## sipea2025162 ## Source details **Canonical URL:** [sipea2025162](https://www.imf.org/-/media/files/publications/selected-issues-papers/2025/english/sipea2025162.pdf) ## Other formats - [Markdown version](/-/media/files/publications/selected-issues-papers/2025/english/sipea2025162.pdf.md) - [Structured JSON version](/-/media/files/publications/selected-issues-papers/2025/english/sipea2025162.pdf.json) --- ### Climate trends and projections - Botswana has warmed by more than 1.2 °C relative to pre-industrial levels. - Mean annual temperature was equal to 21.9 °C during the 1985–2014 baseline period and is estimated to have exceeded 22.3 °C by 2020. - Botswana’s annual precipitation totals are around 400–500 mm/year. - Median projected warming: - 1.5–2.2 °C by 2050 (relative to the 1985–2014 baseline). - 1.6-4.1 °C by 2085 (relative to the 1985–2014 baseline). - Under a high-emissions/fast-warming scenario (SSP3-7.0, 90th percentile), temperatures could rise by nearly 5.5 °C by the end of the century. - Annual rainfall is projected to decline from around 420 mm/year historically to approximately 350 mm/year by 2085 across scenarios. - Extreme heat indicators: - TX35 (days with maximum daily temperature exceeding 35 °C) have increased steadily over the past two decades and are projected to continue increasing under all emissions scenarios. - Consecutive dry days (CDD) have shown an average increase of over 30 days relative to historical conditions and are projected to continue increasing throughout the century. - Heavy rainfall events (Rx1day and Rx5day) have shown upward variability recently but changes remain within natural variability and are not statistically significant; projections do not indicate significant changes in these intense precipitation events. ### Macroeconomic risks and projected impacts - Projected economic effects of climate-induced shocks: - Diminish agricultural yields and labor productivity across sectors. - Directly impact economic growth and undermine revenue generation. - Sharply reduce growth rates in the near term and contract GDP substantially over the long run if unaddressed. - Strain public finances through a shrinking tax base and increased demands for social protection and adaptation spending. - Interaction with fiscal pressures: - Fiscal strain from electricity subsidies further limits the government’s capacity to respond. - Projected GDP impacts under specified scenarios: - A worst-case warming scenario could result in a 10 percent annual economic loss by the end of the century if adaptation is slow (SSP3-7.0 90th percentile, implying +4.1 °C in 2071–2100 compared to 1985–2014). - Without adaptation these losses can double. - Rapid adaptation could reduce losses to 3 percent of GDP under the same temperature scenario. - Moderate global emissions cuts can keep GDP losses under 1 percent (SSP2-4.5 scenario). - Empirical weather-shock estimates: - In years with a higher than usual number of hot days (maximum daily temperature above 35 °C), GDP growth is 2 percentage points below the norm. - The increased frequency of hot days over the past four decades in Botswana has reduced GDP by 2.4 percent below its potential without climate change. - Two-thirds of this loss are attributable to the increased frequency of hot days. - One-third are attributable to the decreased frequency of cool days. - Fewer cool days than usual also decrease growth, with a negative effect approximately half that of hot days. - Caveats and limitations: - Estimates focus on temperature-driven impacts and include effects of accelerated evapotranspiration but do not fully account for reduced rainfall, more frequent extreme temperatures, and droughts. - Projections do not consider potentially large negative impacts from abrupt climatic changes, environmental collapse, and societal transformations induced by climate change. - Estimating macroeconomic impacts involves methodological challenges and long-term projections are inherently uncertain. ### Adaptation policy recommendations and prioritization - Core fiscal principle: - Differentiate between development investments and strictly additional adaptation investments; only additional costs attributable to climate change should be budgeted as adaptation expenses. - Priority public actions: - Public provision of climate services: - Expand early warning systems. - Expand climate risk mapping. - Define a system to measure the impacts of climate change. - Integrate climate information into government operations and Public Financial Management (PFM). - Boost water sector efficiency: - Water transfer schemes. - Minimize water losses. - Strengthen transboundary agreements on water. - Correct market inefficiencies to unlock private adaptation: - Improve access to credit markets to enable farmers to invest in adaptation. - Implement efficient water pricing to create incentives to conserve water. - Address distributional impacts to ensure a just transition. - Use of the NDC: - Botswana’s Second Updated Nationally Determined Contribution lists approximately forty measures across eight areas aimed at reducing vulnerability to weather shocks and climate change; prioritize measures that are strictly additional for climate adaptation and those that strengthen climate services and water resilience. - Fiscal framing: - Incorporate adaptation into macro-fiscal planning using IMF staff guidance; focus public spending where it corrects market failures, provides public goods (climate services), and leverages development investments with marginal adjustments attributable to climate change. ### Cost-benefit analysis (CBA) role in adaptation and development choices - CBA guidance: - Apply CBA to adaptation and all development programs consistently to compare social costs and benefits and maximize social welfare. - Use CBA to avoid investing in adaptations with low economic and social returns that could crowd out more impactful development measures. - Complement CBA with distributional analysis to reflect societal preferences and ethical trade-offs. ### Botswana electricity supply structure and market facts - Installed capacity and generation mix: - Domestic installed capacity is approximately 900 MW, of which around 630 MW