Background

The Republic of Mauritius is a southern African island located in the Indian Ocean and is surrounded by 49 offshore islets that are home to unique flora and fauna. It has a warm to hot tropical climate characterized by a warm, dry winter and a hot, humid summer. Its annual rate of urbanization is 0.57% and nearly 42% of the population resides in cities. Its biggest environmental problems include water pollution, stresses on the marine and coastal zones due to effluents from households, industries, hotels and agriculture; and water scarcity. For example in 2012, Mauritius had a per capita consumption of 1044 cubic meters, as opposed to the standard 1700 cubic metres required to be water stress-free, as defined by the UN. Moreover, Mauritius’ world-renowned biodiversity is increasingly under threat, with the International Union for the Conservation of Nature reporting that it has the third most endangered terrestrial flora in the world.

Overall Fiscal Profile

In 2013, Mauritius had a real GDP growth rate of  3.2 %, owing to the construction, sugar, and tourism sectors, while inflation fell to 3.5 %, despite public sector wage increases. The government has maintained an expansionary fiscal policy  and the deficit, including extra-budgetary funds, amounted to 4.5 % of GDP, while expenditures increased by over 2%. Through the Economic Restructuring and Competitiveness Programme for 2010-2015; the government has combined medium-term economic growth and diversification initiatives with short-term fiscal policy measures.

Policy and Legal Framework for a Green Economy

Maurice Ile Durable (MID), a national development concept aimed at transforming Mauritius into a sustainable and environmentally sound country, is one of the cornerstones of Mauritius’ green economy transition. It was adopted in 2011 and comprises a national policy, a ten-year strategy, and an action plan which were adopted in June 2013 under the aegis of the Prime Minister’s office. MID encompasses five thematic areas: environment, energy, employment, equity, and education (the 5Es) and various working groups were formed to identify recommendations in support of the 5 Es. A Green Paper was prepared to solicit stakeholder opinion on the MID vision and a White Paper is being drafted to support implementation and policy development in the future. Both reports could help identify and exploit opportunities towards moving to a green economy.

In addition to the overarching MID vision, the government adopted a national programme on Sustainable Consumption and Production (2008-2013) to encourage institutional capacity building and program development for a green transition. Proposed programs included national awareness campaigns on energy savings, energy audit programs, and water savings programs. As of 2012, 24 projects had been initiated. In addition, sector policies and strategies have been developed in areas such as water, energy, coastal zone management, land, and forestry, with the aim of improving resource use and restoring natural capital. For example, Mauritius is currently developing an Integrated Water Resource Management (IWRM) plan to improve water management, and a Sustainable Land Management program to sustain productivity and the ecological functions of land.

In terms of energy, Mauritius has a Long Term Energy Strategy (2009-2025) to promote a transition to renewable energy (35 per cent by 2025) and the development of an action plan. The strategy highlights the need to develop a fiscal framework that promotes efficient energy use and renewable energy generation, supports low-income households through subsidies, and supports industry to remain competitive. The government also aims to create energy service companies that specialise in the delivery of energy efficiency services.

Fiscal Measures for a Green Economy

The government spent an estimated 0.75% of GDP on environmental programmes in 2012, which was projected to decline to 0.64% of GDP in 2013. In all, Rs2.34 billion (US$76.2 million)a year is spent on the environment sector, the bulk (97%) from government sources and the rest from donor funding. Of this, about 50% goes to wastewater management, 26% to waste management, 10% to environmental protection and the rest to pollution abatement and biodiversity conservation.

A MID Fund was established in June 2008, under the Finance and Audit Act, to provide grants to projects in the five thematic areas covered by MID. As of June 2013, 207 projects had been proposed and 25 completed. Some of the funding disbursed to the completed projects includes: Rs.10 million (US$325,000) for a geothermal pre-feasibility study; Rs31,5 million (US$1 million) to support feed-in tariffs for small-scale solar power producers; and Rs.529,240 (US$17,240) to provide renewable energy kits to schools.

