## Section 1 — ADAPTING TO CLIMATE CHANGE

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---

### A. The Impact of Climate Change
- Historical disasters and damages:
  - Between 1980 and 2021, natural disasters are estimated to have affected about 438 thousand people and caused damages amounting to $ 802 million.
  - Since 1980, Albania has been hit by 35 disasters, implying the probability of a disaster each year at about 80 percent.
  - On average, Albania is hit by close to one disaster per year, with each natural disaster causing damage of about 1.3 percent of GDP and affecting about 5000 per 100,000 inhabitants.
  - While the frequency of natural disasters in Albania is lower than in the European Union, the impact of each event is about twice as large in percent of GDP and affects a greater share of the population.
- Climate projections:
  - Mean annual temperature in Albania would increase between 1.3°C and 2.2°C by 2050.
  - Precipitation is expected to decrease between 2.1 and 4.3 percent.
  - Frequency and intensity of heavy rainfall events would increase.
  - Sea level anomalies since 1993 reveal a trend for an increase in sea levels along the coast of Albania.
- Sectoral impacts (summary of Table 2):
  - Settlements, infrastructure and built environment: loss of access to essential services (shelter, electricity, drinking water, transport, health and educational facilities); loss of lives and livelihoods; loss of land for future development.
  - Water: diminished capacity to provide water to population and industry; unfulfilled demand for water in the summer.
  - Energy: diminished capacity to provide power to population and industry; unfulfilled demand for power in the summer (high reliance on hydropower risks electricity generation).
  - Population: loss of life and injury; destruction or damage to homes; limited access to services; loss/disruption of livelihoods.
  - Health: loss of life and injury related to climate-related disasters; increased prevalence of water-borne and heat-related diseases; decreased availability and/or quality of water and food; deterioration of air quality causing respiratory and cardiovascular diseases.
  - Tourism: decreased attractiveness of tourism during summer due to high temperature; destruction or damage to touristic infrastructure, supporting infrastructure, biodiversity and natural landscapes; exposure of tourists to short-term health effects (heat strokes, etc.); loss of beach area.
- Agricultural vulnerability and environmental losses:
  - Agriculture represents about 20 percent of the economy.
  - Increased temperatures and precipitation variability expected to negatively impact agricultural sector.
  - In the decade ending in 2020, forest fires burned over 200,000 hectares (equal to 19 percent of the total remaining forests).
- Insurance and fiscal exposure:
  - Non-life insurance penetration is low. AFSA estimates that only 3 percent of properties are covered against extreme weather events and natural disasters.
  - Non-life insurance premiums increased to 0.9 percent of GDP at the end of 2021; only 1/3 of this amount corresponds to voluntary insurances. Property insurance premiums against disasters are just 0.1 percent of GDP.
  - Disaster relief programs are costly and divert limited resources from productive investment. Example: government's reconstruction program following the 2019 earthquake cumulatively amounted to 3.5 percent of GDP between 2020–2022.