is used during peak hours. - Coal-fired plants: Morupule B (~600 MW) and Morupule A (~132 MW) account for over 96 percent of domestic power. - Diesel generators at Orapa (90 MW) and Matshelagabedi (73 MW) provide roughly 160 MW of contingency generation. - Renewable energy installed capacity: 6 MW of solar PV (IRENA, 2021). - About 48 percent of final power consumption is generated domestically, while 52 percent is sourced through the Southern African Power Pool (SAPP). - In 2023, Botswana spent $156 million on electricity imports, ranking it the 55th largest importer of electricity globally. - Around 60 percent of SAPP electricity generation comes from coal generation and around 24 percent from hydro. - Unit costs of imported power increased by an estimated 166 percent (Timothy, 2025). - Market structure and operational indicators: - Electricity market: single-buyer model with Botswana Power Corporation (BPC) as sole off-taker; BPC is state-owned and responsible for generation, transmission, distribution, and rural electrification implementation. - Transmission and distribution losses averaged 15.35 percent in 2021 (World Bank, 2024). - National electrification approximately 72–76 percent in recent years. - Urban access: around 95.5 percent. - Rural access: around 25 percent. - Zero-cost connection policy (launched in 2024) provides a ready board for customers earning up to P2,400 per month. - Off-grid and decentralized solutions have not yet been mainstreamed (World Bank, 2023). ### Implicit subsidies, tariffs, and fiscal impacts in the power sector - Implicit fossil fuel subsidies are estimated at around 5 percent of GDP. - Implicit subsidies include external costs (climate change contributions, health impacts from local pollutants, road fuel externalities) and forgone consumption tax revenue. - Tariff history and gaps: - BPC tariff increases: 10 percent (April 2018), 22 percent (2020), and 3 percent (2021). - BPC requests for further 5 percent adjustments in 2022–2023 and 2023–2024 were denied. - Tariffs are at 30–32 thebe/kWh (0.021–0.0224 USD/kWh) below actual generation and import costs, contributing to operational losses of P498 million in FY2023 (Timothy, 2025). - Confirmed subsidy support to BPC: around P1.2 billion as part of a P3–4 billion package under the Transitional National Development Plan. - Estimated shortfall for 2025–2026: P3.4 billion (Timothy, 2025). - Current average domestic tariffs: roughly $0.09/kWh. ### IRP, CPAT modelling, and projected emissions impacts - Government targets: - 50 percent share of renewable energy generation in Vision 2036. - Universal electricity access and net energy exporter status by 2030. - NDC pledge: 15 percent reduction in greenhouse gas emissions relative to a business-as-usual (BAU) scenario by 2030, conditional on adequate financing. - IRP features: - Updated 2025 Integrated Resource Plan incoming renewable energy installed capacity: 1950 MW. - IRP includes continued coal investments: - 600 MW Mmamabula power plant, procured and expected to be completed in 2027. - Another coal plant in Palapye by 2027 with additional 615 MW. - Coal bed methane project reaching 100 MW of installed capacity. - Caveat: the IRP is not informed by a least-cost generation analysis or renewable energy feasibility studies. - CPAT model and findings: - CPAT projects fuel use and GHG emissions; parameterized to mid-range fuel price elasticities and linked to input-output tables to infer impacts on production costs, consumer prices, and household burdens. - CPAT findings for the IRP: - Renewable energy, particularly solar PV, is projected to surpass demand for coal-fired generation within the first year of being introduced since the price for renewable energy is lower than coal-generation. - Because the IRP ends in 2027 and no additional renewable energy is planned beyond this horizon, demand for coal-generation increases again as energy demand grows and modelling assumes a reduction of imported electricity. - Under the IRP, power sector emissions are expected to fall by approximately 54 percent and overall emissions by 30 percent compared to 2030 baseline levels, thereby exceeding the country’s NDC. - Majority of energy-related revenue comes from excise taxes on gasoline and diesel consumption; reduction in coal generation would not significantly diminish government revenue streams. ### Oversupply risks, regional context, and transmission constraints - Domestic oversupply risk: - Bringing over 3000 MW of installed coal and renewable capacity online before 2027 presents a risk of oversupply relative to current peak demand of just 630 MW. - Solar capacity factor: around 20 percent. - When including capacity factors, additional supply is closer to 1050 MW of capacity, which remains an oversupply of domestic generation. - Regional SAPP context: - In 2024, excess capacity, including reserves, for the region was 6,401 MW. - Botswana’s SAPP interconnection allows access to broader markets but raises questions about demand availability for excess generation and regional competition as SAPP members also plan generation expansion. - Export potential depends on transmission interconnectors, which require significant time and investment; lagging regional demand growth and connection development could force plants to operate below capacity factors and undermine economic cases for investments. - Selected regional figures: - Total SAPP installed capacity: 67,266 MW; operating capacity: 60,754 MW; current peak demand: 50,865 MW; peak demand plus reserves: 54,964 MW; capacity excess including reserves: 6,401 MW. - Botswana (BPC): Installed Capacity 927 MW; Operating Capacity 459 MW; Current Peak Demand 610 MW; Peak Demand Plus Reserves 698 MW; Capacity Excess/Shortfall Including Reserves -239 MW. ### Renewable procurement framework, auction history, and procurement credibility - Renewable Energy PPA Framework features: - Sealed-bid, location-specific, two-stage tenders; pre-developed project sites by BPC; rigorous pre-qualification; bid bonds (up to US $1M) and performance bonds (US $4M); 25-year PPA with BPC; PPA price partially indexed to local inflation and Pula/USD exchange rate; government support via a three-month liquidity facility