Environmental Fiscal Reform in Morocco: Options and Pathways

Abstract

In response to the request from the Ministry of Environment and in close collaboration of the Ministry of Economy and Finance, the World Bank Group, with support from the Partnership for Market Readiness (PMR) and the NDC Support Facility, provided technical support to Morocco aimed at exploring the opportunities offered by environmental fiscal reform (EFR), such as that incorporating carbon pricing, to strengthen green growth. As part of this support, the WBG has assessed carbon pricing options that could be appropriate for Morocco and simulated their selected economic impacts with macroeconomic model in collaboration with the Research and Forecast Department of the Ministry of Economy and Finance (MoEF) of Morocco. This report outlines the key considerations for policy-makers in Morocco and presents a preliminary finding from modelling conducted by the MoEF in collaboration with the WBG, as well as identifies the needs for the secondary analysis. As part of its national development strategy, Morocco is implementing and planning further reforms of its fiscal systems, energy sector, industrial structure, as well as an ambitious climate change action as per the objectives of the Nationally Determined Contribution. This note explores whether and how these reforms might be supported by aligning fiscal incentives with sectoral policy objectives to accelerate the rate of future growth while reducing its carbon emission intensity. Environmental fiscal reforms (EFRs) are a collection of changes to tax, expenditure, and other policies which collectively seek to raise national development and welfare. This report explores potential options for implementing an environmental fiscal reform (EFR) as part of Morocco’s broader economic strategy and tests the impacts of these options with the Morocco’s CGE model. It is structured as follows. The second section discusses Morocco’s national development challenges and the strategic policy goals, where EFR can play a role. The third section provides an overview of options for EFR in Morocco, as identified by the World Bank Group team and national experts, including (i) modifications of fuel tax structure (TICs) to better reflect social costs of fuel use, (ii) butane subsidy reform, or (iii) more direct environmental pricing through taxes or emissions trading. The fourth section introduces the CGE model for Morocco, used by the DEPF, and simulates impacts of several potential EFR design options identified in the previous section. It also discusses the limitations of the existing CGE model to reflect the impacts of the EFR, and in this context analyzes the results of scenario analysis conducted with the CGE model. The fifth and final section concludes.