (renewable energies, transport and tourism, and waste management).

Among the instruments for renewable energies, we first have public tenders in Morocco (for large-scale projects), Palestine, Jordan and Israel (for solar photovoltaic and wind farms). Then, targets have been defined (in terms of capacity or coverage) for heating and cooling from renewable energies. Feed-in tariffs for electricity produced from renewable energies have also been introduced, particularly in Algeria (for photovoltaic electricity). Finally, there are taxes, such as those on energy consumption, natural gas and energy-intensive products in Algeria.

Regarding the tools put in place for waste management, we mainly have instruments that use the existing market. In Tunisia, the FODEP subsidizes the environmental remediation or waste collection and recycling facilities, and a tax on the VA for producers of pollutants has been introduced. Morocco has introduced a fee for liquid dumping and waste disposal (based on the “polluter pays” principle), and an eco-tax on plastic products and packaging.

For the tourism and transport sectors, the following instruments have been identified: a tax on the registration of used vehicles in Tunisia, a subsidy for the “Moussanada Siyada” ecological labeling procedures, and a “RENOVOTEL 3” fund dedicated to the environmental upgrading of tourist establishments in Morocco.

Revenues from environmental taxes vary between Mediterranean countries. In Tunisia they represented only 1.16% of GDP in 2014, which remains insufficient in comparison with Slovenia (3.9% of GDP, for a GDP similar to Tunisia) or Morocco (1.72% of GDP). Among the MENA countries, Turkey is the country where tax revenue accounted for the largest share of GDP (3.83%), although this country is not comparable in terms of demography or tourism (the size of the country matters in tax revenues).

Efforts are ongoing at the institutional level, particularly in Morocco (recognition of sustainable development as a right for every citizen) and in Tunisia (climate change recognized in the Constitution of 2014), but also to a lesser extend in Algeria. But much remains to be done: the share of renewable energy remains insufficient in the energy mix, and only a marginal share of funding is dedicated to renewable energy, while most of the funds are still allocated to traditional energies.

Regarding future challenges and opportunities, the context (post-Arab Spring, social pressures) is to be taken into account. The key issue is the lack of resources to implement measures favoring “green” energies, while energy intensive activities remain a great source of jobs. In the long term, the challenge will be to redirect savings and employment towards projects emitting less CO2.

Preliminary recommendations include continuing adaptation to climate change, while integrating socio-economic realities. The dynamics of social and financial innovations should be used to build solutions to initiate partnerships aimed at a less carbon intensive Mediterranean based on principles of solidarity and economic convergence. Mediterranean countries should thus cooperate and exchange good practices. Finally, regarding the problem of available data (insufficient or obsolete), it is necessary to draw up a cartography of the available tools and to proceed with their evaluation, and to create an observatory on climate data to allow better monitoring of the evolution of countries.

Dr. Myriam Ben Saad (Université Panthéon-Sorbonne, Université du Sud Toulon-Var, FEMISE)

Dr. Myriam Ben Saad (Université Panthéon-Sorbonne, Université du Sud Toulon-Var, FEMISE): « Supporting renewable energy development using economic instrument in the Mediterranean » (presentation available here)

The MENA region holds the largest solar and wind potential in the world, which represents an opportunity in terms of market, infrastructure and energy transfer. The stakes are securing energy sources on the one hand (the region is facing water resources scarcity), and energy and economic diversification on the other hand (source of jobs, value chain potential).

After an overview of the existing literature, three variables of interest appear regularly: renewable energies, investment in these energies, and the effect of renewable energies on the environment.

Studies show that renewable energy policies and instruments help to promote and diversify these energies, as well as encourage investment (although efficiency varies depending on the type of policy implemented and the income level of countries). Such policies implemented in China have promoted the emergence of a more efficient renewable energy market, with better access to financial resources and new technologies, and taxes have promoted solar energy in Andalusian cities.

The literature is richer on the effect of renewable energies on the environment. An estimate on 24 Mediterranean countries shows that renewable energies have a strong positive effect on growth, but renewable energy policies remain insufficient in these countries. Studies identify a two-way relationship between renewable energy consumption and trade on the one hand and economic growth on the other hand. Other papers show the positive impact of renewable energies on reducing CO2 emissions and on creating jobs in the short term.

Electricity production from renewable energies doubled between 2008 and 2015, but its share in total electricity production declined due to higher power generation from fossil fuel than from renewable energies.

Source of R.E. in electricity, 2015, %

Large disparities remain among the countries. Saudi Arabia did not seem to generate electricity from renewable energies in 2015, while the share of electricity produced from these energies was over 30% of the total in Turkey and 15% of the total in Morocco .

The Mediterranean countries have diversification strategies more or less advanced: Lebanon and Syria rely almost exclusively on hydropower, while Algeria and Turkey also integrate other sources such as solar, wind, geothermal… In Morocco, renewable energy sources are balanced between wind and hydro (50-50) but a potential bias in the data is suspected (solar projects do not seem to be taken into account).

Several regional cooperation initiatives and PPPs have been conducted for renewable energy projects.