and a government-issued letter of comfort; expected 40% local equity where market capacity exists; dual evaluation criteria (price and economic development impact). - Auction rounds (selected): - Round 1: Initiation Year 2015, relaunched 2017, and again in 2019; Volume Requested (MW) 100; Project-Size Limits (MW) 50; Technology Requested CSP or PV; Capacity Procured (MW) 50. - Round 2: Initiation Year 2015; Volume Requested (MW) 100; Project-Size Limits (MW) 100; Technology Requested CSP; Capacity Procured (MW) Nil. - Round 3: Initiation Year 2018; Technology Requested Solar PV; Capacity Procured (MW) Nil. - Round 4: Initiation Year 2022; Technology Requested Solar PV; Capacity Procured (MW) Nil. - Round 5: Initiation Year 2022; Volume Requested (MW) 200; Project-Size Limits (MW) 100; Technology Requested CSP; Capacity Procured (MW) Nil. - Procurement credibility recommendations: - Base energy planning on least-cost generation analysis and renewable energy feasibility studies. - Commit to a clear, consistent auction schedule with transparent rules to rebuild investor trust and secure long-term renewable energy investment. - Address past auction disruptions and cancellations and ensure auctions are transparent, consistent, and timely. ### Grid integration, tariffs, subsidies, and institutional capacity - Grid integration and institutional capacity: - Current grid code lacks comprehensive technical standards for integrating renewable energy, storage, and distributed generation, and lacks clarity on grid access protocols and interconnection requirements for IPPs. - BPC’s workforce includes only a limited number of engineers skilled in transmission and connection planning, hindering integration of renewable energy (Kruger, Alao, and Betz, 2024). - Policy recommendations: update the grid code to explicitly incorporate RE requirements; build institutional capacity for timely grid connection approvals and compliance monitoring; adopt provisions for forecasting, curtailment protocols, and ancillary services. - Tariff reform and investment signals: - Increasing tariffs to cost-reflective levels enables utilities to recover operating expenses, maintain infrastructure, and attract private investors. - Recommendation: move tariffs toward cost-reflective levels while phasing out subsidies and design tariff reforms with measures to protect affordability for vulnerable consumers. - Cross-subsidization and rural electrification: - Use cross-subsidies from main-grid customers to support consumers served by solar mini-grids, with design elements including transparent tariff setting, metering (including AMI), participation criteria, cost recovery calculations, periodic reviews, and long-term planning. - Alternative: use additional urban tariff revenues to subsidize green technologies in rural areas (solar mini-grids, battery storage, efficient appliances) to target cost reduction rather than direct consumer subsidies. ### Large users, tax alignment, carbon pricing, and mineral development - Large electricity users: - The mining sector accounts for approximately half of all productive electricity usage in Botswana. - Copper and nickel operations account for 49 percent of the mining sector’s electricity consumption; the diamond subsector accounts for 45 percent (World Bank Group, 2016). - Policy recommendation: hold large users accountable for their energy mix through distributed energy policies and self-generation requirements with annual increases in renewable shares until 2030, with unmet targets triggering compensatory investments in rural electrification. - Tax and carbon pricing findings: - Zero-rated VAT on diesel and petrol avoids the standard 14 percent rate. - Applying the standard VAT to diesel and petrol could generate an additional 0.25 percent of GDP in revenues by 2035. - South Africa’s Carbon Tax Act (introduced June 2019) initially featured tax-free allowances between 60–95%; in 2022 the carbon tax generated approximately R1.6 billion. The tax is 13USD/tCO2 but expected to rise to 30USD/tCO2 by 2030. - If Botswana imposed a 5USD/tCO2 carbon tax escalating to 25USD/tCO2 by 2030, additional fiscal revenues could increase over 1.2 percent of GDP (by 2035) with only a small change in electricity prices, of 11 percent, over the next five years. - The modeled carbon tax impact on GDP is negligible and would complement the IRP to reduce emissions, particularly in the industrial sector. - Distributional note: carbon pricing is inherently progressive in Botswana because poorer households typically have lower fossil fuel consumption; recycling revenues to the general budget or targeted support can produce positive and highly progressive consumption effects. - Trade policy and mineral strategy: - Targeted import duty exemptions for renewable technologies (solar PV panels, batteries, inverters) can lower upfront costs but may forgo tariff revenues and, if not well-targeted, disproportionately benefit wealthier households. - Strategic opportunity: responsibly develop critical minerals (cobalt, copper, manganese, nickel) to position Botswana in the clean energy transition while avoiding Dutch Disease through diversification, prudent resource revenue management, and environmental safeguards. ### Conclusions and priority reforms - Key findings: - Climate trends and fiscal pressures from electricity subsidies raise macroeconomic risks for Botswana. - Extreme heat events have been shown to lower growth by up to 2 percentage points in the short term. - A sustained warming trend could lead to as much as a 10 percent reduction in GDP by the century’s end compared to projections under current conditions. - The updated IRP’s renewable energy expansion could cut power sector emissions by over 50 percent compared to a business-as-usual scenario for 2030. - Priority reforms: - Refine adaptation measures in the Second Updated NDC: invest in climate services (early warning systems, climate risk mapping, impact measurement) to integrate climate into PFM. - Improve water sector efficiency and reduce market inefficiencies to crowd-in private adaptation investment and reduce fiscal risks. - Implement energy sector reforms: least-cost generation planning, apply the standard VAT rate to diesel and petrol, and gradually introduce a low-level carbon price to strengthen fiscal position and emissions outcomes. *Source: IMF staff analysis in "1. Growing macroeconomic risks from observed climate trends and projections, alongside fiscal strain from electricity subsidies" and related sections of sipea2025162.