Background

Morocco’s economy depends largely on agriculture, phosphate mining and tourism. Overexploitation of water resources and waste management are the main environmental problems in the country. The degradation of soil and poor air quality are also major issues. In 2004, the World Bank calculated the cost of environmental degradation in Morocco at 3.7% of GDP. In terms of the energy sector, fossil fuel imports are substantial, amounting to US$ 6.7 billion in 2009. In terms of total primary energy supply, only 4.9% comes from renewable sources, highlighting room for growth within this sector. Based on its substantial target of 42 per cent of installed capacity of renewables, fiscal incentives and the Green Economy remain integral to the country’s transition.

Overall Fiscal Profile

Despite a solid macroeconomic performance over the past decade, 2012 was marked by a widening of the fiscal deficit and the suffering of growth as a result of low agricultural production, the European recession, and a rise in oil prices. None the less, improvements quickly occurred. The fiscal deficit declined in 2013 to 7.3 per cent of GDP, owing to a reduction in the subsidy bill (by 2 per cent of GDP), lower international oil prices, and the full year impact of the price increases implemented the prior year. In addition, the current account also improved as a result of food production and fewer energy imports and domestic industrial production.  In 2014, Morocco is committed to pursuing fiscal consolidation and enhancing structural reform efforts, with a fiscal deficit target of 4.9 per cent of GDP. This target will require continued reduction of subsidies and sound decision making in terms of wages and investment expenditure.

Policy and Legal Framework for Green Economy

Morocco has demonstrated commitment to transitioning to a Green Economy, through a variety of initiatives and strategies. Under the National Charter for Environment and Sustainable Development, the country strives for a target of 42 per cent of installed renewable energy capacity by 2020, while 40 per cent of electricity is to come from renewables. A National Energy Strategy, sets goals of 28 per cent  installed capacity in the field of solar and wind power by 2020 and an additional goal to reduce primary energy demand by 15% by 2030.

The Halietus Plan, Morocco’s sustainable fisheries strategy, has contributed to the security of 500,000 jobs. Other goals strive to increase waste water recycling by more than 96% to irrigate green spaces and farms. The Plan Maroc Vert (PMV) (2008-2020), the agricultural green growth strategy, proposes to streamline investments to enhance water resource management, increase agricultural productivity, and reduce fossil fuel consumption while creating employment. The PMV seeks to create 100,000 jobs in the agro industry sector. The government allocated public investment funds amounting to MAD 31 (US$ 3.77) billion from 2009-2012 under the PMV. There is also a National Strategy for Energy Efficiency in Buildings, Industry and Transport also presents opportunity for the creation of 40,000 jobs by 2020.

In July 2011, a newly-adopted Constitution reforming Morocco’s institutions identified environmental issues as a national priority. The country thus established the “right to sustainable development” and the decision was taken to transform the “Economic and Social Council” to the “Economic, Social, and Environmental Council.” The charter of the Economic, Social and Environmental Council seeks to govern water and solid waste management, while preserving natural resources. For Morocco, future work  on the transition to a green economy aims at addressing not only environmental challenges, but also poverty and social inequality.

Fiscal Measures for a Green Economy

The country’s environment-related public expenditure is MAD 4.3 billion (US$ 0.6 billion) or 0.007 per cent of GDP. In contrast, the cost of environmental degradation has been estimated at 3.7 per cent of GDP, as of 2004. Morocco has, to date, undertaken environmental fiscal reform. In 1995, the country started to levy water pollution charges on dumping, discharge and disposal of effluents into surface and groundwater as a part of its  Water Law. A waste charge system was introduced in 2006 under the Law on Solid Waste and its Elimination. In 2008/09 the government allocated 300  million DH and 400 million DH to provide technical and financial support to enhance efforts in management of household and other waste.

The Caisse de Compensation, the national subsidy fund for basic commodities and price stabilization, strives to keep energy prices stable for consumers through a levy on petroleum products.  In 2010, Morocco introduced a “green tax” for polluters.  A tax on raw materials and semi-finished plastic products has been designed, and the tax is to come into force in 2014. The revenues generated by the tax are to be reinjected into the environmental sector through the National Environmental Fund in the areas of recycling and treatment of waste. Additionally, the Société d’investissement Energétique, the state’s Energy Investment Company, manages energy investment by supporting the national plan for renewable energy development. In 2009, the Energy Development Fund was created with US$ 1 billion to support these initiatives. Moreover, Morocco’s Economic and Social Council has identified promising sectors and measures as part of the green economy transition. For example, investments in solar and wind energy could reduce CO2 emissions by 9.5 million tonnes and could create 23,000 new jobs by 2020.

Fossil Fuel Subsidy Reform

Morocco was one of the first countries in the Middle East and North African region to reform its petroleum sector. It initiated this process in the mid-1980s, through the  privatization of the national refinery and of petroleum product distribution.

In 2000, the Moroccan government reestablished control over domestic prices of energy as a result of rising energy prices. The Caisse de Compensation (CDC)  used budgetary transfers to adjust energy prices and ensure price stability. Fuel prices were raised by 3.5 % in 2004 after the harvesting season to spare farmers. After raising prices on fuel subsidies twice in 2005 the government reduced subsidies for selected petroleum products including diesel and gasoline in 2006but continued its subsidy to LPG. The impetus for the subsidy reduction was the increasing deficit of the Compensation Fund. During this period, there were substantial riots and protests in response to rising prices.

As of 2009, a new strategy was adopted which saw the reduction of prices on fuels of between 9% and 26 % and in 2010 the IMF supported a plan to reduce subsidies gradually. The World Bank estimated that energy subsidies reached 5.5 per cent of GDP in 2011, and absorbed 17 per cent of the total investment budget.  In terms of diesel, domestic prices were indexed to world prices, as of September 2013 with a hedging contract implemented covering the rest of the year. The per unit subsidy was gradually reduced in 2014. In terms of industrial fuel, the subsidy was removed as of February 2014. Education allowances, medical insurance, support for public transportation, and support for low income and physically disabled peoples are being introduced in 2014 to cushion the poor from the effects of the transition.

Related documents:

GIZ (2007) Environmental Fiscal Reform in Developing, Emerging and Transition Economies: Progress & Prospects. Download here.

IMF (2013) Morocco 2013 Article IV Consultation – Staff Report; Press Release; and Statement by the Executive Director for Morocco. Retrieved from: http://www.imf.org/external/pubs/ft/scr/2014/cr1465.pdf

Implementing Energy Subsidy Reforms. Morocco Chapter: Retrieved from: http://elibrary.worldbank.org/doi/pdf/10.1596/9780821395615_CH06

United Nations Economic Commission for Africa (2011). National Strategies for Sustainable Development in Africa: A Sixteen-Country Assessment. Download here.

World Bank, http://www.worldbank.org/en/news/feature/2014/01/24/morocco-takes-the-long-view-on-green-growth