THE WORLD BANK TERMS OF REFERENCE Impact of carbon pricing instruments on national economy and contribution to NDC

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1 THE WORLD BANK TERMS OF REFERENCE Impact of carbon pricing instruments on national economy and contribution to NDC A. Project Background and Objectives Partnership for Market Readiness The Partnership for Market Readiness (PMR) is a forum for collective innovation and a fund to support countries to prepare and implement climate change policies in order to scale-up mitigation efforts. The PMR consists of 13 Contributing Participants, who provide financial support to the PMR Trust Fund and share their carbon pricing experience, and 19 Implementing Country Participants, who receive funding and technical support. In Thailand, the PMR supports the design of an Energy Performance Certificate scheme and prepares infrastructure such as a database and MRV system. PMR activities also include a study on the legal framework for an ETS and preparation of the Low Carbon City Program and Fund. 1 Thailand s National Determined Contribution On October 1st, 2015, Thailand announced its Intended Nationally Determined Contribution (INDC) to the UNFCCC, which intends to reduce greenhouse gas emissions economy-wide by 20 percent from the projected business-as-usual (BAU) level by 2030.The level of contribution could increase up to 25 percent, subject to adequate and enhanced access to technology development and transfer, financial resources and capacity building support through a balanced and ambitious global agreement under the United Nations Framework Convention on Climate Change (UNFCCC). Using emission data in 2005 as a reference year, the emission without major climate change policies is projected to be 555 MtCO 2e in 2030.This projection is calculated from AIM/End use Models together with projected GDP growth rate during (3.94 annually) and population growth rate (0.03 annually). Thus 20 and 25 percent reduction from BAU in 2030 equal to 111 and MtCO 2e, respectively. Roadmap and action plan to achieve NDC target in 2030 Although minor part of Thailand s INDC target still requires additional policy instruments and technology development to be achieved, major part of the INDC is formulated based on national policies which already approved or in the pipeline for approval by the cabinet are as follow; Power Development Plan, (PDP2015) Thailand Smart Grid Development Master Plan, Energy Efficiency Plan, (EEP2015) Alternative Energy Development Plan, (AEDP2015) Master Plan for Sustainable Transport System and Mitigation of Climate Change Impacts National Industrial Development Master Plan, Waste Management Master Plan ( ) Altogether, the Office of the Natural Resources and Environmental Policy and Planning (ONEP) which is Thailand s national focal point to the UNFCCC, has been developing the NDC roadmap since 2016.The roadmap was approved by the Cabinet on May 23, After that, the line ministries/relevant agencies will develop mitigation action plans and mechanisms meanwhile the ONEP who is appointed as the 1 PMR Brochure January

2 national focal point will provide driven-action plan to support capacity of implementing agencies and develop MRV system to track the progress of NDC implementation including MRV guideline and proposal on institutional arrangement. In addition, the Bureau of the Budget will support and allocate budget for implementation. The time frame of NDC preparation phase is and NDC implementation phase is The role of carbon pricing instruments in achieving the country s mitigation strategy, as identified in its INDC/NDC Thailand recognizes the important role of market-based mechanisms to enhance the cost effectiveness of mitigation actions, and therefore will continue to explore the potentials of bilateral, regional and international market mechanisms as well as various approaches that can facilitate, expedite and enhance technology development and transfer, capacity building and access to financial resources that support Thailand s efforts towards achieving sustainable, low-carbon and climate-resilient growth, as appropriate. Thailand has employed various implicit carbon pricing instruments, such as Feed-in tariff (FiT) to promote renewable energy deployment, and vehicle taxes based on the vehicle s emission performance. In addition to implicit carbon pricing, the government is considering explicit carbon pricing, such as ETS, and carbon tax. The existing Thailand PMR Project (P128965) is also working towards building readiness for the country to fully adopt a national ETS by supporting legal studies to recommend on appropriate legal framework for future ETS establishment. B. Objective of consultancy The objective of the proposed activities is to provide policy recommendations on the suitable policy option on carbon pricing instrument(s) to support country in achieving Thailand s NDC mitigation goals and evaluate the policy and economic impacts on stakeholders. C. Scope of Work This assignment comprises the following tasks: 1. Review and develop economic modeling for carbon tax and ETS with and without crediting mechanism as a part of ETS/carbon tax (for offsetting purpose) to contribute to Thailand s NDC mitigation goal. 2. Model and assess the interaction and consistency between the carbon pricing policy (carbon tax/ets) and national existing policies and regulations. 3. Support capacity building and dissemination of the knowledge and understanding of the effectiveness of the carbon pricing instruments for the mitigation goal achievements. 2