* ### 1. Growing macroeconomic risks from observed climate trends and projections, alongside fiscal ### 1. Growing macroeconomic risks from observed climate trends and projections, alongside fiscal strain from electricity subsidies, call for effective adaptation policies and energy sector reforms. ### Climate trends and projections - Botswana has warmed by more than 1.2 °C relative to pre-industrial levels. - Mean annual temperature was equal to 21.9 °C during the 1985–2014 baseline period and is estimated to have exceeded 22.3 °C by 2020. - Botswana’s annual precipitation totals are around 400–500 mm/year. - Median projected warming: - 1.5–2.2 °C by 2050 (relative to the 1985–2014 baseline). - 1.6-4.1 °C by 2085 (relative to the 1985–2014 baseline). - Under a high-emissions/fast-warming scenario (SSP3-7.0, 90th percentile), temperatures could rise by nearly 5.5 °C by the end of the century. - Annual rainfall is projected to decline from around 420 mm/year historically to approximately 350 mm/year by 2085 across scenarios. - Extreme heat indicators: - Days with maximum daily temperature exceeding 35 °C (TX35) have increased steadily over the past two decades and are projected to continue increasing under all emissions scenarios. - Consecutive dry days (CDD) have shown an average increase of over 30 days relative to historical conditions and are projected to continue increasing throughout the century. - Heavy rainfall event trends (Rx1day and Rx5day) have shown upward variability in recent years, but changes remain within natural variability and are not statistically significant; projections do not indicate significant changes in these intense precipitation events. ### Macroeconomic risks and projected impacts - Climate-induced shocks are projected to: - Diminish agricultural yields and labor productivity across various sectors. - Directly impact economic growth and undermine revenue generation. - Sharply reduce growth rates in the near term and contract GDP substantially over the long run if unaddressed. - Strain public finances through a shrinking tax base and increased demands for social protection and adaptation spending. - Interaction with fiscal pressures: - Fiscal strain from electricity subsidies further limits the government’s capacity to respond. - Projected GDP impacts under different assumptions: - A worst-case warming scenario could result in a 10 percent annual economic loss by the end of the century if adaptation is slow (SSP3-7.0 90th percentile, implying +4.1 °C in 2071–2100 compared to 1985–2014). - Without adaptation these losses can double. - Rapid adaptation could reduce losses to 3 percent of GDP under the same temperature scenario. - Moderate global emissions cuts can keep GDP losses under 1 percent (SSP2-4.5 scenario). - Empirical estimates of weather-shock impacts: - In years with a higher than usual number of hot days (maximum daily temperature above 35 °C), GDP growth is 2 percentage points below the norm. - The increased frequency of hot days over the past four decades in Botswana has reduced GDP by 2.4 percent below its potential without climate change. - Two-thirds of this loss are attributable to the increased frequency of hot days. - One-third are attributable to the decreased frequency of cool days. - Fewer cool days than usual also decrease growth, with a negative effect approximately half that of hot days. - Caveats: - Estimates focus on temperature-driven impacts and include effects of accelerated evapotranspiration but do not fully account for reduced rainfall, more frequent extreme temperatures, and droughts. - Projections do not consider potentially large negative impacts from abrupt climatic changes, environmental collapse, and societal transformations induced by climate change. - Estimating macroeconomic impacts involves methodological challenges and long-term projections are inherently uncertain. ### Adaptation policy recommendations and prioritization - Core principle: Differentiate between development investments and strictly additional adaptation investments. - Adaptation investments are those driven exclusively by climate change; only the additional costs attributable to climate change should be budgeted as adaptation expenses. - This distinction prevents double counting and enables more accurate estimation of budgetary pressures. - Priority areas for government action to maximize impact and efficiency: - Public provision of climate services: - Expand early warning systems. - Expand climate risk mapping. - Define a system to measure the impacts of climate change. - Integrate climate information into government operations and Public Financial Management (PFM). - Boost water sector efficiency: - Water transfer schemes. - Minimize water losses. - Strengthen transboundary agreements on water. - Promote reforms to correct market inefficiencies and policy failures that limit private adaptation: - Improve access to credit markets to enable farmers to invest in adaptation. - Implement efficient water pricing to create incentives to conserve water. - Address distributional impacts to ensure a just transition. - Use of the country’s NDC: - Botswana’s Second Updated Nationally Determined Contribution (NDCs) lists approximately forty measures across eight areas aimed at reducing vulnerability to weather shocks and climate change, but not all are strict adaptation measures. - Prioritize measures that are strictly additional for climate adaptation and those that strengthen climate services and water resilience. - Fiscal framing: - Incorporate adaptation into macro-fiscal planning using guidance developed by IMF staff to integrate climate change into macro-fiscal planning. - Focus public spending where it corrects market failures, provides public goods (climate services), and leverages development investments with marginal adjustments attributable to climate change. *Source: IMF staff analysis in "1. Growing macroeconomic risks from observed climate trends and projections, alongside fiscal strain from electricity subsidies" (selected issues paper).