### B. How to Manage and Adapt
- Findings and cost estimates:
  - The IMF estimates that the additional annual costs for climate-resilient infrastructure amounts to about 1.1 percent of GDP in Albania.
  - The National Adaptation Plan identifies priority adaptation measures but does not cost them. The National Adaptation Plan for Albania, 2021 assesses costs to mainstream adaptation into policy decision-making at Lek11bn (0.5 percent of GDP) but this does not include costs for building climate-resistant infrastructure.
  - Well-managed climate-resilient investment is expected to be cost-effective over time despite higher upfront costs.
- Priority adaptation measures and policy instruments (summary of Table 3):
  - Governance:
    - Develop adaptation plan for three main sectors (water, energy, agriculture) — Priority: Very High.
    - Strengthening the policy and legal framework and enacting action plans and mainstreaming climate-change adaptation plans into national and sectoral strategies — Priority: Very High.
    - Develop risk management plans — Priority: Very high.
    - Revise building codes — Priority: High.
  - Financing and fiscal planning:
    - Establish an Emergency Fund for Disaster Risk Response — Priority: High.
    - Mobilization of financial resources for climate change adaptation — Priority: Very High.
    - Design incentives and subsidies for smart climate practices (e.g., climate proofing buildings, energy efficient technologies) — Priority: Very High.
    - Develop insurance scheme and social protection systems for climate-change-related disasters — Priority: Medium.
  - Resilient infrastructure:
    - Construction of protective infrastructure (sea defenses, expanding riverbeds etc) — Priority: Medium.
    - Climate proofing coastal buildings and facilities — Priority: Climate proof buildings (thermal-isolation, and fire protection systems) — Priority: High.
    - Relocation of high-risk infrastructure (residential and social) in safer territories — Priority: Medium.
    - Climate proofing of existing infrastructure — Priority: High.
  - Water, Energy, Agriculture sector actions:
    - Increase efficiency of water use — Priority: Very high.
    - Promote other renewable energy to diversify generation — Priority: Very high.
    - Promote energy efficiency — Priority: Very high.
    - Climate proof energy infrastructure — Priority: High.
    - Protecting and restoring forests — Priority: Very High.
    - Promote sustainable agricultural and fishing — Priority: Very high.
    - Improve irrigation (from gravity to sprinkle) and drainage systems — Priority: Very high.
- Policy recommendations and institutional measures:
  - Integrate adaptation policies into national decision processes and cost them properly: embed climate-sensitive policies across the budget cycle — strategic and fiscal policy goals and targets, budget preparation and adoption, budget execution, independent oversight and audit.
  - Ensure fiscal consolidation goals consider the costing of adaptation and other green transition priorities explicitly.
  - Quantifying costs and benefits of adaptation policies and damages from inaction to inform choices given limited fiscal space.
  - Integrate climate considerations into public finance management systems ("green PFM") to promote fiscal policies responsive to environmental and climate concerns.
  - Strengthen weak public investment management (PIM) frameworks and include climate-related considerations in evaluation and selection criteria.
  - Use IMF C-PIMA module (climate change module for PIMA) to assess five institutions: (i) climate-aware planning, (ii) coordination among entities, (iii) project appraisal and selection, (iv) budgeting and portfolio management, and (v) risk management.
  - Strengthen financial inclusion and provide guidelines for adaptation across sectors to support private sector adaptation.
  - Make disaster insurance compulsory (authorities preparing legislation with World Bank assistance).
  - Generate additional revenue to meet investment needs for climate adaptation:
    - Implement a sound Medium-Term Revenue Strategy (MTRS) and better utilize environmental taxes.
    - Over medium to long term, raise carbon taxes for heavy polluters (pre-announced and rising to reach internationally suggested carbon price floors) to modify behavior and yield revenue.
    - Use regulations and feebates; consider revenue-neutral feebates to motivate environmentally friendly vehicles.
    - Scale up successful small-scale initiatives (e.g., municipal cost sharing of retrofitting buildings) and review less successful measures (e.g., reduced VAT rate for electric buses).

Box: The Role of Albania in Mitigating Climate Change (key facts)
- Albania’s total emissions peaked at 9 million tCO2e in 1989 and fell to 1.5 million tCO2e in 1997; in 2019 Albania’s emissions amounted to only 0.01 percent of global emission.
- In 2019, Albania’s per capita GHG emissions reached 1.68 tCO2e per capita, ranking 141 out of 218 countries and the second lowest in Europe.
- Sectoral shares (2019): Agriculture accounts for almost 30 percent of total emissions; Transport 15 percent; Industry 12 percent.
- Policy commitments:
  - June 2022 update to the first NDC: committed to decreasing total emissions by 20.9 percent by 2030 compared to the baseline through energy efficiency in transport and residential units, increased use of renewable energy, and penetration of natural gas.
  - Signed the Sofia Declaration on the Green Agenda for the Western Balkans in 2020, committing to carbon neutrality by 2050.
- Authorities intend to pilot schemes encouraging households and businesses to invest in renewable energy (notably solar panels), while sharing some investment costs to support decarbonization and address energy poverty.