3 D. Main Activity and Expected Outputs/Deliverables In response to the objectives and scope of work specified in sections A and B, the firm will carry out the following main activity: Activity 1: Economic modeling and scenario analysis of carbon pricing instruments 1.1. Key questions and issues expected to be answered from the study: - Is emissions trading or carbon taxing a more cost-effective mitigation instrument compared to current policies and measures in the identified sectors that contribute to the achievement of Thailand s NDC mitigation goal? - If ETS and carbon tax has a key role to play, what is the most appropriate instrument or its combination for the achievement of Thailand s NDC mitigation goals (on both political 2 and technical 3 point of view)? How can/should such instrument or its combination be coordinated with other national and sectoral policies to effectively contribute to the NDC mitigation target? - What are the possible advantages and negative impacts of different design of instruments on specific sectors and on different type of enterprise within specific sectors (for example, those of different scales and/or using different technologies)? How to mitigate or remove such negative impacts? How can the effect of instruments be transformed and sustainable? 1.2. Elements to include in modeling/analytical works: o Model should be capable to adjust the important factors by the user, such as the TGO and other government official, on the ETS features (e.g. cap level, type of industrial sectors to be included, allocation method etc.) and carbon tax features, such as tax rate and tax base by using excel platform. - Scenario analysis (including the political economy and potential new technology developments analysis) of carbon tax and/or ETS with and without crediting mechanism as a part of the instruments. Scenario1: Business as usual and existing and planned policies/measures and regulations. The main objective of this scenario is to analyze the aggregate mitigation and political economy impacts of the existing and planned policies and regulations without ETS and carbon tax as a base case, not analyze the impact of each policy and regulation one by one. Scenario2: Business as usual with existing and planned policies/measures and different designed ETS (for example different covered sectors, different emissions caps, different offsetting rules) There must be some sub-scenarios with different covered sectors, different emission caps, and different offsetting rules (perhaps a 2 From a political point of view, the assessment can be done regarding for example: whether the tax neutrality condition which is usually a precondition for carbon tax can be met; how long the tax system reform for implementing carbon tax will take and whether this timeframe could meet the mitigation policy need; what the possible legal basis for implementing carbon tax/ets, how the legislation process will be carried out and whether this could meet the mitigation policy need; etc. 3 From a technical point of view, the assessment can be done regarding for example: is the current statistics basis sufficient for the implementation of carbon tax/ets, what are the possible gaps, what additional efforts are needed to improve the statistical basis, possible need for technical capacity and institutional capacity, etc. 3

