Climate Change Impact and Structural Reforms in Kiribati
KIRIBATI
9 percent when the project finished in 2018. Another on-going project-the South Tarawa
Renewable Energy Project (STREP), funded by the Asian Development Bank (ADB), Strategic Climate
Fund, and Government of New Zealand—is expected to further increase the share to 44 percent in
2024 after completion.
16.
Besides renewable energy, other non-price-based instruments can be deployed for
climate mitigation. In general, instruments that have been applied in other countries include CO2
intensity standards set for industries, fuel economy requirements such as CO2 per kilometer, or
emissions targets for new buildings. The Kiribati NDC Investment Plan 2021 have identified two
primary mitigation options in transport and energy efficiency sectors. This is expected to be done by
promoting bicycle and electric vehicle initiatives, introducing low carbon mini-container and cargo
ship, and increase capacity in design and construct low energy buildings through thermal insulation
retrofits. In addition, while Kiribati does not have any specific emission target for buildings, it is
constructing a "climate resilient and low carbon water supply infrastructure”—a water desalination
plan transforming sea water to fresh water enough for the need of at least 95 percent of South
Tarawa's population. The energy consumption of this building will be self-supplied from a newly
installed 2,500-kilowatt solar photovoltaic system.
17. Once renewable energy is installed and made available to firms and households,
Kiribati's mitigation efforts could be strengthened through a carbon tax. A carbon tax is a fee
imposed on the burning of fossil fuels (e.g., natural gas, coal, oil) based on how much carbon dioxide
or carbon dioxide equivalent of gas is released into the atmosphere from each fuel. It is easy to
administer because it can be collected "upstream," at the point of extraction or, in the case of
Kiribati, at the point of importation into the country. The carbon tax would then be passed along the
supply chain so that firms and households internalize the cost that burning fossil fuels has for the
environment, incentivizing the shift to a low-carbon economy. Crucially, for it to achieve the
intended goal of reducing emissions, alternatives to fossil fuel burning must be available to firms
and households, which is why this tool should be considered for future use.
18. A carbon tax of US$25 per ton would increase prices of energy goods and indirectly
raise the price of other goods (Figure 3). Parry et al. (2021) advise a carbon tax of $25 per ton for
low-income emerging market economies as part of an international carbon price floor. In this case,
the price of gasoline and electricity would increase by 9.7 and 8.6 percent, respectively. And the price
of liquefied petroleum gas (LPG) would rise by 7.3 percent. Other carbon-intensive goods, such as
transit, would also become more expensive as the higher price of energy goods is passed through
the supply chain.
19. The burden of the carbon tax would fall mostly on the richest households as energy
goods are disproportionately consumed by households in the richest quintiles. On average,
households in the richest quintile spend 6 times more on electricity and 2.5 times more on gasoline
than households in the poorest quintile (in percent of household consumption). Thus, the carbon tax
would imply a loss equivalent to 1.7 percent of household initial consumption for the richest quintile,
but of only 1.1 percent for the poorest quintile (Figure 4). The loss of labor income for workers in the
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