### Section 2 — Emissions messaging, data sources, and mitigation status
- Overview of emissions messaging and data sources:
  - Behavioral encouragements include choosing hybrid vehicles over fossil fuel-powered ones or using renewable energy like solar or wind over coal.
  - GHG Emissions per Capita chart: covers 1989–2019 and reports "CO2t emissions per capita, excluding land use." Source: Our World in Data.
- Albania: status and measures for mitigating climate change:
  - To reach its climate goals, Albania will have to implement further reforms, including taxing large polluters.
  - Environmental taxes in Albania:
    - 3.2 percent of GDP in 2019.
    - 12.5 percent of total tax revenue in 2019.
    - The drop of environmental taxes in 2020 to 2.84 percent of GDP is attributed to the Covid 19-related lockdowns.
  - Since the war in Ukraine and the sharp increase in oil prices:
    - The government refrained from reducing tax rates on energy products.
    - The government removed some fuel excise exemptions (effective from 2022).
    - The government opted to provide targeted support for the most affected households rather than broad rate reductions.
  - Carbon taxation and emissions management:
    - Carbon taxes are applied mostly downstream to fuel for road transport.
    - There are no carbon taxes for large industrial polluters.
    - Albania manages its emissions mostly through regulations, imposing a flat tariff by type of activity that is not linked to the carbon content of emissions.
    - Albania is not part of the European Emission Trading Schemes (EU-ETS).
    - Albania has yet to establish effective monitoring for carbon emissions.
- Fiscal and policy implications highlighted:
  - The section emphasizes the need for further reforms to meet climate goals, with explicit mention of taxing large polluters.
  - The approach taken after the oil price shock (no broad energy tax cuts; targeted household support; removal of some exemptions effective 2022) is presented as a policy choice aligning with preserving climate-relevant tax signals.
- Data and charts referenced (qualitative):
  - Environmental Taxes, 2019 (Percent of GDP) — sectoral breakdown headings include: Energy (including fuel for transport), Pollution, Resources, Transport (excl fuel). Source: OECD, National authorities.
  - Fossil Fuel Subsidies, 2019 (Percent of GDP) — chart lists countries including Serbia, Bosnia, Kosovo, Turkey, N. Macedonia, Georgia, Armenia, Montenegro, Moldova, Greece, Croatia, Albania, with categories "Explicit" and "Implicit". Source: IMF Climate Dashboard.

*IMF staff report (Albania Selected Issues), completed November 14, 2022.*

### Section 1

### ADAPTING TO CLIMATE CHANGE

### A. The Impact of Climate Change

- Albania has been struck by numerous, costly natural disasters, with increasing frequency in its recent history due to climate change. Between 1980 and 2021, natural disasters are estimated to have affected about 438 thousand people and caused damages amounting to $ 802 million.
- On average, Albania is hit by close to one disaster per year, with each natural disaster causing damage of about 1.3 percent of GDP and affecting about 5000 per 100,000 inhabitants.
- Since 1980, Albania has been hit by 35 disasters, implying the probability of a disaster each year at about 80 percent.
- While the frequency of natural disasters in Albania is lower than in the European Union, the impact of each event is about twice as large in percent of GDP and affects a greater share of the population.
- Projections indicate:
  - mean annual temperature in Albania would increase between 1.3°C and 2.2°C by 2050,
  - precipitation is expected to decrease between 2.1 and 4.3 percent,
  - frequency and intensity of heavy rainfall events would increase,
  - sea level anomalies since 1993 reveal a trend for an increase in sea levels along the coast of Albania.
- Climate change impacts on population and economy (Table 2 summary):
  - Settlements, infrastructure and built environment: loss of access to essential services (shelter, electricity, drinking water, transport, health and educational facilities); loss of lives and livelihoods; loss of land for future development.
  - Water: diminished capacity to provide water to population and industry; unfulfilled demand for water in the summer.
  - Energy: diminished capacity to provide power to population and industry; unfulfilled demand for power in the summer (high reliance on hydropower risks electricity generation).
  - Population: loss of life and injury; destruction or damage to homes; limited access to services; loss/disruption of livelihoods.
  - Health: loss of life and injury related to climate-related disasters; increased prevalence of water-borne and heat-related diseases; decreased availability and/or quality of water and food; deterioration of air quality causing respiratory and cardiovascular diseases.
  - Tourism: decreased attractiveness of tourism during summer due to high temperature; destruction or damage to touristic infrastructure, supporting infrastructure, biodiversity and natural landscapes; exposure of tourists to short-term health effects (heat strokes, etc.); loss of beach area.
- Agricultural sector vulnerability:
  - Agriculture represents about 20 percent of the economy.
  - Increased temperatures and precipitation variability expected to negatively impact agricultural sector.
  - In the decade ending in 2020, forest fires burned over 200,000 hectares (equal to 19 percent of the total remaining forests).
- Insurance and fiscal exposure:
  - Non-life insurance penetration is low. AFSA estimates that only 3 percent of properties are covered against extreme weather events and natural disasters.
  - Non-life insurance premiums increased to 0.9 percent of GDP at the end of 2021; only 1/3 of this amount corresponds to voluntary insurances. Property insurance premiums against disasters are just 0.1 percent of GDP.
  - Disaster relief programs are costly and divert limited resources from productive investment. Example: government's reconstruction program following the 2019 earthquake cumulatively amounted to 3.5 percent of GDP between 2020–2022.