4 sensitivity analysis would be applied.) Thus, Thailand can have a clear idea of what type/design of ETS would be a better solution. Scenario 3: BAU scenario with existing and planned policies/measures and carbon tax of different designs (for example different tax rates, tax base, and possible offsetting rules) There must be some sub-scenarios with different covered sectors, different tax rate, tax base and different offsetting rules. Thus, Thailand can have a clear idea of what type/design of carbon tax would be a better solution. Scenario 4: BAU scenario with existing and planned policies/measures and a combination of different designs of carbon tax and ETS but the targets (facility, firm) of the carbon tax and ETS should be different. - Measuring cost-effectiveness of the instruments (USD/tonne of CO 2). - Modeling the impact of the use of carbon tax and/or ETS on following variables: Gross domestic product Investment Consumption of goods by Imports and exports of goods and production sectors services Household consumption Capital income Labor demand and supply Taxes and subsidies Wage rate Total government revenue Prices Government debt Terms of trade Others Special attention would be given on measuring impact on, inter alia: GDP growth Jobs creation Distributional impacts, in particular on households Competitiveness of affected sectors - Quantifying co-benefits Policy recommendations should include: - Measure the cost and cost-effectiveness (i.e. USD and USD per tonnes of CO 2) of the instruments, and identify the proper instruments for Thailand (ETS, carbon tax and/or other tools based on international experiences). - Priority sectors to be focused on to meet the NDC mitigation targets - Comprehensive comparison between the potential carbon tax and/or ETS and other policy options to highlight the priority of carbon pricing. - Identify economic and political impact of using carbon pricing instrument and how to remove or mitigate negative impacts. - Quantify co-benefits of potential carbon pricing instruments Outputs: - Economic model and coding or relevance. - Analytical report including technical briefs and recommendations. Activity 2: Interaction and consistency between the country s ETS/carbon tax and national existing policies and regulations 2.1. Key questions and issues expected to be answered from the study: - What are the impact/implications of ETS or carbon tax on other relevant policies in terms of the magnitude and sustainability? - Are there any existing policies that go against these instruments? - How could coordination be achieved between the design of carbon tax and/or ETS and existing policies? 4

5 - Are there any existing policies that would need to be addressed to stimulate the alignment and increase synergy between those policies and carbon pricing instruments? 2.2. Policy recommendations should include: - Recommend legal, policy, institutional and administrative adjustment if there is existing legislation/policy/institution/administration that goes against carbon tax and/or ETS or that enhances the positive effect of the instruments - Recommend roadmap to the implementation of the instrument(s) (prioritization, timing, target high-priority sectors) Output: Analytical report including implementations plan and recommendations Activity 3: Support to cross-sectoral, inclusive policy development and dialogue for the carbon pricing instruments As carbon pricing instrument (carbon tax and/or ETS and/or crediting mechanism) is crosssectoral in nature and there will be a need to engage with public and private sectors to build broadbased support for the program, based on the outputs of Activities 1 and 2, this Activity will include: (i) Technical capacity building. This activity will aim to enhance technical capacity and knowledge of government s technical staff in employing modeling to improve mitigation planning and linking the carbon pricing instruments with other policies. Modeling will provide a critical tool for climate change practitioner, energy practitioner and national planning officers to integrate different policy objectives and understand the overall impact on sector/general economy. The activity will enhance TGO s capacity in guiding and coordinating the implementation for the readiness of the carbon pricing. (ii) Policy development consultation: Inform technical policy discussion with regards to the suitability of carbon pricing in the Thai context. This will mainly focus on government s agencies and stakeholders directly involved in carbon pricing. It will provide knowledge to support quality of and inform the setting of ambitious targets of carbon pricing. (iii) Support broad evidence-based policy discussion. Support evidence-based policy dialogue with stakeholders such as private sector (power producers, industries, etc.) and civil society to build broad-based support for carbon pricing instruments. This activity will include public dissemination of data, statistics, results and knowledge to broader public to increase awareness of the role of carbon pricing and how negative impact (if any) will be mitigated to ensure inclusiveness of policy development. Output: - Trainings, workshops, dissemination materials, understanding of relevant ministries and key stakeholders on role of carbon pricing instruments in supporting NDC mitigation goal. - Slide deck/presentations and summary notes 5