* ### 14. Cost-benefit analysis (CBA) can play an important role in selecting public adaptation projects. ### 14. Cost-benefit analysis (CBA) can play an important role in selecting public adaptation projects. ### Role of CBA in adaptation and development choices - Adaptation investment yields beneficial effects, but investing in adaptations with low economic and social returns may crowd out investment in more impactful development measures. - Trade-offs—e.g., climate resilient infrastructure, improved drainage systems, water desalination, rooftop rainfall catchment—are best evaluated by systematically comparing social costs and benefits. - What to do, when, how, and at what cost ultimately relies on ethical choices that should reflect societal preferences. - CBA, complemented by analysis and correction of distributional impacts, can help decision makers maximize overall social welfare by avoiding wasting scarce resources. - To achieve this, CBA should be applied to adaptation as well as to all other development programs in a consistent manner (Bellon and Massetti, 2022). ### Background: Botswana’s current electricity supply structure - Domestic installed capacity is approximately 900 MW, of which around 630 MW is used during peak hours. - Coal-fired plants, Morupule B (~600 MW) and Morupule A (~132 MW), account for over 96 percent of domestic power. - Diesel generators at Orapa (90 MW) and Matshelagabedi (73 MW) provide roughly 160 MW of contingency generation. - Renewable energy installed capacity: 6 MW of solar PV (IRENA, 2021). - About 48 percent of final power consumption is generated domestically, while 52 percent is sourced through the Southern African Power Pool (SAPP). - In 2023, Botswana spent $156 million on electricity imports, ranking it the 55th largest importer of electricity globally. - Around 60 percent of SAPP electricity generation comes from coal generation and around 24 percent from hydro. - Unit costs of imported power increased by an estimated 166 percent (Timothy, 2025). ### Market structure, operational challenges, and access disparities - Electricity market: single-buyer model with Botswana Power Corporation (BPC) as sole off-taker; BPC is state-owned and responsible for generation, transmission, distribution, and rural electrification implementation. - Transmission and distribution losses averaged 15.35 percent in 2021 (World Bank, 2024). - National electrification approximately 72–76 percent in recent years. - Urban access: around 95.5 percent. - Rural access: around 25 percent. - Zero-cost connection policy (launched in 2024) provides a ready board for customers earning up to P2,400 per month. - Off-grid and decentralized solutions have not yet been mainstreamed (World Bank, 2023). ### Implicit subsidies, tariffs, and fiscal impacts - Implicit fossil fuel subsidies are estimated at around 5 percent of GDP. - Implicit subsidies include external costs (climate change contributions, health impacts from local pollutants, road fuel externalities) and forgone consumption tax revenue. - Tariff adjustments: BPC tariff increases of 10 percent (April 2018), 22 percent (2020), and 3 percent (2021). - BPC requests for further 5 percent adjustments in 2022–2023 and 2023–2024 were denied. - Tariffs are at 30–32 thebe/kWh (0.021–0.0224 USD/kWh) below actual generation and import costs, contributing to operational losses of P498 million in FY2023 (Timothy, 2025). - Confirmed subsidy support to BPC: around P1.2 billion as part of a P3–4 billion package under the Transitional National Development Plan. - Estimated shortfall for 2025–2026: P3.4 billion (Timothy, 2025). - Current average domestic tariffs: roughly $0.09/kWh. ### Targets, the IRP, and CPAT modeling results - Government targets: - 50 percent share of renewable energy generation in Vision 2036. - Universal electricity access and net energy exporter status by 2030. - NDC pledge: 15 percent reduction in greenhouse gas emissions relative to a business-as-usual (BAU) scenario by 2030, conditional on adequate financing. - Updated 2025 Integrated Resource Plan (IRP) incoming renewable energy installed capacity: 1950 MW. - IRP includes continued coal investments: - 600 MW Mmamabula power plant, procured and expected to be completed in 2027. - Another coal plant in Palapye by 2027 with additional 615 MW. - Coal bed methane project reaching 100 MW of installed capacity. - Caveat: the IRP is not informed by a least-cost generation analysis or renewable energy feasibility studies. - CPAT (Climate Policy Assessment Tool) characteristics: - Spreadsheet-based model projecting fuel use and GHG emissions for major energy sectors in over 200 countries. - Parameterized to mid-range of existing modelling literature on fuel price elasticities and linked to input-output tables to infer impacts on production costs, consumer prices, and burdens on household income groups. - CPAT is developed jointly by IMF and World Bank staff. - CPAT findings for the IRP: - Renewable energy, particularly solar PV, is projected to surpass demand for coal-fired generation within the first year of being introduced since the price for renewable energy is lower than coal-generation. - Because the IRP ends in 2027 and no additional renewable energy is planned beyond this horizon, demand for coal-generation increases again as energy demand grows and modelling assumes a reduction of imported electricity. - Under the IRP, power sector emissions are expected to fall by approximately 54 percent and overall emissions by 30 percent compared to 2030 baseline levels, thereby exceeding the country’s NDC. - Majority of energy-related revenue comes from excise taxes on gasoline and diesel consumption; reduction in coal generation would not significantly diminish government revenue streams. ### Oversupply risks, regional context, and transmission constraints - Bringing over 3000 MW of installed coal and renewable capacity online before 2027 presents a risk of oversupply relative to current peak demand of just 630 MW. - Solar capacity factor: around 20 percent. - When including capacity