The EBRD recently financed the Benban Solar Power Plant in Egypt (2017). This project aims to reduce CO2 emissions and create jobs in a region where 50% of the population is below the poverty treshold. Also, Engie has invested in the construction of a wind farm in the Gulf of Suez (2017). In addition, the Morocco-Spain partnership has enabled the construction of a wind turbine blade manufacturing plant in Tangier, representing a potential of nearly 600 jobs.

Among the regional initiatives, the Mediterranean Solar Plan has provided a favorable political framework for the deployment of renewable energy and energy efficiency technologies at regional level. The Regional Center for Renewable Energy and Energy Efficiency aims to promote and strengthnen the adoption of clean energy practices in the region. The MENA Renewable Energy Conference is a framework dedicated to promoting and strengthening partnerships in the development and creation of solar and wind energy markets.

The policy framework is composed of regulatory policies (purchase tariff, compulsory quotas, net billing…), financial incentives and public financing (subsidies, tax credits, taxes…)

For example, Algeria, Morocco and Tunisia have introduced a feed-in tariff for renewable electricity, subsidies for investment in renewable energy, as well as systems for facilitating access to credit (bonus of interest rate, guarantee fund, credit lines). Morocco and Tunisia have also introduced tax incentives (reduced tariffs or VA taxe exemption for equipment)

The identified constraints to renewable energies are the market characteristics (small size, low yelds, risk temporality, currency risk, fossil fuel subsidies, lack of strategies on energy development, etc.) and meteorological and technological risks (variability in resource availability, lack of actuarial data).

A significant increase in investment in renewable energy infrastructure, and the review of the subsidy system (in particular the removal of fossil fuel subsidies, a major constraint for the efficiency of renewable energies) are recommended.

Pr. Mohamed Salah Matoussi (Faculté de Sciences Economiques et de Gestion de Tunis, FEMISE)

Pr. Mohamed Salah Matoussi (Faculté de Sciences Economiques et de Gestion de Tunis, FEMISE) : « Present and potential water pricing and markets in Tunisia and in the SASS: impacts on regional allocation, food exports and technical efficiency » (presentation available here) 

A distinction is needed between the use of water in the agriculture sector (as a factor of production to be ruled by the law of scarcity) and drinking water consumed by households (as a vital good not subject to the law of the market). Decentralized water management is more relevant.

Tunisia is under severe water stress due to the scarcity and degradation of water resources (climate change, excessive exploitation of groundwater …). The available water resources have thus greatly decreased (from more than 1000 m3/year/inhab in 1960 to 410 m3/year/inhab in 2017)
The water management strategy, focused primarily on supply management (where marginal costs are rapidly increasing), consists in maximizing resource mobilization for the country development being the least constrained, with the following defined priorities : dams and mountain lakes construction and rehabilitation, recycling of wastewater…

SASS project: Presentation of the region

The Northern Sahara Aquifer System Project (SASS) is one of the largest groundwater in the world and covers Algeria, Tunisia and Libya. In 2017, it represents an irrigated area of ​​about 300 000 ha and a water mobilization between 3 and 4 billion m3. The current use of the aquifer is greater than its renewal capacity, and this over-exploitation has a negative impact on the Oasis. Sustainable water management is therefore essential. But the initial philosophy of the 3 countries concerned was to mobilize as much water as possible to produce the maximum quantity of agricultural products. There are three types of farming: farms with free access to water, public farms benefiting from subsidized water, and private farms not benefiting from subsidies. The latter are more productive than free or subsidized farms, and make the best use of the resource: private farmers have a water price-elasticity and productivity-elasticity higher than the two other types of farms.

Since this policy is unsustainable, it should be replaced by an integrated and transversal management approach for available resources (water, energy, agriculture, environment) based on the following nexus: energy pricing – water pricing – growth agricultural production and better conservation of the resource.

A new hydro-economic model must be used for water resource management. It must lead to an optimal use of water and a maximization of agricultural production, while integrating the constraint of environmental degradation cost (pumping cost and water salinity). When this cost is internalized, the optimal quantities of water consumed and irrigated area are lower than those obtained in the model where the degradation is not taken into account, but the agricultural incomes are higher (13% increase compared to initial model). In other words, we produce more when preserving the resource.

Presenting recent research (see powerpoint for more details)

An article models the problem of water resources allocation in the agricultural sector, in a world of scarcity of resources and incomplete information. Such a model must ensure economic efficiency while taking into account unavoidable constraints: utility for users at least equivalent to the one they had in the past, increasingly limited availability of the resource, and incomplete information on its use value. It is thus necessary to reveal how farmers value the water and to integrate the cost of scarcity in the pricing of the resource.

A second article assesses the impact of an increase in the price of water on the production and export of irrigated crops (dates and citrus fruit): for a 100% increase in price, date crops are more negatively impacted than citrus crops (decrease in exports by 17.5% and 4.4% respectively). Establishing appropriate water pricing for citrus farmers would conserve the resource without significantly impacting the producers. On the other hand, an increase in tariffs in areas where the date is cultivated would cause a very significant slowdown in production and exports.

A last article measures the effectiveness of date crops held by private farmers on the one hand, and by water user associations on the other. The results show that the two systems are inefficient, but private farms are slightly more efficient than the associative farms. The results also show that the salinity of water has a strongly negative impact on the productivity of date crops.

by Jocelyn Ventura (FEMISE)