### B. How to Manage and Adapt

Findings and cost estimates
- The IMF estimates that the additional annual costs for climate-resilient infrastructure amounts to about 1.1 percent of GDP in Albania.
- The National Adaptation Plan identifies priority adaptation measures but does not cost them. The National Adaptation Plan for Albania, 2021 assesses costs to mainstream adaptation into policy decision-making at Lek11bn (0.5 percent of GDP) but this does not include costs for building climate-resistant infrastructure.
- Well-managed climate-resilient investment is expected to be cost-effective over time despite higher upfront costs.

Priority adaptation measures and policy instruments (Table 3 summary)
- Governance:
  - Develop adaptation plan for three main sectors (water, energy, agriculture) — Priority: Very High.
  - Strengthening the policy and legal framework and enacting action plans and mainstreaming climate-change adaptation plans into national and sectoral strategies — Priority: Very High.
  - Develop risk management plans — Priority: Very high.
  - Revise building codes — Priority: High.
- Financing and fiscal planning:
  - Establish an Emergency Fund for Disaster Risk Response — Priority: High.
  - Mobilization of financial resources for climate change adaptation — Priority: Very High.
  - Design incentives and subsidies for smart climate practices (e.g., climate proofing buildings, energy efficient technologies) — Priority: Very High.
  - Develop insurance scheme and social protection systems for climate-change-related disasters — Priority: Medium.
- Resilient infrastructure:
  - Construction of protective infrastructure (sea defenses, expanding riverbeds etc) — Priority: Medium.
  - Climate proofing coastal buildings and facilities — Priority: Climate proof buildings (thermal-isolation, and fire protection systems) — Priority: High.
  - Relocation of high-risk infrastructure (residential and social) in safer territories — Priority: Medium.
  - Climate proofing of existing infrastructure — Priority: High.
- Water, Energy, Agriculture sector actions:
  - Increase efficiency of water use — Priority: Very high.
  - Promote other renewable energy to diversify generation — Priority: Very high.
  - Promote energy efficiency — Priority: Very high.
  - Climate proof energy infrastructure — Priority: High.
  - Protecting and restoring forests — Priority: Very High.
  - Promote sustainable agricultural and fishing — Priority: Very high.
  - Improve irrigation (from gravity to sprinkle) and drainage systems — Priority: Very high.

Policy recommendations and institutional measures
- Integrate adaptation policies into national decision processes and cost them properly: embed climate-sensitive policies across the budget cycle — strategic and fiscal policy goals and targets, budget preparation and adoption, budget execution, independent oversight and audit.
- Ensure fiscal consolidation goals consider the costing of adaptation and other green transition priorities explicitly.
- Quantifying costs and benefits of adaptation policies and damages from inaction to inform choices given limited fiscal space.
- Integrate climate considerations into public finance management systems ("green PFM") to promote fiscal policies responsive to environmental and climate concerns.
- Strengthen weak public investment management (PIM) frameworks and include climate-related considerations in evaluation and selection criteria.
- Use IMF C-PIMA module (climate change module for PIMA) to assess five institutions: (i) climate-aware planning, (ii) coordination among entities, (iii) project appraisal and selection, (iv) budgeting and portfolio management, and (v) risk management.
- Strengthen financial inclusion and provide guidelines for adaptation across sectors to support private sector adaptation.
- Make disaster insurance compulsory (authorities preparing legislation with World Bank assistance).
- Generate additional revenue to meet investment needs for climate adaptation:
  - Implement a sound Medium-Term Revenue Strategy (MTRS) and better utilize environmental taxes.
  - Over medium to long term, raise carbon taxes for heavy polluters (pre-announced and rising to reach internationally suggested carbon price floors) to modify behavior and yield revenue.
  - Use regulations and feebates; consider revenue-neutral feebates to motivate environmentally friendly vehicles.
  - Scale up successful small-scale initiatives (e.g., municipal cost sharing of retrofitting buildings) and review less successful measures (e.g., reduced VAT rate for electric buses).