factors, additional supply is closer to 1050 MW of capacity, which remains an oversupply of domestic generation. - Regional SAPP context: - In 2024, excess capacity, including reserves, for the region was 6,401 MW (see Table 1). - Botswana’s SAPP interconnection allows access to broader markets and monetization of excess generation but raises questions about demand availability for excess generation. - Regional competition: SAPP members are also planning generation expansion (see Table 2), potentially reducing market opportunities for exports. - Infrastructure constraints: export potential depends on transmission interconnectors, which require significant time and investment; lagging regional demand growth and connection development could force Botswana to operate plants below capacity factors and undermine the economic case for investments. ### Key regional capacity and Botswana’s position (selected figures from Table 1) - Total SAPP installed capacity: 67,266 MW; operating capacity: 60,754 MW; current peak demand: 50,865 MW; peak demand plus reserves: 54,964 MW; capacity excess including reserves: 6,401 MW. - Botswana (BPC): Installed Capacity 927 MW; Operating Capacity 459 MW; Current Peak Demand 610 MW; Peak Demand Plus Reserves 698 MW; Capacity Excess/Shortfall Including Reserves -239 MW. ### Renewable energy procurement framework and auction history - Key features of Botswana’s Renewable Energy PPA Framework: - Sealed-bid, location-specific, two-stage tenders; pre-developed project sites by BPC; rigorous pre-qualification; bid bonds (up to US $1M) and performance bonds (US $4M); 25-year PPA with BPC; PPA price partially indexed to local inflation and Pula/USD exchange rate; government support via a three-month liquidity facility and a government-issued letter of comfort; expected 40% local equity where market capacity exists; dual evaluation criteria (price and economic development impact). - Renewable Energy Auction Rounds: - Round 1: Initiation Year 2015, relaunched 2017, and again in 2019; Volume Requested (MW) 100; Project-Size Limits (MW) 50; Technology Requested CSP or PV; Capacity Procured (MW) 50. - Round 2: Initiation Year 2015; Volume Requested (MW) 100; Project-Size Limits (MW) 100; Technology Requested CSP; Capacity Procured (MW) Nil. - Round 3: Initiation Year 2018; Volume Requested (MW) N/A; Project-Size Limits (MW) N/A; Technology Requested Solar PV; Capacity Procured (MW) Nil. - Round 4: Initiation Year 2022; Volume Requested (MW) N/A; Project-Size Limits (MW) N/A; Technology Requested Solar PV; Capacity Procured (MW) Nil. - Round 5: Initiation Year 2022; Volume Requested (MW) 200; Project-Size Limits (MW) 100; Technology Requested CSP; Capacity Procured (MW) Nil. ### Policy recommendations and enabling environment priorities - Evidence-based planning: - Base energy planning on least-cost generation analysis and renewable energy feasibility studies to ensure economic efficiency and technical viability. - Least-cost and feasibility analyses are crucial to allocate resources optimally, ensure technical achievability, and meet demand reliably at lowest cost. - Procurement credibility: - Commit to a clear, consistent auction schedule with transparent rules to rebuild investor trust and secure long-term renewable energy investment. - Address past disruptions and cancellations of auctions that have undermined investor confidence (multiple utility-scale solar auctions canceled or delayed). - Ensure procurement auctions are rolled out in a transparent, consistent, and timely manner. *Source: sipea2025162 - 14. Cost-benefit analysis (CBA) can play an important role in selecting public adaptation projects.* ### 27. Incorporating clear methodologies to remunerate and integrate generation from variable ### 27. Incorporating clear methodologies to remunerate and integrate generation from variable ### Grid integration, standards, and institutional capacity - Findings: - The current grid code lacks comprehensive technical standards for integrating renewable energy, storage, and distributed generation, and lacks clarity on grid access protocols and interconnection requirements for IPPs. - BPC’s workforce includes only a limited number of engineers skilled in transmission and connection planning, which hinders integration of renewable energy (Kruger, Alao, and Betz, 2024). - Policy recommendations: - Update the grid code to explicitly incorporate renewable energy (RE) requirements. - Build institutional capacity to provide timely grid connection approvals, and to monitor and enforce compliance. - Adopt robust provisions for managing variable renewable energy (forecasting, curtailment protocols, ancillary services) to maintain grid stability as solar and wind capacity grows. ### Electricity tariffs, subsidies, and investment signals - Findings: - Increasing electricity tariffs to cost-reflective levels enables utilities to recover operating expenses, maintain infrastructure, and invest in grid upgrades or new generation capacity, making the sector more attractive to private investors. - Example: Namibia implemented cost-reflective tariffs following a national tariff and cost-of-service study, enabling NamPower to operate without external subsidies and attracting IPPs—renewable—that now contribute 25 percent of installed capacity (Baker and Bischof-Niemz, 2022). - Policy recommendations: - Move tariffs toward cost-reflective levels while phasing out subsidies to reduce fiscal burden and attract private investment. - Design tariff reforms with measures to protect affordability for vulnerable consumers. ### Cross-subsidization and rural electrification - Proposals and design elements: - Use cross-subsidies where revenues from main-grid customers subsidize electricity for consumers in areas served by solar mini-grids to support rural electrification and narrow urban–rural access gaps. - Key design requirements: transparent tariff setting, consumption metering (including advance metering infrastructure, AMI), clear participation criteria for compensation mechanisms, cost recovery calculations for mini-grids, studies on tariff impacts, periodic tariff reviews, long-term planning for mini-grid sites, and addressing operational losses. - Alternative