In 2011, the MID levy  was doubled to Rs 0.30 (or US $0.01) per kg of coal, LPG and other petroleum products. A Petroleum Product Excise Duty is in place, and applies a rate of 15 cents/ liter on all petroleum products,  15 cents/ kilo on LPG and 15 cents/ kilo on coal. Mauritius also imposes three taxes: 1) on vehicle ownership based on engine size 2) CO2 levy/rebate on motor cars and 3) a one-time registration fee for imported cars. An annual road tax (based on engine size) also exists amounting to Rs 3500 (US$116) – Rs 13,000 (US$430) based on engine size.

The  taxes on petroleum products and motor vehicles are two of the larger sources of government revenue from energy and environmental related taxes, raising Rs 2,213 (US$ 37.40) million and Rs 1,852 (US$ 31.30) million respectively, as of 2008 – 09. To promote the uptake of low-carbon vehicles, the government reduced by half the excise duties, road tax and registration fees on electric cars and  hybrid vehicles in July 2009.  Also, the MID created mechanisms to facilitate private investment by SMEs in green technologies by transferring risk from the private sector to the public sector.

The Long-Term Energy Strategy proposes the establishment of subsidies to encourage public transportation; to increase household access to energy efficient appliances such as compact fluorescent lamps; and fiscal incentives for energy suppliers generating electricity from renewable energy sources. Also, the Strategy lays out that preference for government financial support should be given to energy efficiency and renewable energy projects over conventional fossil fuel projects. Despite this, no specific amounts or budget allocations have been committed to over the time frame.

The IMF assessment of environmental taxes in Mauritius recommended implementing a carbon tax at Rs 360 per ton and adopting alternatives for the existing tax system on vehicle ownership: a graduated tax on CO2 per km, or a tax on CO2 per km. This strategy, though expected to have only a modest effect, is a possible reform of the existing tax on fossil fuels as the design of the tax is similar in design to a tax able to mitigate CO2 emissions. Additionally, to avoid vehicle congestion, a tax could be deployed to charge motorists per km driven, and the tax could rise during rush hour and fall at other times. Alternatively, a cordon toll could be used around downtown and congested centers, as congestion is a significant externality within Mauritius.

Fossil Fuel Subsidy Reform

About 80 per cent of Mauritius’ energy use is derived from imported fossil fuels. The government has set a goal of increasing the share of renewable energy to 35% or more by 2025. The State Trading Corporation of Mauritius regulates fuel prices to ensure their stability through the Price Stabilization Account. The prices are calculated using a formula that includes information on market prices, costs and profit margins. Adjustments to fuel purchase prices are made automatically when purchase prices differ from the calculated prices to a certain fixed extent. A tax on fossil fuels was introduced in 2008 and generates revenues used to subsidize solar water heaters and florescent lamps. Also, the government revised the Petroleum Product Excise Duty, which was increased by 10 per cent in the 2011 budget to Rs 10.8 (US$ 0.36) per liter for gasoline and Rs 3.3 (US$ 0.11) per litre for diesel. The excise duty was further increased to 15 cents per litre on all petroleum products, and per kilo of coal and LPG. The revenues generated are added to the MID Fund to help finance green economy projects.

Additional Reading

International Monetary Fund, 2011. Reforming the Tax System to Promote Environmental Objectives: An Application to Mauritius WP 11 124 Retrived from: http://www.imf.org/external/pubs/ft/wp/2011/wp11124.pdf

Republic of Mauritius (2012). National Synthesis Report. http://www.sids2014.org/content/documents/12563National%20Synthesis%20Report%20FINAL.pdf

UNEP (2015). Summary of Green Economy Fiscal Policy Assessment – Mauritius. Download here

UNEP. (2014). Fiscal Policy Scoping Study – Mauritius. 45 p. Download here.

UNEP (2011). Case study on Mauritius – Transport. Download here.