Box: The Role of Albania in Mitigating Climate Change (key facts)
- Albania’s total emissions peaked at 9 million tCO2e in 1989 and fell to 1.5 million tCO2e in 1997; in 2019 Albania’s emissions amounted to only 0.01 percent of global emission.
- In 2019, Albania’s per capita GHG emissions reached 1.68 tCO2e per capita, ranking 141 out of 218 countries and the second lowest in Europe.
- Sectoral shares (2019): Agriculture accounts for almost 30 percent of total emissions; Transport 15 percent; Industry 12 percent.
- Policy commitments:
  - June 2022 update to the first NDC: committed to decreasing total emissions by 20.9 percent by 2030 compared to the baseline through energy efficiency in transport and residential units, increased use of renewable energy, and penetration of natural gas.
  - Signed the Sofia Declaration on the Green Agenda for the Western Balkans in 2020, committing to carbon neutrality by 2050.
- Authorities intend to pilot schemes encouraging households and businesses to invest in renewable energy (notably solar panels), while sharing some investment costs to support decarbonization and address energy poverty.

*IMF staff report (Albania Selected Issues), completed November 14, 2022.*

### Section 2

### 1albea2022005 - Section 2

### Overview of emissions messaging and data sources
- The text notes behavioral encouragements to reduce emissions by choosing hybrid vehicles over fossil fuel-powered ones or using renewable energy like solar or wind over coal.
- GHG Emissions per Capita chart: covers 1989–2019 and reports "CO2t emissions per capita, excluding land use." Source: Our World in Data.

### Albania: status and measures for mitigating climate change
- To reach its climate goals, Albania will have to implement further reforms, including taxing large polluters.
- Environmental taxes in Albania:
  - 3.2 percent of GDP in 2019.
  - 12.5 percent of total tax revenue in 2019.
  - The drop of environmental taxes in 2020 to 2.84 percent of GDP is attributed to the Covid 19-related lockdowns.
- Since the war in Ukraine and the sharp increase in oil prices:
  - The government refrained from reducing tax rates on energy products.
  - The government removed some fuel excise exemptions (effective from 2022).
  - The government opted to provide targeted support for the most affected households rather than broad rate reductions.
- Carbon taxation and emissions management:
  - Carbon taxes are applied mostly downstream to fuel for road transport.
  - There are no carbon taxes for large industrial polluters.
  - Albania manages its emissions mostly through regulations, imposing a flat tariff by type of activity that is not linked to the carbon content of emissions.
  - Albania is not part of the European Emission Trading Schemes (EU-ETS).
  - Albania has yet to establish effective monitoring for carbon emissions.

### Fiscal and policy implications highlighted
- The section emphasizes the need for further reforms to meet climate goals, with explicit mention of taxing large polluters.
- The approach taken after the oil price shock (no broad energy tax cuts; targeted household support; removal of some excemptions effective 2022) is presented as a policy choice aligning with preserving climate-relevant tax signals.

### Data and charts referenced (qualitative)
- Environmental Taxes, 2019 (Percent of GDP) — sectoral breakdown headings include: Energy (including fuel for transport), Pollution, Resources, Transport (excl fuel). Source: OECD, National authorities.
- Fossil Fuel Subsidies, 2019 (Percent of GDP) — chart lists countries including Serbia, Bosnia, Kosovo, Turkey, N. Macedonia, Georgia, Armenia, Montenegro, Moldova, Greece, Croatia, Albania, with categories "Explicit" and "Implicit". Source: IMF Climate Dashboard.

*International Monetary Fund, excerpt from Section 2 of 1albea2022005*

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_Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1albea2022005.pdf_