approach: - Instead of revenue transfers to consumers, use additional revenues from urban tariffs to subsidize green technologies (solar mini-grids, battery storage systems, efficient appliances) in rural areas—targeting cost reduction rather than direct consumer subsidies. - Both approaches require careful assessment of impacts on urban consumers and periodic program reviews. ### Large electricity users and sectoral measures - Findings: - The mining sector accounts for approximately half of all productive electricity usage in Botswana. - Copper and nickel operations account for 49 percent of the mining sector’s electricity consumption; the diamond subsector accounts for 45 percent (World Bank Group, 2016). - Policy recommendations: - Hold large users accountable for their energy mix through distributed energy policies and self-generation requirements (e.g., decrees by MME) requiring an annual increase in renewable-based electricity shares until 2030, with unmet targets triggering compensatory investments in rural electrification. - Leverage commitments from industry leaders (e.g., Debswana aiming for carbon neutrality by 2030) to accelerate private-sector-driven investment. ### Tax alignment, carbon pricing, and fiscal impacts - Findings: - There is a zero-rated VAT on diesel and petrol, avoiding the standard 14 percent rate. - Applying the standard VAT to diesel and petrol could generate an additional 0.25 percent of GDP in revenues by 2035. - South Africa’s Carbon Tax Act: introduced June 2019; initial generous tax-free allowances between 60–95%; in 2022 the carbon tax generated approximately R1.6 billion. The tax is 13USD/tCO2 but expected to rise to 30USD/tCO2 by 2030. - If Botswana imposed a 5USD/tCO2 carbon tax that escalates to 25USD/tCO2 by 2030, additional fiscal revenues could increase over 1.2 percent of GDP (by 2035) with only a small change in electricity prices, of 11 percent, over the next five years. - The impact on GDP from the modeled carbon tax is negligible; the carbon tax would complement the IRP to reduce emissions further, particularly in the industrial sector. - Distributional and recycling considerations: - Carbon pricing is inherently progressive in Botswana because poorer households typically have lower fossil fuel consumption. - Recycling carbon tax revenues into the general budget or targeted support (cash transfers, adaptation needs) can produce positive and highly progressive consumption effects and improve political acceptability. ### Trade policy for clean technologies and mineral development - Findings and trade-offs: - Targeted import duty exemptions for renewable energy technologies (solar PV panels, batteries, inverters) can lower upfront costs and boost adoption but may forgo tariff revenues and, if not well-targeted, disproportionately benefit wealthier households. - Reducing tariffs on green technologies would lower imports of more expensive, fossil-based electricity which is currently subsidized. - Strategic opportunity: - Botswana can position itself as a key supplier in the global clean energy transition by responsibly developing critical minerals (cobalt, copper, manganese, nickel). - To avoid Dutch Disease and maximize benefits, Botswana should diversify beyond resource exports into manufacturing and services, invest resource revenues prudently, and pair mineral development with robust environmental safeguards and governance. ### Conclusions: macroeconomic risks and priority reforms - Key findings: - Climate trends and fiscal pressures from electricity subsidies raise macroeconomic risks for Botswana. - Extreme heat events have been shown to lower growth by up to 2 percentage points in the short term. - A sustained warming trend could lead to as much as a 10 percent reduction in GDP by the century’s end compared to projections under current conditions. - The updated Integrated Resource Plan’s renewable energy expansion could cut power sector emissions by over 50 percent compared to a business-as-usual scenario for 2030. - Priority actions: - Refine adaptation measures in the Second Updated Nationally Determined Contribution (NDC): invest in climate services (early warning systems, climate risk mapping, impact measurement) to integrate climate into PFM. - Improve water sector efficiency and reduce market inefficiencies to crowd-in private adaptation investment and reduce fiscal risks. - Implement energy sector reforms: least-cost generation planning, apply the standard VAT rate to diesel and petrol, and gradually introduce a low-level carbon price to strengthen fiscal position and emissions outcomes. *Source: sipea2025162* ### References ### References ### Major themes covered - Estimation of macro-fiscal effects of climate shocks and integration of climate impacts into fiscal and macro projections. - Akyapi, B., M. Bellon and E. Massetti (2025). “Estimating Macro-Fiscal Effects of Climate Shocks From Billions of Geospatial Weather Observations.” American Economic Journal, Macroeconomics, 17(3): 114-59. - Bellon, M. and E. Massetti. 2022. “Economic Principles for Integrating Adaptation to Climate Change into Fiscal Policy.” IMF Staff Climate Note 2022.001, International Monetary Fund, Washington, DC. - Centorrino, S., E. Massetti, M. Raissi, and F. Tagklis. 2025. How to Include the Effects of Rising Temperatures in Macro-Fiscal Projections. IMF How To Notes, forthcoming. - Mohaddes, K., and Raissi, M., 2025. “Rising Temperatures, Melting Incomes: Country-Specific Macroeconomic Effects of Climate Scenarios,“ PLOS Climate 4(9), e0000621. - Kahn, Matthew E., Kamiar Mohaddes, Ryan NC Ng, M. Hashem Pesaran, Mehdi Raissi, and Jui-Chung Yang (2021). “Long-term macroeconomic effects of climate change: A cross-country analysis.” Energy Economics 104: 105624. - Physical climate impacts, labor productivity, and sectoral effects (agriculture, crops, labor). - Kjellstrom, Tord, R. Sari Kovats, Simon J. Lloyd, Tom Holt, and Richard SJ Tol. (2009). "The direct impact of climate change on regional labor productivity." Archives of environmental & occupational health 64, no. 4: 217-227. - Schlenker, Wolfram, and Michael J. Roberts. (2009). "Nonlinear temperature effects indicate severe damages to US crop yields under