Climate policy can finance two-thirds of SDGs in Asia

A new study co-authored by the MCC shows for many countries how much a CO2 price could contribute to financing the UN's sustainable development goals.


In South Asia and Africa in particular, a large proportion of people still have no access to public goods such as health care and basic infrastructure like sanitation facilities. However, especially in these regions, revenues from carbon pricing could cover part of the financial needs for achieving sustainable development goals (SDGs)—in Asia, even more than two thirds. These are the results of a new study co-authored by the Mercator Research Institute on Global Commons and Climate Change (MCC) and led by the Potsdam Institute for Climate Impact Research (PIK). The corresponding article has now been published in the journal “Nature Sustainability”.

With regard to the SDGs, pricing greenhouse gas emissions, for example through a tax, would be effective in two ways. In addition to social goals—such as poverty reduction and good education for all—the SDGs, which had been formulated by the United Nations, also call for the mitigation of climate change. “For such a combination of climate and development policy to work, good local administrative structures are necessary,” says lead author Max Franks from PIK. “It is therefore particularly important for international development cooperation to support poorer countries in setting up tax authorities.”

Achieving the SDGs globally until 2030 will require approximately 1.5 trillion US dollars per year. For their calculations based on the Fifth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC), the researchers used a carbon price compatible with the 2°C target of the Paris Agreement.  “Our model applies a price of 40 US dollars per tonne of CO2 in 2020,” says Franks. “It rises gradually to 175 dollars by 2030. The countries of South and Southeast Asia in particular would benefit from the revenues. Many could raise more than two thirds of the necessary funds to finance the SDGs—in India as much as 95 percent.”

Compared to Asia, the potential of CO2 pricing in Africa is significantly lower, as the level of emissions is not as high as in other parts of the world—yet. “In order to reach the SDGs in Africa, financial support from the industrialized countries is needed in addition to carbon prices,” says Michael Jakob, coordinator of the MCC Public Finance Task Force. “However, also in Africa, there are several countries that could cover more than 20 percent of their SDG financing needs with CO2 pricing. For example, a tax on fossil fuels—levied directly after production or import—could be used for expanding the water supply or building schools.”

A first step in this direction would be to reduce fossil-fuel subsidies. They keep prices artificially low and thus provide incentives for the increased use of fossil fuels. The subsidies not only have negative effects on the environment but also on the national budgets. In a previous study, MCC researchers were able to show that the abolition of fossil subsidies alone could finance a large part of urgently needed infrastructure in a number of countries. The results of the study can be experienced interactively by means of the MCC subsidy map.

More information: Max Franks, Kai Lessmann, Michael Jakob, Jan Christoph Steckel, Ottmar Edenhofer (2018): Mobilizing Domestic Resources for the Agenda 2030 via Carbon Pricing. Nature Sustainability [DOI:10.1038/s41893-018-0083-3]