6 E. Timeline and Estimated Workload Activity The consultant will deliver the output as following: Timeline for activity completion and report submission Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Inception report * Activity 1 Activity 2 Progress report (1) * Activity 3 Monthly trainings, workshops, or dissemination under activity 3 Progress report (2) * Draft final report * Final report * Activity Output(s) Tentative deadline Activity 1: Economic modeling and scenario analysis of carbon pricing instruments Activity 2: Interaction and consistency between the country s ETS/carbon tax and national existing policies and regulations Activity 3: Support to crosssectoral, inclusive policy development and dialogue for the carbon pricing instruments - Economic model and coding or relevance. - Analytical report including technical briefs and recommendations. - Analytical report including implementations plan and recommendations. - Organize at least 4 trainings, workshops, or dissemination materials on modeling capacity and application of modeling. - Organize at least 3 dialogues to relevant ministries and key stakeholders to understand role of carbon pricing instruments in supporting NDC achievement, provide consultation, and support broad evidence-based. - Slide deck/presentations/minutes of the meeting, and summary notes June 2018 March 2018 March 2019 The Consultant shall prepare the reports as following: 6

7 Report Content Tentative deadline 1. Inception report Work plan and timeline 1 month after signing of the contract 2. Progress report (1) - Framework and economic model for activity 1 and result of scenario analysis 1 and 2. - Outputs of activity 2 3. Progress report (2) - Outputs of activity 1 and 2 - Framework for activity 3 - Report some part of activity 3, operated within this phase (Identify key finding/learning and summarize relevant comments from trainings, workshops, or dissemination). 4. Draft final report - Report some part of activity 3, operated within this phase (Identify key finding/learning and summarize relevant comments from trainings, workshops, or dissemination). 5 months after Inception report submission 6 months after the first progress report submission 4 months after second progress report submission 5. Final report All element from Activity 1-3 March 2019 All reports should be submitted in English. - Reports as mentioned in 1-3 should be a full report in English. - Draft final report and final report should be submitted in English. F. Qualifications The lead expert shall meet the following criteria: - Advanced degree in finance, economics and/or environmental policy; Minimum 8 years of substantive experiences in carbon pricing, carbon/climate finance, public, industrial, energy, urban, environmental economic, climate change mitigation policies and actions or related issues.; - Extensive experiences on pricing, funding mechanism of market-based scheme The team composition shall ensure that the following is satisfied/covered: - Team members shall have at least 5 years of substantive experience in carbon pricing, carbon/climate finance, public, industrial, energy, urban, environmental economic, climate change mitigation policies and actions or related issues. - Proven expertise in market-based mechanisms (especially ETS and carbon tax) and other economic instruments to address climate change challenge. Deep understanding of the technical underpinnings of such instruments, as well as the implications of their interactions with other economic, regulatory and policy instruments. - Abundant knowledge for Thai industries and energy sector, energy efficiency policies and finance, GHG reductions, carbon market, carbon finance, relevant laws and regulations, as well as policies and strategies on energy and climate change mitigation or related issues. Work experience with the TGO is preferable; - Demonstrated experience in macroeconomic modelling; - Substantial experience on climate policy and related analysis; 7

8 - Experience in advising and/or developing projects in developing countries, especially Thailand, would be an advantage; and - Excellent English and Thai verbal and written communication skills, including written/detailed report writing and oral presentation skills. Consultant firm can either develop a new model or select from existing models which were used by other countries. However, the firm shall identify the suitable models for each activity and clarify an advantage and disadvantage of the selected models with TGO and World Bank before develop/run the models. The selected consultant firm shall arrange the meeting with TGO to gathering relevant information before execute any activity. G. Budget and Contract Duration The consultant team is required to identify a budget and timeline to carry out the activities described in detail above and overall budget should fall in the recommended range. Also, the consultant team must provide profile of each team member/s. The resulting contract will be a lump sum contract, including all fees and expenses. The selected consultant team will be required to complete the work stated in their proposal. Payments will be made on the delivery of the contractually agreed outputs: 10% - upon signing the contract and inception report submission; 20% - on consultants submission and the client s acceptance on the completion of progress report (1); 30% - on consultants submission and the client s acceptance upon completion of progress report (2); 20% - on consultants submission and the client s acceptance upon completion of draft final report. 20% - on consultants submission and the client s acceptance upon completion of final report. Total duration of this contrast is 18 months, with expected launch of activities by October, H. Contact The consultant team will report to: - Ms. Waraporn Hirunwatsiri 8