climate change." Proceedings of the National Academy of sciences 106, no. 37: 15594-15598. - Serdeczny, Olivia, Sophie Adams, Florent Baarsch, Dim Coumou, Alexander Robinson, William Hare, Michiel Schaeffer, Mahé Perrette, and Julia Reinhardt. (2017). "Climate change impacts in Sub-Saharan Africa: from physical changes to their social repercussions." Regional Environmental Change 17, no. 6: 1585-1600. - Kurukulasuriya, Pradeep, Robert Mendelsohn, Rashid Hassan, James Benhin, Temesgen Deressa, Mbaye Diop, Helmy Mohamed Eid et al. (2006). "Will African agriculture survive climate change?." The World Bank Economic Review 20, no. 3: 367-388. - Malhi, Gurdeep Singh, Manpreet Kaur, and Prashant Kaushik. (2021). "Impact of climate change on agriculture and its mitigation strategies: A review." Sustainability 13, no. 3: 1318. ### Energy, renewable deployment, and regional electricity planning (Southern Africa) - Country and regional integrated resource plans, renewable project reports, and energy sector updates. - Namibia Ministry of Mines & Energy. (2022, October). National Integrated Resource Plan (NIRP) 2022 for the Electricity Supply Industry, Namibia (Final Report). - South Africa Department of Mineral Resources & Energy. (2019, October). Integrated Resource Plan 2019 (IRP 2019). Republic of South Africa. - Southern African Power Pool. (2021). SAPP Annual Report 2021. - Zambia Ministry of Energy. (n.d.). About the IRP project – Integrated Resource Plan (IRP). - Global Transmission Report. (2025, July 11). Zambia: Planned generation and transmission capacity. - Enerdata. (2025). South Africa approves the South African Renewable Energy Masterplan. - Jowett, P. (2025). South Africa targeting up to 5 GW of new renewables per year. pv magazine. - Reuters. (2025). Zambia launches 100 megawatt solar plant supplying First Quantum Minerals. - Reuters. (2024a). Chinese firms to build Namibia’s largest solar power plant. - Reuters. (2024b). World Bank approves US$138.5 million loan to Namibia. - Bungane, B. (2018). Mozambique plans 700 % increase in output capacity by 2043. Green Building Africa. - Kruger, W., Alao, O., & Betz, S. (2024). Driving growth: Effective renewable energy tendering in Africa: Success factors for private power investment and procurement. - Baker, L., & Bischof-Niemz, T. (2022). A quiet transition: The role of Namibia's state-owned power utility in enabling renewable energy investment. Renewable and Sustainable Energy Reviews, 157, 112014. https://doi.org/10.1016/j.rser.2022.112014 - Country-specific data and indicators relevant to electricity access and trade. - SDG 7.1.1 Electrification Dataset, World Bank ( WB ), uri: trackingsdg7.esmap.org/downloads, note: Data is downloaded from ESMAP website. Data is released when a new Tracking SDG7 report is released., publisher: World Bank ( WB ), data accessed: 2024-05-16, date published: 2023. - World Bank. (n.d.). Access to electricity (% of population) (total, urban, rural) – Botswana. Retrieved August 25, 2025, from https://data.worldbank.org/indicator/EG.ELC.ACCS.ZS?locationsBW - The Observatory of Economic Complexity (OEC). (2023). Electricity in Botswana trade. Retrieved August 25, 2025, from https://oec.world/en/profile/bilateral-product/electricity/reporter/bwa - SADC Centre for Renewable Energy and Energy Efficiency. (n.d.). Botswana. Retrieved August 25, 2025, from https://www.sacreee.org/member-state/botswana - International Energy Agency. (n.d.). Botswana – Electricity. Retrieved August 25, 2025, from https://www.iea.org/countries/botswana/electricity - International Renewable Energy Agency. (2021). Renewables Readiness Assessment: Botswana. International Renewable Energy Agency. ### Climate and meteorological data sources, datasets, and reference guides - Global and gridded climate datasets cited. - Copernicus Climate Change Service, Climate Data Store, (2021): CMIP6 climate projections. Copernicus Climate Change Service (C3S) Climate Data Store (CDS). DOI: 10.24381/cds.c866074c - Harris I, Osborn TJ, Jones P and Lister D (2020). Version 4 of the CRU TS Monthly High-Resolution Gridded Multivariate Climate Dataset. Scientific Data (https://doi.org/10.1038/s41597-020-0453-3). - Massetti, E. and F. Tagklis (2024). FADCP Climate Dataset: Temperature and Precipitation. Reference Guide, Fiscal Affairs Department, International Monetary Fund, Washington DC. - IMF Fossil Fuel Subsidies Database, 2023 Update. IMF Climate Change Indicators Dashboard. ### Empirical methods, modeling, and sectoral analyses - Studies on temperature effects on productivity, energy demand, and labor supply. - Isaac, Morna, and Detlef P. Van Vuuren. (2009). "Modeling global residential sector energy demand for heating and air conditioning in the context of climate change." Energy policy 37, no. 2: 507-521. - Somanathan, Eswaran, Rohini Somanathan, Anant Sudarshan, and Meenu Tewari. (2021). "The impact of temperature on productivity and labor supply: Evidence from Indian manufacturing." Journal of Political Economy 129, no. 6: 1797-1827. - Kjellstrom et al. (2009) and Schlenker & Roberts (2009) (see above) for labor and crop productivity nonlinear temperature impacts. - Kahn et al. (2021) and Mohaddes & Raissi (2025) for cross-country and country-specific macroeconomic climate impacts. ### Regional climate risk and policy assessments - Southern Africa-focused risk reports and country diagnostics. - Richardson, K., Calow, R., Mayhew, L., Jobbins, G., Daoust, G., Waterson, A., Griffith, H., Fox, C., Amato, R., Dyer, E., Osborne, R., & Burgin, L. (2022). Climate Risk Report for the Southern Africa Region. Met Office, ODI, and FCDO. Final delivery version: February 2023. - World Bank. (2023). At a crossroads: Reigniting efficient and inclusive growth – Botswana Systematic Country Diagnostic Update [PDF]. World Bank Document. - World Bank. (2024a). Renewable Energy Support and Access Accelerator Project (P181221) – Project Information Document [PDF]. World Bank. World Bank Document. - Timothy, L. (2025). Gov’t weighs options as tariffs become ‘unsustainable’. Mmegi Online. *Source: sipea2025162 - References* --- _Source: https://www.imf.org/-/media/files/publications/selected-issues-papers/2025/english/sipea2025162.pdf_